[Federal Register Volume 64, Number 205 (Monday, October 25, 1999)]
[Notices]
[Pages 57489-57493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27713]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24088; File No. 821-11380]


Great-West Life & Annuity Insurance Company, et al.; Notice of 
Application

October 18, 1999.
AGENCY: Securities and Exchange Commission (``SEC. or ``Commission'').

ACTION: Noice of Application for approval under Section 26(b) of the 
Investment Company Act of 1940, as amended (the ``1940 Act'').

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

SUMMARY OF APPLICATION: Applicants seek an order approving the 
substitution of shares of the Maxim INVESCO Balanced Portfolio of the 
Maxim Series Fund for shares of the Fidelity VIP II Asset Manager 
Portfolio of the Fidelity Variable Insurance Products Fund II, and the 
substitution of shares of Maxim Stock Index Portfolio of the Maxim 
Series Fund for shares of the American Century VP Capital Appreciation 
Portfolio of American Century Variable Portfolios, Inc.

APPLICANTS: Great-West Life & Annuity Insurance Company (``GWL&A''), 
FutureFunds Series Account of GWL&A (the ``FutureFunds Account'') and 
Maxim Series Account of GWL&A (the ``Maxim Account'') (together, with 
the FutureFunds Account, the ``Separate Accounts'') and BenefitCorp 
Equities, Inc. (``BCE'') (hereinafter all parties are collectively 
referred to as the ``Applicants'').

FILING DATE: The application was filed on October 29, 1998, and amended 
and restated on April 14, 1999, and July 15, 1999.

HEARING OR NOTIFICATION OF HEARING: An order granting the Application 
will be issued unless the commission orders a

[[Page 57490]]

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 November 12, 1999, 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, NW, Washington, DC 20549-0609. Applicants, c/o Jorden Burt 
Boros Cicchetti Berenson & Johnson, LLP, 1025 Thomas Jefferson Street, 
NW, Suite 400 East, Washington, DC 20007-0805; Attention: Christopher 
Menconi, Esq.

FOR FURTHER INFORMATION CONTACT: Michael Pappas, Senior Counsel, or 
Susan Olson, 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 is available for a fee from the 
Public Reference Branch of the Commission, 450 Fifth St. NW, 
Washington, DC 20549-0102 (tel. (202) 942-8090).

