[Federal Register Volume 63, Number 141 (Thursday, July 23, 1998)]
[Notices]
[Pages 39603-39606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19651]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23317; File No. 812-10896]
Equitable Life Insurance Company of Iowa, et al.; Notice of
Application
July 16, 1998.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order of approval pursuant to
Section 26(b) of the Investment Company Act of 1940 (the ``1940 Act'')
and an order granting exemptive relief pursuant to Section 17(b) 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 shares of certain
portfolios of the GCG Trust for shares of certain portfolios of the ESS
Trust. Applicants also seek an order, pursuant to Section 17(b) of the
1940 Act, granting exemptions from Section 17(a) to permit Applicants
to carry out the substitutions by means of in-kind redemption and
purchase transactions, and to permit Applicants to combine certain
subaccounts holding shares of the same substitute fund after the
substitutions.
APPLICANTS: Equitable Life Insurance Company of Iowa (``Equitable''),
Equitable Life Insurance Company of Iowa Separate Account A
(``Equitable Separate Account A''), Golden American Life Insurance
Company (``Golden American''), Golden American Life Insurance Company
Separate Account A (``Golden American Separate Account A''), Golden
American Life Insurance Company Separate Account B (``Golden American
Separate Account B''), First Golden American Life Insurance Company of
New York (``First Golden''), First Golden American Life Insurance
Company of New York Separate Account NY-B (``First Golden Separate
Account NY-B''), The GCG Trust (``GCG Trust''), and the Equi-Select
Series Trust (``ESS Trust'') (collectively, ``Applicants'').
FILING DATES: The application was filed on December 15, 1997, and
amended and restated on March 18, 1998, and July 2, 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 SEC's 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
August 10, 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 request 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 SEC's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, DC 20549. Applicants, Marilyn Talman,
Esquire, Golden American Life Insurance Company, 1001 Jefferson Street,
Suite 400, Wilmington, DE 19801.
FOR FURTHER INFORMATION CONTACT:
Megan Dunphy, Attorney, or Mark C. Amorosi, 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 may be obtained for a fee from
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington,
DC 20549 (tel. (202) 942-8090).
Applicants' Representations
1. Equitable and Golden American are stock life insurance companies
organized under the insurance laws of Iowa and Delaware, respectively.
Each is authorized to write variable annuity and variable life
insurance policies in at least 48 states and the District of Columbia.
First Golden is a stock life insurance company organized under the
insurance laws of the state of New York, and is authorized to write
variable annuity contracts in New York. Equitable, Golden American and
First Golden (collectively, ``Applicant Insurance Companies'') are
indirect wholly owned subsidiaries of ING Groep, N.V. (``ING''), a
global financial services holding company.
2. Equitable Separate Account A, Golden American Separate Account
A, Golden American Separate Account B and First Golden Separate Account
NY-B (collectively ``Applicant Separate Accounts'') are separate
accounts for which one of the Applicant Insurance Companies serves as
the sponsor and depositor. Equitable serves as sponsor and depositor of
Equitable Separate Account A; Golden American serves as sponsor and
depositor of Golden American Separate Account A and Golden American
Separate Account B; First Golden serves as the sponsor and depositor of
First Golden Separate Account NY-B. Each Applicant Separate Account is
a segregated asset account of its insurance company sponsor and each is
registered under the 1940 Act as a unit investment trust.
3. Each Applicant Separate Account serves as a funding vehicle for
certain variable annuity or variable life insurance contracts
(collectively, ``Variable Contracts'') issued by the Applicant
Insurance Company of which it is a part. Applicant Separate Accounts
are divided into separate subaccounts, each dedicated to owning shares
of a designated investment portfolio of either the GCG Trust (the ``GCG
Subaccounts'') or the ESS Trust (``ESS Subaccounts''). Holders of any
Variable Contracts (``Contractholders'') may select one or more of the
investment options available under the Variable Contract held by
allocating premiums payable under such contract to that subaccount of
the relevant Applicant Separate Account that corresponds to the
investment option desired.
