[Federal Register Volume 62, Number 225 (Friday, November 21, 1997)]
[Notices]
[Pages 62372-62375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30572]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-22890; File No. 812-10674]
The Life Insurance Company of Virginia, et al.; Notice of
Application
November 14, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of application for exemptions under Section 26(b) of the
Investment Company Act of 1940 (the ``1940 Act'') approving the
proposed substitutions of shares and under Section 17(a) of the 1940
Act from the provisions of Section 17(a)(1) and 17(a)(2) of the 1940
Act.
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SUMMARY OF APPLICATION: Applicants seek an order pursuant to Section
26(b) of the 1940 Act approving the substitution of securities issued
by certain registered management investment companies for securities
issued by certain other registered management investment companies
currently held by separate accounts of The Life Insurance Company of
Virginia and Great Northern Insured Annuity Corporation to support
variable life insurance policies and variable annuity contracts.
Applicants also seek an order pursuant to Section 17(b) of the 1940 Act
granting exemptions from the provisions of Section 17(a) of the 1940
Act to the extent necessary to permit Applicants to carry out certain
of the proposed substitutions in-kind.
APPLICANTS: The Life Insurance Company of Virginia (``Life of
Virginia''), Great Northern Insured Annuity Corporation (``GNA,''
collectively with Life of Virginia, the ``Companies'') and their
respective separate accounts, Life of Virginia Separate Account I
(``Account I''), Life of Virginia Separate Account II (``Account II''),
Life of Virginia Separate Account III (``Account III''), Life of
Virginia Separate Account 4 (``Account 4'') and GNA Variable Investment
Account (``GNA Account'' and collectively with the other separate
accounts ``the Accounts'').
FILING DATE: This application was filed on May 16, 1997, and amended
and restated on October 9, 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 on this aplicaiton by writing to the
Secretary of the SEC and serving Applicants with a copy of the request,
in person or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on December 9, 1997, and accompanied by proof
of service on the Applicants in the form of an affidavit or, for
lawyers, a certificate of service. Hearing requests should state the
nature of the interest, the reason for the request and the issues
contested. Persons may request notification of the date of a hearing by
writing to the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o J. Neil McMurdie, Esq., The Life Insurance
Company of Virginia, 6610 West Broad Street, Richmond, VA 23260. Copies
to Stephen E. Roth/David S. Goldstein, Sutherland, Asbill & Brennan,
L.L.P., 1275 Pennsylvania Avenue, N.W., Washington, D.C. 20004-2404.
FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, Senior Counsel, or
Mark C. Amorosi, 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 is available for a fee from the Public
Reference Branch of the SEC, 450 Fifth Street, NW., Washington, DC
20549 (tel. (202) 942-8090).
Applicants' Representations
1. Life of Virginia is a stock life insurance company operating
under a charter granted by the Commonwealth of Virginia. Eighty percent
of the capital stock of Life of Virginia is owned by General Electric
Capital Assurance Corporation (``GECA''). The remaining twenty percent
is owned by GE Life Insurance Group, Inc. (``GELIG''). GECA and GELIG
are wholly owned subsidiaries of GE Capital Corporation (``GE
Capital''). GE Capital's parent is General Electric Company. Life of
Virginia is the depositor and sponsor of Account I, Account II, Account
III and Account 4.
2. GNA is a stock life insurance company organized under the laws
of Washington. GNA is a wholly owned subsidiary of GECA. GNA is the
depositor and sponsor of the GNA Account.
3. Each of the Accounts is registered under the 1940 Act as a unit
investment trust. The assets of each Account support either variable
annuity contracts or variable life insurance contracts (together, the
``Contracts''). Interests in each of the Accounts offered through such
Contracts are registered under the Securities Act of 1933 on either
Form S-6 or Form N-4.
4. Account 1 is divided into four investment subdivisions; Account
II, Account III and Account 4 are each divided into 34 investment
subdivisions. Each investment subdivision invests exclusively in shares
representing an interest in a separate corresponding portfolio (each, a
``Fund'') of one of nine series-type investment companies, each of
which is registered under the 1940 Act as an open-end management
investment company. The following five investment companies are
involved in the substitutions discussed in the application: GE
Investments Funds, Inc. (``GEIF''), Variable Insurance Products Fund
(``VIPF''), Oppenheimer Variable Account Funds (``OVAF''), Janus Aspen
Series (``JAS'') and Neuberger & Berman Advisers Management Trust
(``AMT'').
