[Federal Register Volume 62, Number 70 (Friday, April 11, 1997)]
[Notices]
[Pages 17894-17895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9345]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC--22601; File No. 812-10486]


General American Life Insurance Company, et al.

April 4, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'' or 
``Commission'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (``1940 Act'').

-----------------------------------------------------------------------

Applicants: General American Life Insurance Company (``General 
American'') and General American Capital Company (``Capital Company'') 
(collectively, ``Applicants'').

Relevant 1940 Act Sections: Order requested under Section 17(b) of the 
1940 Act granting an exemption from the provisions of Section 17(a) of 
the 1940 Act.

Summary of Application: Applicants seek an order permitting the assets 
of General American's Separate Account Twenty (``Separate Account'') to 
be transferred to the Small-Cap Equity Fund series of Capital Company 
in exchange for shares of the Small-Cap Equity Fund series.

Filing Date: The application was filed on January 10, 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 Commission Secretary 
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 29, 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 
writer's interest, the reason for the request, and the issues 
contested. Any person may request notification of a hearing by writing 
to the Commission's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington D.C. 
20549. Applicants, c/o Matthew P. McCauley, Esq., General American Life 
Insurance Company, 700 Market Street, St. Louis, Missouri 63101. Copies 
to Stephen E. Roth, Esq., Sutherland, Asbill & Brennan, L.L.P., 1275 
Pennsylvania Avenue, N.W., Washington, D.C. 20004-2404.

FOR FURTHER INFORMATION CONTACT:
Joyce Merrick Pickholz, Senior Counsel, 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 Commission.

Applicants' Representations

    1. General American is a mutual life insurance company organized 
under the laws of Missouri. The Separate Account was established in 
September 1985 as a separate investment account of General American to 
support benefits payable under the variable portion of certain group 
variable annuity contracts issued by General American (``Contracts''). 
The Separate Account is exempted from the definition of investment 
company pursuant to Section 3(c)(11) of the 1940 Act, and interests in 
the Separate Account are exempt securities pursuant to Section 3(a)(2) 
of the 1940 Act. The Contracts provide retirement benefits under tax-
qualified retirement programs.
    2. The Separate Account currently consists of a single portfolio of 
assets, primarily equity securities. The investment objective of the 
Separate Account is to provide a rate of return that corresponds to the 
performance of the common stock of small companies, while incurring a 
level of risk that is generally equal to the risks associated with 
small company common stock in general. The Separate Account is 
passively managed to attempt to replicate the return of the bottom 
capitalization quintile of the New York Stock Exchange traded 
securities.
    3. Capital Company is a registered open-end diversified management 
investment company organized as a series fund. Capital Company serves 
as a funding vehicle for variable annuity contracts and variable life 
insurance policies issued by General American and affiliated insurance 
companies. Currently, shares of Capital Company are offered to General 
American Separate Account Two, General American Separate Account 
Eleven, unregistered separate accounts of General American, and 
separate accounts of RGA Reinsurance Company, Security Equity Life 
Insurance Company, Cova Financial Services Life Insurance Company, Cova 
Financial Life Insurance Company, and First Cova Life Insurance 
Company, all affiliates of General American.
    4. Capital Company consists of seven investment portfolios: the S&P 
500 Index Fund; Money Market Fund; Bond Index Fund; Managed Equity 
Fund; Asset Allocation Fund; International Index Fund; and Mid-Cap 
Equity Fund. Capital Company offers its shares at net asset value and 
without sales charge, directly to the separate accounts without an 
underwriter or distributor. General American pays any distribution 
expenses and costs arising from any activity intended primarily to 
result in the sale of shares issued by Capital Company.
    5. Conning Asset Management Company (``Adviser'') serves as the 
investment advisor to Capital Company and to the Separate Account. The 
advisor is wholly owned by Conning Corporation which, in turn, is 
wholly owned by General American Holding Company, a wholly owned 
subsidiary of General American.
    6. The Board of Directors of Capital Company has determined that it 
would be desirable to add a new series to Capital Company to be called 
the Small-Cap Equity Fund (``Fund'').\1\ The Fund's Investment 
objective will be identical to that of the Separate Account. Because 
the investment objectives, policies, and restrictions of the Fund would 
mirror those of the Separate Account, management of General American 
proposes to transfer the assets of the Separate Account to the Fund 
(the ``Transfer'') in exchange for shares of the Fund. The Separate 
Account would in

[[Page 17895]]

effect be converted to a unit investment trust-type separate account 
that would invest in a corresponding series of Capital Company.
---------------------------------------------------------------------------

    \1\ On February 15, 1997, a post-effective amendment to Capital 
Company's current registration statement on Form N-1A was filed for 
the purpose of adding the Small-Cap Equity Fund as a new series of 
Capital Company. The registration statement (File No. 33-10145) will 
become effective on May 1, 1997.
---------------------------------------------------------------------------

    7. On the effective date of the Transfer, General American, on 
behalf of the Separate Account, would transfer the portfolio assets and 
related liabilities of the Separate Account to the Fund in return for 
shares of the Fund. General American would record shares issued by the 
Fund as assets of the Separate Account. The Transfer would be carried 
out in compliance with Section 22(c) of the 1940 Act and Rule 22c-1 
thereunder. The value of the net assets of the Separate Account would 
be determined as of the business day immediately preceding the 
effective date of the Transfer. The number of shares of the Fund to be 
issued to the Separate Account would be determined by dividing the 
value of net assets to be transferred from the Separate Account by the 
current per share value of the Fund's shares. Accordingly, the 
interests of the Separate Account owners in the Fund immediately 
following the Transfer would be equivalent to their interests in the 
assets of the Separate Account immediately prior to the Transfer.