Applicant's Representations

    1. GWL&A is a stock life insurance company organized under the laws 
of the State of Colorado. 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. GWL&A 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, Puerto Rico, the U.S. Virgin 
Islands, and Guam and in all states of the United States, except New 
York.
    2. The FutureFunds Account is a distinct investment account of 
GWL&A which acts as a funding vehicle for certain group variable 
flexible premium deferred annuity contracts (the ``FutureFunds 
Contracts'') designed and offered to provide retirement programs that 
qualify for special federal income tax treatment for employees of 
certain organizations. The FutureFunds Account is a unit investment 
trust (``UIT'') and has filed a registration statement on Form N-4 
(Registration No 2-89550), as amended) for the purpose of registering 
the FutureFunds Account under the 1940 Act and the FutureFunds 
Contracts as securities under the Securities Act of 1933, as amended 
(the ``1933 Act'').
    3. The FutureFunds Contracts have twenty-eight investment divisions 
available for allocations of contributions, each of which invest 
exclusively in one of the corresponding portfolios of six open-end 
management investment companies. Twenty-three of the investment 
divisions invest solely in corresponding portfolios of Maxim Series 
fund, Inc. (``Maxim Series Fund''); one other investment division 
invests solely in a corresponding portfolio of American Century 
Variable Portfolios, Inc. (``American Century''); two other investment 
divisions invest solely in corresponding portfolios of Fidelity 
Variable Insurance Products Fund and Fidelity Variable Insurance 
Products Fund II; one other investment division invests solely in a 
corresponding portfolio of Janus Aspen Series; and one other investment 
division invests solely in a corresponding portfolio of the Stein Roe 
Variable Investment Trust.
    4. The assets of the FutureFunds Account are kept separate from the 
other assets of GWL&A. The income, gains, and losses of the FutureFunds 
Account, whether or not realized, are credited to or charged against 
the FutureFunds Account without regard to other income, gains, or 
losses of any other separate account or arising out of any other 
business GWL&A may conduct.
    5. The Maxim Account is a distinct investment account of GWL&A 
which acts as a funding vehicle for certain flexible premium variable 
deferred annuity contracts (the ``Maxim Contracts''). Currently there 
are four different Maxim Contracts issued under the Maxim Account. Only 
two Maxim Contracts, however, are subject to this Application. Of these 
two Maxim Contracts, one is no longer sold, has less than 5,000 
participants, and no longer files post-effective amendments in reliance 
upon certain precedent (hereinafter the ``MSA-2 Contract''). The MSA-2 
Contract has only five investment divisions, each of which invests 
exclusively in one of the corresponding portfolios of two open-end 
management investment companies. The other Maxim Contract at issue is 
the Maximum Value Plan (the ``MVP Contract''). The MVP Contract has 
twenty-two investment divisions, each of which invests exclusively in 
one of the corresponding portfolios of two open-end management 
investment companies.
    6. The Maxim Account is a UIT and has filed a registration 
statement on Form N-4 (Registration Nos. 811-3249 and 2-73879 for the 
MSA-2 Contract and 33-82610 for the MVP Contract) for the purpose of 
registering the Maxim Account under the 1940 Act and the Maxim 
Contracts as securities under the 1933 Act. The assets of the Maxim 
Account are kept separate from the other assets of GWL&A. The income, 
gains, and losses of the Maxim Account, whether or not realized, are 
credited to or charged against the Maxim Account without regard to 
other income, gains, or losses of any other separate account or arising 
out of any other business GWL&A may conduct.
    7. With respect to the MSA-2 Contract, four of the available 
investment divisions invest solely in corresponding portfolios of Maxim 
Series Fund and the remaining investment division invests in a 
corresponding portfolio of American Century. In the MVP Contract, 
twenty-one of the available investment divisions invest solely in 
corresponding portfolios of Maxim Series Fund and the remaining 
investment division invests solely in a corresponding portfolio of 
American Century.
    8. BCE 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. BCE is the 
principal underwriter and distributor of the FutureFunds Contracts and 
the MVP Contracts. The MSA-2 Contracts are no longer sold and there is 
no need for an underwriter. The Maxim Contracts and the FutureFunds 
Contracts may collectively be referred to, where appropriate, as the 
``Contracts.''
    9. Of the underlying investment companies, only Maxim Series Fund 
is affiliated with GWL&A or the Separate Accounts. The investment 
adviser for Maxim Series Fund is GW Capital Management, Inc., which is 
also affiliated with GWL&A, the Separate Accounts, and BCE. No other 
underlying investment company or portfolio used in connection with the 
Contracts or investment adviser or underwriter for those underlying 
investment companies and portfolios is affiliated with GWL&A, the 
Separate Accounts, or BCE.
    10. The FutureFunds Contracts may be issued in connection with 
contributions made by the following organizations: (1) Employers or 
employee organizations (such as non-profit entities defined in Section 
501(c)

[[Page 57491]]