5. GEIF (formerly, Life of Virginia Series Fund, Inc.) currently
comprises (or will soon comprise) eleven Funds. The following seven
GEIF Funds are involved in the proposed substitutions discussed in the
application: Money Market Fund, Government Securities Fund, Income
Fund, Premier Growth Fund, U.S. Equity Fund, International Equity Fund
and Value Equity Fund. GE Investment Management Incorporated
(``GEIM''), a wholly owned subsidiary of GE, currently serves as
investment manager for GEIF.
6. VIPF currently comprises five Funds. VIPF's Money Market
Portfolio, High Income Portfolio and Growth Portfolio are involved in
the proposed substitutions. Fidelity Management & Research Company
(``FMR'') serves as VIPF's investment adviser.
7. OVAF currently comprises nine investment portfolios. OVAF's
Money Fund and High Income Fund are involved in the proposed
substitutions. Oppenheimer Funds, Inc. serves as investment adviser to
OVAF.
8. JAS currently comprises nine investment portfolios. The JAS
Balanced Fund is involved in the proposed substitutions. Janus Capital
Corporation serves as the investment adviser to JAS.
9. AMT currently comprises eight investment portfolios. AMT's
Balanced
[[Page 62373]]
Portfolio, Growth Portfolio and Limited Maturity Bond Portfolio are
involved in the proposed substitutions. Neuberger & Berman Management
Incorporated serves as investment adviser to AMT.
10. GNA Trust currently comprises for investment portfolios: GNA
Adjustable Rate Portfolio, GNA Government Portfolio, GNA Value
Portfolio and GNA Growth Portfolio. All four GNA Funds are involved in
the proposed substitutions. GNA Capital Management Inc. serves as
investment adviser to GNA Trust.
11. VIT currently comprises for investment portfolios: GE
International Equity Portfolio, GE U.S. Equity Portfolio, GE Fixed
Income Portfolio and GE Money Market Portfolio. All four VIT Funds are
involved in the proposed substitution. GEIM serves as the investment
adviser to VIT.
12. Life of Virginia on its own behalf and on behalf of Account I,
Account II, Account III and Account 4 proposes to make certain
substitutions of shares held in those Accounts. Applicants assert that
by making the proposed substitutions in the Life of Virginia Accounts,
Life of Virginia can better serve the interest of owners of its
Contracts who will benefit from reduced confusion caused by duplicative
Funds and the likely addition of new Funds of different types in the
future that better suit the needs of such owners. At the current time,
due to data processing constraints, Life of Virginia can only
administer the Contracts on a cost-effective basis if the number of
active investment subdivisions is limited to a manageable number.
Applicants assert that while no particular number of investment
subdivisions represents an outer limit as to what Life of Virginia
could administer, each investment subdivision beyond the current
thirty-four brings with it administrative expenses significantly beyond
those associated with the addition of the tenth or twentieth investment
subdivisions. The incremental cost of adding investment subdivisions in
such that the projected increase in sales from each additional
necessary to justify the addition, increase with each additional
subdivision. Because of this, Applicants assert that there is an
opportunity cost associated with each existing active investment
subdivision. Thus, for example, having three investment subdivisions
that invest in money market Funds could deprive owners of the
opportunity to invest in two other alternative Funds. Likewise,
maintaining investment subdivisions through which high income Fund
offerings from both OVAF and VIPF and balances Fund offerings from both
AMT and JAS are available, utilizes valuable administrative resources
yet offers Contract owners little additional value. In addition,
Applicant's state that GEIF's Government Securities Fund and AMT's
Limited Maturity Bond Portfolio have proven unpopular and do not
exhibit signs of future growth potential. Life of Virginia believes
that it and Contract owners would be better served by consolidating the
subdivisions investing in duplicative Funds and by replacing the two
unpopular Funds with ones that may prove more popular.
13. GNA on its own behalf and behalf of GNA Account proposes to
make certain substitutions of shares held in GNA Account. Applicants
assert that by making the proposed substitutions in the GNA Account,
GNA can better serve the interests of owners of its individuals
Contracts and participants under its group Contracts who will benefit
from larger Funds with future growth potential. The proposed
substitutions by GNA are principally the result of recent
reorganizations of the lines of business of several life insurance
subsidiaries of GE Capital, including Life of Virginia and GNA. Among
the changes taking place in these life insurance companies is the
centralization of variable annuity and variable life insurance
operations at Life of Virginia's home office in Richmond, Virginia. To
facilitate this reorganization, variable annuity operations are being
moved from other GE Capital life companies, such as GNA, to Richmond.
