[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