of the Internal Revenue Code of 1986, as amended, (the ``Code'') and 
governmental entities defined in Section 414(d)) to purchase annuities 
for their employees under pension or profit sharing plans described in 
Section 401(a) of the Code; (2) employers or employee organizations to 
purchase annuities for their employees under cash or deferred profit-
sharing plans described in Section 401(k) of the Code, and state 
educational organizations and certain tax-exempt organizations to 
purchase annuities for their employees under Section 403(b) of the 
Code; and (3) certain state and local governmental entities and, for 
years beginning after 1986, other tax-exempt organizations to purchase 
annuities for their employees under deferred compensation plans 
described in Section 457 of the Code.
    11. The MVP Contracts are flexible premium annuity contracts which 
may be issued under retirement plans which qualify for federal tax 
benefits under Sections 401 and 408 of the Code as individual 
retirement accounts and under other retirement plans which do not 
qualify under the Code. The MSA-2 Contracts are no longer sold.
    12. The FutureFunds Contracts have no front-end sales load. The 
FutureFunds Contracts have a maximum contingent deferred sales charge 
of 6% that applies to surrenders or partial withdrawals during the 
first 72 months after a contribution. The Maxim Contracts do not have 
front-end sales loads. The MVP Contracts have a maximum contingent 
deferred sales charge of 7% that applies to surrenders of partial 
withdrawals within the first seven contract years. The MSA-2 Contracts 
had a flat contingent deferred sales charge of 5% that applied to 
surrenders or withdrawals in the first five contract years after 
contribution. The FutureFunds Contracts have an annual contract fee of 
$30.00. This charge may vary by group policyholder. The MVP Contracts 
have an annual contract fee of $27.00 and the MSA-2 Contracts have an 
annual contract fee of $35.00. These charges will not be affected by 
the proposed substitution.
    13. There are no transfer charges for transfers among investment 
divisions offered in any of the Contracts and there are no limits on 
the number of transfers a Contract owner/participant can make.
    14. All of the Contracts expressly reserve GWL&A's right, both on 
its own behalf and on behalf of the Separate 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.
    15. GWL&A, on its own behalf and on behalf of the Separate 
Accounts, proposes to exercise its contractual right to eliminate the 
American Century VP Capital Appreciation Portfolio (the ``Capital 
Appreciation Portfolio'') as a funding option under all the Contracts. 
GWL&A also proposes, on its behalf and on behalf of the FutureFunds 
account, to exercise its contractual right to eliminate the Fidelity 
VIP II Asset Manager Portfolio (the ``Asset Manager Portfolio'') as a 
funding option under the FutureFunds Contracts. Collectively, the 
portfolios being eliminated will hereinafter be referred to as the 
``Eliminated Portfolios.'' In all Contracts, GWL&A proposes to 
substitute shares of the Maxim Stock Index Portfolio (``Stock index 
Portfolio''), an existing investment option under the Contracts, for 
shares of the Capital Appreciation Portfolio. In the FutureFunds 
Contract, GWL&A also proposes to substitute shares of Maxim INVESCO 
Balanced Portfolio (``Balanced Portfolio'' or ``Maxim Balanced 
Portfolio''), an existing investment option, for the Asset Manager 
Portfolio.
    16. When discussed separately or together, the transaction will be 
referred to as the ``Substitution.'' Applicants believe the 
Substitution will benefit the Contract owners/participants by 
eliminating portfolios which, in Applicants' view, have had poor 
historical performance returns and replacing them with portfolios 
having comparable investment objectives and policies and better 
historical performance returns, and which Applicants believe are more 
likely to provide Contract owners/participants with favorable 
investment performance in the future.
    17. The Substitution would result in a reduction in variable 
investment options and corresponding portfolios available under all 
Contracts. The number of investment divisions in the FutureFunds 
Contracts would be reduced from twenty-eight to twenty-six; the number 
of investment divisions in the MVP Contracts would be reduced from 
twenty-two to twenty-one; and the number of investment divisions in the 
MSA-2 Contracts would be reduced from five to four.
    18. Applicants represent that each replacement portfolio was the 
most comparable to the corresponding eliminated Portfolio as compared 
to all other portfolios available under the affected Contracts in that 
the replacement portfolios have the investment objectives and policies 
that are similar to, and consistent with, those of the eliminated 
Portfolios.
    19. The Capital Appreciation Portfolio's investment objective is to 
seek capital growth by investing in common stocks that, in the opinion 
of American Century's management, will increase in value over time. The 
Stock Index Portfolio's investment objective is to provide investment 
results, before fees, that correspond to the total return of the S&P 
500 Index and the S&P Mid-Cap Index, weighted according to their 
respective pro-rata shares of the market. Applicants assert that, after 
the Substitution, Contract owners/participants who have allocated value 
to an investment division which invests in the Capital Appreciation 
Portfolio will continue to have their value allocated to an investment 
division which invests in an underlying portfolio that seeks capital 
growth primarily through investments in common stocks. Applicants point 
out that under the MSA-2 Contracts there is no other underlying 
portfolio whose investment objective requires that it invest primarily 
in common stocks.
    20. Applicants represent that the Stock Index Portfolio has 
substantially outperformed the Capital Appreciation Portfolio while 
assessing lower overall fees. The total expenses of the Stock Index 
Portfolio currently are .60%, which is below the 1.00% total expenses 
of the Capital Appreciation Portfolio. The average annual total returns 
for the one year, three year, five year, ten year, and since inception 
periods ending December 31, 1998, for the Stock Index Portfolio were: 
26.79%, 26.86%, 22.62%, 16.37% and 15.55% respectively, compared to the 
Capital Appreciation Portfolio which had returns of (2.15)%, (3.24)%, 
3.25%, 8.70% and 8.24% for the same periods.\1\
---------------------------------------------------------------------------