14. GNA Trust and VIT were both recently established to support
variable annuity contracts issued by GNA and possibly other affiliated
and unaffiliated life insurance companies. With Life of Virginia
becoming the principal variable annuity carrier for the GE Capital
organization, Applicants state that it is unlikely that GNA will sell a
significant number of additional Contracts. Consequently, Applicants
assert that it is unlikely that the Funds of the GNA Trust and VIT will
grow to any appreciable size in the foreseeable future unless Life of
Virginia offers them as investment options in its variable life
insurance and viable annuity contracts or unless other alternative
distribution channels are found for them. Applicants state that the
substitutions proposed by GNA would facilitate the distribution of GNA
Trust Fund and VIT shares by consolidating duplicative Fund offerings
among GEIF, GNA Trust and VIT and by transferring non-duplicative GNA
Trust and VIT Funds to GEIF. This is because the consolidated Funds
would be larger than any of the component Funds and because housing all
of the insurance Funds managed by GEIM in a single corporate entity
with the ``GE'' name would enhance their brand identity.
15. Applicants state that in addition to the foregoing, the
ultimate effect of the proposed GNA substitutions would be consolidate
certain Fund offerings under the GEIF umbrella and to transfer other
Funds to GEIF. Because GEIF is a Virginia corporation, GNA Trust is a
Delaware Business Trust and VIT is a Massachusetts Business Trust, GEIM
could achieve certain significant administrative efficiencies by
housing all of the Funds in a single corporate entity.
The Proposed Transactions
1. Applicants propose that Life of Virginia carry out the following
substitutions of shares held by corresponding investment subdivisions
of Account I, Account II, Account III and Account 4: (1) shares of the
GEIF Money Market Fund for shares of VIPF's Money Market Portfolio; (2)
share of the GEIF Money Market Fund of shares of Oppenheimer Money
Fund; (3) shares of the GEIF Income Fund for shares of the GEIF
Government Securities Fund; (4) shares of the GEIF Income Fund for
shares of AMT's Limited Maturity Bond Portfolio: (5) shares of
Oppenheimer High Income Fund for shares of VIPF's High Income
Portfolio; (6) shares of VIPF's Growth Portfolio for shares of AMT's
Growth Portfolio; and (7) share of the Balanced Portfolio of JAS for
shares of AMT's Balanced Portfolio. Where, after the proposed
substitutions, more than one investment subdivision holds shares of a
single Fund, Life of Virginia intends to consolidate those
subdivisions.
2. Applicants propose that GNA carry out the following
substitutions of hares held by corresponding sub-accounts of the GNA
Account: (1) shares of the GEIF Income Fund for shares of GNA Trust's
Adjustable Rate Portfolio; (2) shares of the GEIF Income Fund for
shares of GNA Trust's Government Portfolio; (3) shares of the GEIF
Income Fund for shares of VIT's Fixed Income Portfolio; (4) shares of
the GEIF Premier Growth Fund for shares of GNA Trust's Growth
Portfolio; (5) shares of the GEIF Value Equity Fund for shares of GNA
Trust's Value Portfolio; (6) share of the GEIF International Equity
Fund for shares of VIT's International Equity Portfolio; (7) shares of
the GEIF U.S. Equity Fund for shares of VIT's U.S. Equity Portfolio;
and (8) shares of GEIF's Money Market Fund for shares of VIT's Money
Market Portfolio.
3. By supplements to the various prospectuses for the Contracted
and the Accounts, all owners of the Contracts
[[Page 62374]]
have been notified of Life of Virginia's and GNA's intention to take
the necessary actions, including seeking the order requested by the
application, to carry out the proposed substitutions. The supplements
for Accounts, I, II, III and 4 advise Contract owners that from the
date of the supplement until the date of the proposed substitution,
owners are permitted to make one transfer of all amounts under a
Contract invested in any one of the affected investment subdivisions of
the date of the supplement to another investment subdivision other than
one of the other affected investment subdivision without that transfer
counting as the free transfer permitted in a calendar month. The
supplements also inform Contracts owners that Life of Virginia will not
exercise any rights reserved under any Contract to impose additional
restrictions on transfers until at least 30 days after the proposed
substitution. The supplements for GNA Account advise Contract owners
that from the date of the supplement until the date of the proposed
substitution, owners are permitted to make one transfer of all amounts
under a Contract invested in any one of the sub-accounts on the date of
the supplement to another sub-account without that transfer counting as
one of the six free transfers permitted in a Contract year or
certificate year. The supplements also inform Contract owners that GNA
will not exercise any rights reserved under any Contract to impose
additional restrictions on transfers until at least 30 days after the
proposed substitution.
