[Federal Register Volume 62, Number 58 (Wednesday, March 26, 1997)]
[Notices]
[Pages 14484-14486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7645]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-22576; File No. 812-10462]
Cova Financial Services Life Insurance Company, et al.
March 20, 1997.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Cova Financial Services Life Insurance Company (``Cova
Life'') and Cova Variable Annuity Account One (``Variable Account
One'')
RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 26(b)
approving the proposed substitution of securities.
SUMMARY OF APPLICATION: Applicants seek an order approving the proposed
substitution of shares of the International Equity Portfolio of Cova
Series Trust (``Cova Trust'') for shares of the Global Equity Portfolio
of Lord Abbett Series Fund, Inc. (``Lord Abbett Fund'') which currently
are held by Variable Account One to fund certain single purchase
payment and flexible purchase payment variable annuity contracts
(``Contracts'') issued by Cova Life.
FILING DATE: The application was filed on December 13, 1996, and
amended and restated on march 18, 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 April 14, 1997, 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 requester's interest, the reason for the request, and the
issue contested. Persons may request notification of a hearing by
writing to the Secretary of the SEC.
ADDRESSES: SEC, Secretary, 450 Fifth Street, NW., Washington, D.C.
20549. Applicants, c/o Raymond A. O'Hara III, Blazzard, Grodd &
Hasenauer, P.C., P.O. Box 5108, Westport, Connecticut, 06881. Copies to
Jeffery K. Hoelzel, Esq., Senior Vice President, General Counsel and
Secretary, Cova Financial Services Life Insurance Company, One Tower
Lane, Suite 3000, Oakbrook Terrace, Il 60181-4644.
FOR FURTHER INFORMATION CONTACT: Megan L. Dunphy, Staff Attorney, or
Patrice M. Pitts, Branch Chief, Office of Insurance Products, Division
of Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application.
The complete application may be obtained for a fee from the Public
Reference Branch of the SEC.
[[Page 14485]]
Applicants' Representations
1. Cova Life originally was incorporated on August 17, 1981, as
Assurance Life Company, a Missouri corporation, and changed its name to
Xerox Financial Services Life Insurance Company in 1985. On June 1,
1995 a wholly-owned subsidiary of General American Life Insurance
Company purchased Cova Life from Xerox Financial Services, Inc. The
acquisition of Cova Life included related companies. On June 1, 1995,
Cova Life changed its name to Cova Financial Services Life Insurance
Company. Cova Life presently is licensed to do business in the District
of Columbia and in all states except California, Maine, New Hampshire,
New York and Vermont.
2. Variable Account One is a separate account registered under the
1940 Act as a unit investment trust and established for the purpose of
funding certain variable annuity contracts, including the Contracts.
Variable Account One currently is divided into twelve sub-accounts,
each of which reflects the investment performance of a corresponding
portfolio of Cova Trust, Lord Abbett Fund and another registered mutual
fund.
3. The Lord Abbett Fund currently offers shares of its portfolios
to corresponding sub-accounts of Variable Account One and to separate
accounts of other insurance companies. Lord Abbett Fund was
incorporated under the laws of Maryland on August 28, 1989, and is
registered under the 1940 Act as an open-end management investment
company of the series type. Lord Abbett Fund currently is comprised of
three Portfolios, only one of which--the Global Equity Portfolio--is
relevant herein.
4. The investment objective of the Global Equity Portfolio is long-
term growth of capital and income consistent with reasonable risk. The
production of current income is a secondary consideration for the
portfolio. The Global Equity Portfolio normally invests primarily in
common stocks (including securities convertible into common stocks) of
domestic and foreign companies in sound financial condition, which
common stocks are expected to show above-average price appreciation.
Under normal circumstances, the portfolio will invest its total assets
in domestic and foreign securities with at least 65% of such assets
invested in equity securities primarily traded in at least three
countries, including the United States.
5. Lord, Abbett & Co. (``Lord Abbett'') is the investment manager
of the Lord Abbett Fund. Lord Abbett retains Dunedin Fund Managers
Limited as a sub-adviser to the Global Equity Portfolio. Lord Abbett
receives a monthly management fee, based on average daily net assets
for each month, at an annual rate of .75 of 1%. Since inception of the
Global Equity Portfolio, Lord Abbett has voluntarily waived this
management fee and reimbursed a portion of the expenses of the
portfolio. Lord Abbett is under no legal obligation to continue fee
waivers and expense reimbursements.