Applicants' Legal Analysis

    1. Section 17(a) of the 1940 Act provides, in pertinent part, that 
it is unlawful for any affiliated person of a registered investment 
company, or any affiliated person of such person, ``(1) Knowingly to 
sell any security or other property to such registered company * * *; 
[or] (2) knowingly to purchase from such registered company * * * any 
security or other property. * * * ''
    2. Section 2(a)(3) of the 1940 Act defines the term ``affiliated 
person'' of another person to include, in pertinent part, ``(A) any 
person directly or indirectly owning, controlling, or holding with 
power to vote, 5 per centum or more of the outstanding voting 
securities of such other person; (B) any person 5 per centum or more of 
whose outstanding voting securities are directly or indirectly owned, 
controlled, or held with power to vote, by such other person; (C) any 
person directly or indirectly controlling, controlled by, or under 
common control with, such other person; * * * [and] (E) if such other 
person is an investment company, any investment adviser thereof. * * * 
''
    3. Applicants state that each of them may be deemed to be an 
affiliated person or an affiliated person of an affiliated person of 
the other Applicant under Section 2(a)(3) of the 1940 Act and the 
Transfer may be deemed to entail one or more purchases or sales of 
securities or property between the Applicants.
    4. Section 17(b) of the 1940 Act provides that, notwithstanding 
Section 17(a), any person may file with the Commission an application 
for an order exempting a proposed transaction from one or more 
provisions of that subsection and that the Commission shall grant such 
application and issue such order of exemption if evidence establishes 
that ``(1) The terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned; (2) the 
proposed transaction is consistent with the policy of each registered 
investment company concerned, as recited in its registration statement 
and reports filed under [the 1940 Act]; and (3) the proposed 
transaction is consistent with the general purposes of [the 1940 
Act].''
    5. Applicants submit that the proposed Transfer would benefit the 
Fund. According to the Applicants, when a new series of an investment 
company is established, expenses usually remain relatively high and 
investments are limited until the asset size of the new series reaches 
a high enough level to support expenses and permit the necessary 
latitude in investment discretion. The transfer of the Separate 
Account's assets (valued at approximately $47.5 million as of November 
1, 1996) to the Fund would avoid these problems.
    6. Applicants represent that the Transfer would be effected in 
conformity with Section 22(c) of the 1940 Act and Rule 22c-1 
thereunder. Applicants further represent that, after the Transfer, 
Contract owners would have interests that, in practical economic terms, 
do not differ in any measurable way from such interests immediately 
prior to the Transfer.
    7. Applicants state that the Transfer would not require the 
liquidation of any assets of the Separate Account or Capital Company 
because the Transfer would take the form of an exchange of portfolio 
securities of the Separate Account for shares of the Fund. Because the 
investment policies and restrictions of the Separate Account are 
identical to those of the Fund, the only sale of Separate Account 
assets following the transfer would be those arising in the ordinary 
course of business. Therefore, neither the Separate Account nor Capital 
Company will incur any extraordinary costs, such as brokerage 
commissions, in effecting the transfer of assets, as would be the case 
if the Separate Account were required to liquidate its portfolio in 
order to purchase shares of the Fund, and the Fund, in turn, were to 
use such purchase proceeds for investment in portfolio securities. Nor 
will the Separate Account be forced to sustain losses caused by the 
untimely sale of one or more of its portfolio securities.
    8. Applicants submit that the transfer of assets of the Separate 
Account to the Fund, which assets have been purchased under investment 
objectives, policies, and restrictions identical to those of the Fund, 
would be consistent with the objectives and policies of the Fund.
    9. Applicants submit that the Transfer would be consistent with the 
general purposes of the 1940 Act by avoiding the possibility that the 
Fund or the Separate Account would incur unnecessary expenses or losses 
in connection with the Transfer.

Conclusion

    For the reasons and upon the facts set forth above, the terms of 
the proposed Transfer, including the consideration to be paid and 
received, are: (a) fair and reasonable and do not involve overreaching 
on the part of any person concerned; (b) consistent with the policy of 
each registered investment company concerned, as recited in its 
registration statements and reports filed under the 1940 Act; and, (c) 
consistent with the general purposes of the 1940 Act. Accordingly, 
Applicants submit that the terms of the proposed Transfer meet the 
standards for exemption from Section 17(a) of the 1940 Act as set forth 
in Section 17(b) thereof.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-9345 Filed 4-10-97; 8:45 am]
BILLING CODE 8010-01-M