4. The ESS Trust is registered under the 1940 Act as an open-end,
management, services investment company and currently offers nine
investment portfolios. Of these portfolios, five--Growth & Income, OTC,
Total Return, Value+Growth and Research Portfolios--invest primarily in
equity securities. The remaining portfolios--Advantage, Mortgage-Backed
Securities, International Fixed Income and Money Market Portfolios--
invest primarily in fixed income securities. Overall management
services are provided to the ESS Trust and each of its individual
series by Directed Services, Inc. (``DSI''), an indirect, wholly owned
subsidiary of ING. DSI is an investment adviser registered under the
Investment Advisers Act of 1940 (``Advisers Act'') and a broker-dealer
registered under the Securities Exchange Act of 1934.
5. The GCG Trust is registered under the 1940 Act as an open-end,
management, series investment company. The GCG Trust offers shares of
twenty two separate investment series, including six new investment
series created in anticipation of the
[[Page 39604]]
issuance of the Commission order requested in the application and two
existing investment series that also will be involved in the
substitutions described in the application. The new series include (1)
five series the investment objectives and policies of which will be
identical to those of the Growth & Income, Total Return, Value+Growth,
Research and International Fixed Income Portfolios currently offered by
ESS Trust; and (2) a new series, MidCap Growth Series, that will have
investment objectives and policies substantially similar to those of
the OTC Portfolio currently offered by the ESS Trust. The existing
series include the Liquid Asset Series and the Limited Maturity Bond
Series. Applicants state that these series have investment objectives
and policies similar to those of the portfolios which they will
replace.
6. Overall management services are provided to the GCG Trust by
DSI. Under the terms of an investment advisory agreement between GCG
Trust and DSI (``GCG Trust Management Agreement''), DSI manages the
business and affairs of each of the several series of the GCG Trust,
subject to the control of the Board of Trustees. Under the GCG Trust
Management Agreement, DSI is entitled to receive a fee (``Unified
Fee'') for its services from each series of the GCG Trust from which
fee DSI pays the fees of any subadviser or other service providers. The
Unified Fee is calculated for each GCG Series on a percentage of assets
basis and in accordance with schedules that provide, for some of the
GCG Series, fee reductions at specified asset levels or ``break
points.'' On feature of the Unified Fee is that certain of the GCG
Series are grouped together for the purpose of determining whether a
break point has been reached. As a result, a GCG Series that is part of
a designated fee group is likely to realize a reduction in the fee
payable to DSI more quickly than might otherwise be the case.
7. Applicant Insurance Companies have approved a proposal whereby
the ESS Subaccounts would substitute for securities issued by each
portfolio of the ESS Trust (each, a ``Replaced ESS Portfolio''),
securities of a designated series of the GCG Trust (each, a
``Substitute GCG Series''). Following these transactions (collectively,
the ``Substitutions''), Equitable Separate Account A will have two
subaccounts holding shares of the GCG Limited Maturity Bond Series and
will combine these subaccounts by transferring shares at net asset
value on the same date from one subaccount to the other. The several
Substitutions are set forth in Table 1.
Table 1
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ESS replaced portfolio Substitue GCG series
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1 Growth & Income Portfolio. Growth & Income Series.
2 Research Portfolio........ Research Series.
3 Total Return Portfolio.... Total Return Series.
4 Value+Growth Portfolio.... Value+Growth Series.
5 International Fixed Income Global Fixed Income Series.
Portfolio.
6 OTC Portfolio............. Mid-Cap Growth Series.
7 Money Market Portfolio.... Liquid Assets Series.
8 Mortgage-Backed Securities Limited Maturity Bond Series.
Portfolio.