6. The shares of Cova Trust are sold exclusively to separate
accounts of Cova Life (including Variable Account One) and its
affiliated insurance companies to fund benefits under the Contracts and
certain other variable annuity contracts issued by affiliates of Cova
Life. Cova Trust is an unincorporated business trust that was
established under Massachusetts law by a Declaration of Trust dated
July 9, 1987. Cova Trust is registered under the 1940 Act as an open-
end management investment company of the series type. Cova Trust
currently offers eleven portfolios, only one of which--the
International Equity Portfolio--is relevant herein.
7. The investment objective of the International Equity Portfolio
is to provide a high total return from a portfolio of equity securities
of foreign corporations. In normal circumstances, the International
Equity Portfolio should be essentially fully invested with at least 65%
of the value of its total assets in equity securities of foreign
issuers, consisting of common stocks and other securities with equity
characteristics such as preferred stock, warrants, rights and
convertible securities.
8. Cova Investment Advisory Corporation (``Cova Advisory'') is the
investment adviser for Cova Trust. Cova Advisory is a wholly-owned
subsidiary of Cova Life Management Company, which is a wholly-owned
subsidiary of Cova Corporation, which is a wholly-owned subsidiary of
General American Life Insurance Company. Cova Advisory has engaged J.P.
Morgan Investment Management Inc., a wholly-owned subsidiary of J.P.
Morgan & Co., Inc., as sub-adviser to the International Equity
Portfolio. The maximum management fee Cova Advisory receives is .85% of
the net assets of the International Equity Portfolio. Cova Advisory has
undertaken to pay the expenses of the International Equity Portfolio
until May 1, 1998, to the extent that expenses of the portfolio, other
than investment advisory fees, exceed the annual rate of 10% of the
portfolio's average net assets.
9. The Global Equity Portfolio commenced operations on April 9,
1990. After experiencing slow sales of portfolio shares the management
of Cova Life and the management of Lord Abbett determined that it was
unlikely that the Global Equity Portfolio would grow to a sufficient
size to promote consistent investment performance or to reduce
operating expenses. The sale of shares of the Global Equity Portfolio
to Variable Account One was discontinued on May 1, 1992 (except for the
acceptance of certain additional purchase payments received after that
date in connection with dollar cost averaging program of Cova Life).
10. International Equity Portfolio began selling its shares to
Variable Account One on May 1, 1996. As of December 31, 1996, the
portfolio had $15,619,255 in net assets, more than six times the asset
size of the Global Equity Portfolio. Management of Cova Life believes
that the International Equity Portfolio will continue to grow at a
steady pace. In addition to sales to Variable Account One, Cova Life
anticipates commencing sales of the International Equity Portfolio to
additional separate accounts of Cova Life and its affiliates in the
near future; that should result in a further increase in the net assets
of the International Equity Portfolio.
11. Applicants propose to substitutes shares of the International
Equity Portfolio of Cova Trust (the ``substitute fund'') for shares of
the Global Equity Portfolio of Lord Abbett Fund (the ``removed fund'').
The prospectuses for the Contracts will be amended by supplement to
describe the proposed substitution. The supplement will be distributed
to all Contract owners.
12. Affected Contract owners will not incur any fees or charges as
a result of the substitution, nor will their rights or the obligations
of Cova Life under the Contracts be altered in any way.
13. From the date of the supplement until the date of the proposed
substitution, Contract owners may transfer any or all of their
respective Contract value invested in the Global Equity sub-account to
another sub-account of Variable Account One without any limitation or
charge. For the 30-day period following the substitution, Cova Life
will permit transfers from the International Equity sub-account to any
other sub-account of Variable Account One without any limitation or
charge being imposed. The proposed substitution will not be considered
a ``transfer'' for purposes of calculating any transfer fee that may
otherwise be payable under a Contract.
14. The proposed substitution will take place at net asset value
with no change in the amount of any Contract owner's Contract value or
in the dollar
[[Page 14486]]
value of his or her investment in Variable Account One. Cova life will
redeem shares of the Global Equity Portfolio in cash and purchase
shares of the International Equity Portfolio with the proceeds.