4. Applicants state that the proposed substitutions will take place
at relative net asset value with no change in the amount of any
Contract owner's contract or accumulation value or death benefit or in
the dollar value off his or her investment in any of the Accounts.
Contract owners will not incur any fees or charges as a result of the
proposed substitutions nor will their rights or Life of Virginia's or
GNA's obligations under the Contracts be altered in any way. All
expenses incurred in connection with the proposed substitutions,
including legal, accounting and other fees and expenses, will be paid
by Life of Virginia or GNA. In addition, the proposed substitutions
will not impose any tax liability on Contract owners. 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. The proposed
substitutions will not, of course, be treated as a transfer for the
purpose of assessing transfer charges or for determining the number of
remaining permissible transfers in a calendar month or Contract year
(or certificate year). Life of Virginia and GNA will not exercise any
right either may have under the Contracts to impose additional
restrictions on transfers under any of the Contracts for a period of at
least 30 days following the proposed substitutions.
5. Applicants state that, within five days after the proposed
substitutions, any Contract owners who were affected by the
substitution will be sent a written notice informing them that the
substitutions were carried out and that they may make one transfer of
all amounts under a Contract invested in any one of the affected
investment subdivisions or subaccounts on the date of the notice to
another investment subdivision or sub-account without the transfer
counting as one of any limited number of transfers permitted in a
calendar month or Contract year (or certificate year) or as one of a
limited number of transfers permitted in a calendar month or Contract
year (or certificate year) free of charge. The notice will also
reiterate the fact that Life of Virginia and GNA will not exercise any
rights reserved by either under any of the Contracts to impose
additional restrictions on transfers until at least 30 days after the
proposed substitutions. The notices will be accompanied by a current
GEIF prospectus.
Applicants' Legal Analysis
1. Applicants request an order pursuant to Section 26(b) of the
1940 Act approving the proposed substitutions. Section 26(b) 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.'' Section 26(b)
also provides that the Commission will approve the substitution if the
evidence establishes that the substitution is consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the 1940 Act.
2. Applicants submit that the proposed substitutions are consistent
with the protection of investors and the purposes fairly intended by
the policy and provisions of the 1940 Act and are not the type of
substitution which Section 26(b) was designed to prevent. Applicants
state that, for Life of Virginia, the consolidation of three money
market investment subdivisions into one money market investment
subdivision, two high income subdivisions into one high income
subdivision and two balanced subdivisions into one balanced subdivision
is an appropriate way to promote the likelihood that additional new
subdivisions will be added to Accounts II, III, and 4 in the future
that better suit the needs of Contract owners. Similarly the
consolidation of two relatively unpopular subdivisions with a third new
one, offers a new subdivision while at the same time making room for an
additional new subdivision in the future. Applicants represent that (1)
GEIF's Money Market fund has a substantially identical investment
objective to each of the VIPF's Money Market Portfolio and Oppenheimer
Money Market Fund that it would replace; (2) Oppenheimer bond Fund has
investment objectives that are similar to and compatible with those of
the Government Securities Portfolio and Limited Maturity Bond
Portfolios; (3) Oppenheimer High Income Fund has an investment
objective that is compatible with that of VIPF's High Income Portfolio;
(4) Growth Portfolio of VIPF and AMT's Growth Portfolio share similar
investment objectives; and (5) JAS Balanced Portfolio has an identical
investment objective to the Balanced Portfolio of AMT.
3. Applicants state that, for GNA, replacing certain GNA Trust and
VIT Funds with those of GEIF and transferring others from GNA Trust or
VIT to GEIF is an appropriate way in which to provide GNA Contract
owners with Funds that have future growth potential. Applicants
represent that the GEIF Income Fund has an investment objective that is
similar to and compatible with GNA Trust's Adjustable Rate Portfolio
and Government Securities Portfolio and that each of the other GEIF
Funds that GNA proposes to substitute has an investment objective (or
objectives) that is (or are) substantially identical to those that they
would replace. With regard to GNA's proposed substitutions of shares of
GEIF's Money Market Fund, Income Fund and International Equity Fund,
the corresponding sub-accounts of GNA Account would immediately become
invested in substantially larger Funds than those in which each sub-
account is currently invested.
4. Applicants anticipate that Contract owners will be at least as
well off with the proposed array of investment subdivisions or sub-
accounts offered after the proposed substitutions as they have been
with the array of investment subdivisions offered prior to the
substitutions. The proposed
[[Page 62375]]
substitutions retain for Contract owners the investment flexibility
which is a central feature of the Contracts. All Contract owners will
be permitted to allocate purchase payments to and transfer contract
values or accumulation values among and between the same number of
investment subdivisions or sub-accounts as they could before the
proposed substitutions.