9 Advantage Portfolio....... Limited Maturity Bond Series.
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8. Applicants state that, for each of the Substitutions numbers 1-5
in Table 1 above, the respective Substitute GCG Series are ``mirror''
series of the respective Replaced ESS Portfolios. Applicants have
concluded that, with respect to each Substitution, the investment
objectives and policies of the Substitute GCG Series are either
identical to, or sufficiently similar to, those of the Replaced ESS
Portfolios to assure that the essential objectives and risk
expectations of Contractholders with interests in any ESS Subaccount
(``Affected Contractholders'') can continue to be met. Additionally,
Applicants state that each Substitute GCG Series will be provided with
portfolio management services by the same investment advisory
organization that currently serves the Replaced ESS Portfolio.
9. Applicants state that the Substitutions and the related
combination of subaccounts are part of an overall business plan of
Applicant Insurance Companies to make their respective products,
including the Variable Contracts, more competitive and more efficient
to administer and oversee. Applicants state that, while DSI currently
provides virtually identical management services to ESS Trust and GGG
Trust, performance of these services are governed by two different
agreements. Service provided to ESS Trust are performed pursuant to the
ESS Trust Management Contract, which requires the Trust (not DSI) to
pay for services provided by third-party service organizations, such as
custody, fund accounting, and transfer agency fees and fees for legal
and auditing expenses. In contrast, services provided by DSI under the
GGG Trust Management Agreement are offered under the Unified Fee
arrangement under which DSI is responsible for paying virtually all of
the expenses associated with managing GGG Trust, including the fees of
third-party service organizations.
10. Applicant Insurance Companies represent that the Substitutions
are appropriate for the following reasons: (1) The implementation of
the Unified Fee, with respect to each of the Substitute GGG Series, is
likely to result in certain economies of scale, which savings will
insure to the benefit of the Affected Contractholders generally and, in
the case of seven of the nine ESS Portfolios involved in the
Substitutions, will result in an immediate reduction in the fees
currently borne by Affected Contractholders; (2) the Substitutions will
eliminate certain portfolios with insufficient assets to remain cost
efficient; and (3) the Substitutions will reduce the overlap among the
investment options associated with the variable insurance products
offered by Applicant Insurance Companies and thus reduce the potential
for confusion among Contractholders and prospective investors.
11. Applicants state that, as of the effective date of the
Substitutions (``Effective Date''), each Substitution will be effected
by the Applicant Insurance Companies by redeeming shares of the
Replaced ESS Portfolios at net asset value and using the proceeds of
such redemptions, which will be effected in-kind, to purchase the
appropriate number of shares of the Substitute GGG Series at net asset
value. Applicant Insurance Companies state that they will bear the
costs of the Substitutions, including any legal, accounting, brokerage,
and other fees
[[Page 39605]]
and expenses relating to the Substitutions, and that Affected
Contractholders will not incur any additional fees or charges as a
result of the Substitutions, nor will their rights or the obligations
under any of the Variable Contracts diminish in any way. Applicants
state that all redemptions of shares of the Replaced ESS Portfolios and
purchases of shares of the Substitute GGG Series will be effected in
accordance with Rule 22c-1 under the 1940 Act. Applicants further state
that the Substitutions will not result in any adverse tax consequences
to the Affected Contractholders, any change in the economic interest or
contract values of any Affected Contractholder or any change in the
dollar value of any Variable Contract held by an Affected
Contractholder.
12. Applicants state that Affected Contractholders have been
notified of this Application by means of prospectus supplements.
Applicants represent that prior to the Effective Date, each Affected
Contractholder will be furnished with a copy of a prospectus relating
to each of the Substitute GGG Series, if one has not already been
forwarded to Affected Contractholders, and a notice setting forth the
Effective Date for the Substitutions. The notice will also advise
Affected Contractholders that contract values attributable to
investments in the Replaced ESS Portfolios may be transferred to any
other available subaccount without charge, either prior to, or within
30 days after the Effective Date.
13. Applicants state that each Applicant Insurance Company will
furnish Affected Contractholders with a confirmation of the
substitutions within five business days of the Substitution that shows
before and after account values and details the transactions effected
on behalf of the respective Affected Contractholder in connection with
the Substitutions.