15. Contract owners will not incur any fees or charges as a result
of the proposed substitution, nor will their rights under the Contracts
be altered in any way. All expenses incurred in connection with the
proposed substitution, including legal, accounting and other fees and
expenses, will be paid by Cova Life. The proposed substitution will not
cause the Contract fees and charges currently being paid by existing
Contract owners to be greater after the proposed substitution than
before the proposed substitution.
16. Within five days of the substitution, affected Contract owners
will receive written notice of the substitution reiterating their right
to make transfers from the International Equity sub-account to any
other sub-account of Variable Account One for a period of 30 days from
the date of the notice without any limitation or charge being imposed.
Cova Life will include in such mailing a supplement to the prospectus
of Variable Account One which describes the substitution.
17. Following the substitution, Contract owners will be afforded
the same contract rights, including surrender and other transfer rights
with regard to amounts invested under the Contracts, as they currently
have.
Applicants' Legal Analysis and Conditions
1. Section 26(b) of the 1940 Act provides, in pertinent part, 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.'' Applicants assert that the
purpose of Section 26(b) is to protect the expectation of investors in
a unit investment trust that the unit investment trust will accumulate
the shares of a particular issuer, and to prevent unscrutinized
substitutions which in effect might force shareholders dissatisfied
with the substituted security to redeem their shares, thereby possibly
incurring either a loss of the sales load deducted from initial
purchase payments, an additional sales load upon reinvestment of the
redemption proceeds, or both. Section 26(b) affords this protection to
investors by preventing a depositor or trustee of a unit investment
trust holding the shares of one issuer from substitution for those
shares the shares of another issuer, unless the Commission approves
that substitution.
2. Applicants maintain that the purposes, terms and conditions of
the Substitution are consistent with the principles and purposes of
Section 26(b) and do not entail any of the abuses that Section 26(b) is
designed to prevent. Applicant assert that the substitute fund is a
suitable and appropriate investment vehicle for Contract owners.
Applicants further assert that effecting the proposed substitution will
not result in greater (aggregate) fees and charges under the Contracts.
3. Applicants represent that the proposed substitution will not
result in the type of costly forced redemption that section 26(b) was
intended to guard against, and is consistent with the protection of
investors and the purposes fairly intended by the 1940 Act for the
following reasons: prior to the substitution and for a period of thirty
(30) days thereafter, Contract owners may transfer Global Equity sub-
account values to any other sub-account of Variable Account One without
any limitation or charge being imposed; the investment objective of the
substitute fund is similar to that of the removed fund; the
substitution will be at the net asset value of the respective portfolio
shares, with no change in a Contract owner's contract value or in the
dollar value of the Contract owner's investment in Variable Account
One; Contract owners will not incur any fees or charges as a result of
the proposed substitution, nor will their rights under the Contracts be
altered in any way; all expenses incurred in connection with the
proposed substitution, including legal, accounting and other fees and
expenses, will be paid by Cova Life; the proposed substitution will not
impose any tax liability on Contract owners; Contract owners may choose
to withdraw amounts credited to them following the substitution under
the conditions that currently exist, subject to any applicable deferred
sales charge.
4. Applicants assert that the substitute fund is substantially
larger than the removed fund, and that the substitute fund should grow
further. Applicants anticipate that, after the proposed substitution,
the substitute fund will provide Contract owners with comparable or
more favorable investment results than would be the case if the
proposed substitution did not take place.
5. Applicants also note that within 5 days after the proposed
substitution, any affected Contract owners will be sent a written
notice informing them that shares of the International Equity Portfolio
have been substituted for shares of the Global Equity Portfolio. Cova
Life will include in such a mailing a supplement to the prospectus of
Variable Account one which describes the substitution.
Conclusion
For the reasons set forth above, Applicants represent that the
order requested, approving the proposed substitution, is necessary and
appropriate in the public interest and consistent with the protection
of investors and purposes fairly intended by the policy and provisions
of the 1940 Act and should be granted.
For the Commission, by the Division of Investment management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-7645 Filed 3-25-97; 8:45 am]
BILLING CODE 8010-01-M