5. Applicants also request an order pursuant to Section 17(b) of
the 1940 Act exempting them and GEIF, GNA Trust and VIT from the
provisions of Section 17(a) to the extent necessary to permit GNA to
carry out certain of the substitutions of securities by redeeming
securities issued by GNA Trust and VIT in-kind and using the redemption
proceeds to purchase securities issued by GEIF. Section 17(a)(1) of the
1940 Act, in relevant part, prohibits any affiliated person of a
registered investment company, or any affiliated person of such person,
acting as principals, from knowingly selling any security or other
property to that company. Section 17(a)(2) of the 1940 Act generally
prohibits the persons described above, acting as principal, from
knowingly purchasing any security or other property from the registered
investment company.
6. Section 2(a)(3) of the 1940 Act defines the term ``affiliated
person of another person'' in relevant part as:
(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
person; (C) any person directly or indirectly controlling,
controlled by, or under common control with, such other person.
7. Applicants have concluded, as more fully described in the
application, that GEIF, GNA Trust and VIT and the Funds of each may be
affiliated persons of each other or affiliated persons of affiliated
persons of each other. Each also may be an affiliated person of GNA or
an affiliated person of an affiliated person of GNA. The proposed
substitutions by GNA, which may entail the indirect purchase of shares
of GEIF Funds with portfolio securities of GNA Trust and VIT Funds and
the indirect sale of portfolio securities of such Funds for shares of
GEIF Funds, therefore may also entail the purchase or sale of such
securities by each of the Funds involved, acting as principal, to one
of the other Funds and therefore may be in contravention of Section
17(a). In addition, the participation of GNA in such purchase and sale
transactions could be viewed as entailing the purchase of such
securities from Funds of GNA Trust and VIT and the sale of such
securities to Funds of GEIF by GNA, acting as principal, and therefore
may be in contravention of Section 17(a).
8. Section 17(b) of the 1940 Act provides that the Commission may,
upon application, grant an order exempting any transaction from the
prohibitions of Section 17(a) if the evidence establishes that: (a) 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; (b) 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 (c) the proposed transaction is
consistent with the general purposes of the 1940 Act.
9. Applicants submit that the terms of the proposed substitutions
by GNA, including the consideration to be paid and received, are
reasonable and fair and do not involve overreaching on the part of any
person concerned. Applicants state that the transactions will not cause
owners' interests under a Contract to be diluted. Applicants also state
that the transactions will conform with all but one of the conditions
enumerated in Rule 17a-7. The proposed transactions will take place at
relative net asset value with no change in the amount of any Contract
owner's contract or accumulation value or death benefit or in the
dollar value of his or her investment in any of the Accounts. Even
though GNA, GEIF, GNA Trust and VIT may not rely on Rule 17a-7,
Applicants believe that the Rule's conditions outline the type of
safeguards that result in transactions that are fair and reasonable to
registered investment company participants and preclude overreaching in
connection with an investment company by its affiliated persons. Each
transaction will be effected based upon (1) the independent market
price of the portfolio securities valued as specified in paragraph (b)
of Rule 17a-7, and (2) the net asset value per share of each Fund
involved valued in accordance with the procedures disclosed in the
respective management company's registration statement and as required
by Rule 22c-1 under the 1940 Act.
10. Applicants also submit that the proposed substitutions by GNA
are consistent with the policies of (1) GEIF and of its Income Fund,
Premier Growth Fund, Value Equity Fund, International Equity Fund, U.S.
Equity Fund and Money Market Fund; (2) GNA Trust and its Adjustable
Rate Portfolio, Government Portfolio, Growth Portfolio and Value
Portfolio; and (3) VIT and its Fixed Income Portfolio, International
Equity Portfolio, U.S. Equity Portfolio, and Money Market Portfolio as
recited in the current registration statements and reports filed under
the 1940 Act.
11. Applicants submit that the proposed substitutions are
consistent with the general purposes of the 1940 Act. The proposed
transactions do not present any of the conditions or abuses that the
1940 Act was designed to prevent.
Conclusion
Applicants assert that, for the reasons summarized above, the terms
of the proposed substitutions and related transactions meet the
standards set forth in Sections 26(b) and 17(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. 97-30572 Filed 11-20-97; 8:45 am]
BILLING CODE 8010-01-M