14. Applicants maintain that the combination of the two subaccounts
of Equitable Separate Account A that hold shares of the Limited
Maturity Bond Series will not have any impact on the value of the
Variable Contracts involved, the fees or rights of the Affected
Contractholders, or diminish in any way the obligations of Equitable or
any other Applicant Insurance Company under any Variable Contract.
Equitable will bear the costs of such combination, including any legal
or accounting fees relating to them, and the Affected Contractholders
will not incur any fees or charges as a result of such combination. In
addition, the subaccount combination will not result in any adverse tax
consequences to the Affected Contractholders, or any change in the
economic interest or contract values of any Affected Contractholder.
Terms of the Substitutions and Related Transactions
The significant terms of the Substitutions described in the
application include:
1. The Substitute GGG Series have objective and policies
sufficiently similar to the objectives and policies of the Replaced ESS
Portfolio so that the objective of the Affected Contractholders can
continue to be met.
2. With one exception, the expense ratios of the Substitute GGG
Series will, immediately following the Effective Date, not exceed the
expense ratios of the Replaced ESS Portfoios (``ESS Expenses Level''),
absent significant decreases in the asset levels of such series. In the
case of any Substitute GGG Series the expense ratio of which exceeds
the ESS Expense Level immediately following the Effective Date, DSI
will waive its fees and/or reimburse the expenses of the relevant
Substitute GGG Series such that its expense ratio does not exceed the
ESS Expense Level. DSI will continue to waive its fees and/or reimburse
expenses, for each such Substitute GGG Series as necessary in
accordance with this undertaking until December 31, 1999.
3. Affected Contractholders may transfer assets from any ESS
Subaccount to any other subaccount available under the Variable
Contract held without charge from the date of the notice that the ESS
Portfolios will be substituted through a date at least 30 days
following the Effective Date. Affected Contractholders may also
withdraw amounts under any contract held or terminate their interest in
any such contract, in accordance with the terms and conditions of any
such contract, including but not limited to payment of any applicable
surrender charge.
4. The Substitutions will be effected at the net asset value of the
respective shares in conformity with Section 22(c) of the 1940 Act and
rule 22c-1 thereunder, without the imposition of any transfer or
similar charge by Applicants.
5. The Substitutions will take place at respective net asset value
without change in the amount or value of any Variable Contract held by
Affected Contractholders. Affected Contractholders will not incur any
fees or charges as a result of the Substitutions, nor will their rights
or the obligations of Applicant Insurance Companies under such Variable
Contracts be altered in any way. All expenses incurred in connection
with the Substitutions, including legal, accounting and other fees and
expenses, will be borne by Applicant Insurance Companies or their
subsidiaries.
6. Redemptions in kind will be handled in a manner consistent with
the investment objectives, policies and diversification requirements of
the GCG Substitute Series. Consistent with Rule 17a-7(d) under the 1940
Act, no brokerage commissions, fees (except customary transfer fees) or
other remuneration will be paid by the ESS Replaced Portfolios, GCG
Substitute Series, or Affected Contractholders in connection with the
in-kind transactions.
7. The Substitutions will not be counted as transfers in
determining the limit on the total number of transfers that Affected
Contractholders are permitted to make under the Variable Contracts.
8. Neither the Substitutions nor the subsequent transactions will
alter in any way the annuity, life or tax benefits afforded under the
Variable Contracts held by any Affected Contractholder.
9. Each Applicant Insurance Company will send to its Affected
Contractholders within five (5) business days of the Substitutions a
written confirmation showing the before and after values (which will
not have changed as a result of the Substitutions) and detailing the
transactions effected on behalf of the respective Affected
Contractholder with regard to the Substititions.
Conditions of the Substitutions and Related Transactions
Applicants state that the Substitutions and related transactions
described in the application will not be completed unless all of the
following conditions are met:
1. The Commission shall have issued an order (i) approving the
Substitutions under Section 26(b) of the 1940 Act; and (ii) exempting
the in-kind redemptions and the combination of subaccounts from the
provisions of Section 17(a) of the 1940 Act as necessary to carry out
the transactions described in the application.
2. Each Affected Contractholder will have been sent (i) a copy of
the effective prospectus relating to each of the Substitute GCG Series
and any necessary amendments to the prospectuses relating to the
Variable Contracts; and (ii) as soon as reasonably possible after the
order has been issued and prior to the Effective Date, a notice
describing the terms of the Substitutions and the rights of the
Affected Contractholders in connection with the Substitutions.
[[Page 39606]]
3. Applicant Insurance Companies shall have satisfied themselves,
that (i) the Variable Contracts allow the substitution of investment in
the manner contemplated by the Substitutions and related transactions
described herein; (ii) the transactions can be consummated as described
in the application under applicable insurance laws; and (iii) that any
regulatory requirements in each jurisdiction where the Variable
Contracts are qualified for sale, have been complied with to the extent
necessary to complete the transactions.
Applicants' Legal Analysis
1. Section 26(b) of the 1940 Act prohibits any depositor or trustee
of a 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 substitutions. Applicants maintain that the
Substitutions, if implemented, would not raise any of the concerns that
Congress sought to address when the 1940 Act was amended to include
this provision (e.g., that a substitution might force shareholders
dissatisfied with the substituted security to redeem their shares,
thereby possibly incurring additional sales or surrender charges.)
Applicants also maintain that, subject to the terms and conditions
summarized in this notice, the Substitution is consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the 1940 Act.
3. Section 17(a)(1) and (2) of the 1940 Act generally prohibits an
affiliated person of a registered investment company, or an affiliated
person of an affiliated person, from selling to or purchasing a
security from such registered investment company. Applicants may be
deemed to be affiliates of one another based upon the definition of
``affiliated person'' in Section 2(a)(3) of the 1940 Act. Because the
Substitutions and subsequent combination of subaccounts will be
effected by means of an in-kind redemption and purchase, Applicants
state that the Substitutions may be deemed to involve one or more
purchases or sales of securities or property between a registered
investment company and its affiliates.
4. Applicants request an order pursuant to Section 17(b) of the
1940 Act exempting the Substitutions and related transactions from the
provisions of Section 17(a) of the 1940 Act. Section 17(b) of the 1940
Act provides that the Commission may grant an order exempting proposed
transactions from the prohibition of Section 17(a) if: (i) The terms of
the proposed transaction, including the consideration to be paid and
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned; (ii) the proposed transaction is
consistent with the policy of each registered investment company
concerned; and (iii) the proposed transaction is consistent with the
general purposes of the 1940 Act.
5. Applicants represent that the terms of the proposed
transactions, 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 maintain that the interests of
Contractholders will not be diluted and that the Substitutions will not
effect any change in economic interest, contract value, or the dollar
value of any Variable Contract held by an Affected Contractholder.
6. Applicants also state that the Substitutions will take place in
accordance with procedures, adopted by the Board of Trustees of each of
the GCG Trust and the ESS Trust, respectively, designed to meet the
requirements enumerated in Rule 17a-7 under the 1940 Act, except that
transactions be effected in cash. Although the relief afforded by Rule
17a-7 is not available in connection with the Substitutions, Applicants
submit that structuring the Substitutions to comply with the
requirements of that rule provides a strong basis upon which the
Commission may base a finding that the standards necessary to grant an
order of exemption pursuant to Section 17(b) of the 1940 Act have been
satisfied.
7. Applicants represent that the transactions are consistent with
the investment policy of each investment company involved, as recited
in the current prospectus relating to each investment company, and the
general purposes of the 1940 Act, and 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
requested order approving the Substitutions and related transactions
should be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-19651 Filed 7-22-98; 8:45 am]
BILLING CODE 8010-01-M