    \1\ The Stock Index Portfolio commenced operations on July 1, 
1982. The Capital Appreciation Portfolio commenced operations on 
November 20, 1987.
---------------------------------------------------------------------------

    21. Applicants represent that they have considered the fact that, 
with respect to the MSA-2 Contracts, the proposed substitution would 
reduce the number of available variable investment options from five to 
four, and that a previous substitution effected in 1998 had reduced 
those options from seven to five. Applicants do not believe MSA-2 
Contact owners benefit merely from having an additional investment 
option which has historically provided them with poor performance and 
have made a determination that MSA-2 Contract owners will be better off 
without this option. Applicants believe that the remaining four 
investment alternatives

[[Page 57492]]

provide a sufficient range of choices along with sufficient 
diversification. Applicants believe, therefore, that the proposed 
substitution will be in the best interest of MSA-2 contract owners and 
is otherwise consistent with the standards for the granting of an order 
under Section 26(b).
    22. The Asset Manager Portfolio's investment objective is to seek 
high total return with reduced risk over the long-term by allocating 
its assets among stocks, bonds, and short-term debt instruments. The 
Balanced Portfolio invests in a combination of common stocks and fixed 
income securities and seeks, as its investment objective, to achieve 
high total return on investment through capital appreciation and 
current income. Applicants have concluded that the Balanced Portfolio 
offers Contract owners/participants an underlying portfolio with 
investment objectives and policies that are the most comparable to 
those of the Eliminated Portfolio as compared with all other underlying 
portfolios available under the affected Contracts.
    23. Applicants represent that the total expenses of the Balanced 
Portfolio are 1.00%, while the total expenses of the Asset Manager 
Portfolio are .65%. Applicants represent that, notwithstanding its 
higher fees, the Balanced Portfolio presents a better investment option 
for Contract owners/participants than the Asset Manager Portfolio based 
on the similarity of investment objectives and policies, comparative 
performance information, and other data. Applicants state that they 
carefully examined certain data in considering whether to replace the 
Asset Manager Portfolio with the Balanced Portfolio, including the 
performance history of the portfolios, as well as the performance of a 
similar fund and other information they deemed relevant.
    24. GWL&A states that it has been concerned with the relatively 
poor performance of the Asset Manager Portfolio. Prior to the inception 
of the Balanced Portfolio in October 1996, however, there was no other 
(and there continues to be no other) underlying portfolio available 
under the affected Contracts whose principal investment strategy 
requires that it invest in a mix of debt and equity securities. For the 
periods for which the Balanced Portfolio and the Eliminated Portfolio 
both have standardized performance returns, namely average annual total 
returns for the one year period ended December 31, 1998, and the period 
from October 1, 1996 to December 31, 1998, the Balanced Portfolio 
outperformed the Eliminated Portfolio by over 3% and over 4%, 
respectively. Applicants state that the performance history of the 
Balanced Portfolio is somewhat limited, however, they state that the 
performance history of the INVESCO Balanced Portfolio, after which the 
Maxim Balanced Portfolio was modeled, has additional performance 
history. The Maxim Balanced Portfolio and the INVESCO Balanced 
Portfolio have the same investment objective, principal investment 
strategy, investment adviser (or sub-adviser, as applicable), and 
portfolio manager and, therefore, Applicants argue it was appropriate 
to consider its performance. The average annual total returns for the 
one year, three year, five year, and since inception periods ending 
December 31, 1998 were: Maxim Balanced Portfolio--18.42%, N/A, N/A, 
22.85%; and Asset Manager Portfolio--15.05%, 16.74%, 11.81%, 12.98%.\2\ 
The total returns for the INVESCO Balanced Portfolio for all of the 
preceding periods were higher than the total returns for the Asset 
Manager Portfolio during the same periods. For the period October 1, 
1996 (commencement of the Maxim Balanced Portfolio) to December 31, 
1998, the average annual total return for the Maxim Balanced Portfolio 
was 22.85% as compared with 18.77% for the eliminated portfolio.
---------------------------------------------------------------------------

    \2\ The Maxim Balanced Portfolio commenced operations on October 
1, 1996; the INVESCO Balanced Portfolio commenced operations in 
December 1993; the Asset Manager Portfolio commenced operations in 
September 1989.
---------------------------------------------------------------------------

    25. Based on the other information reviewed by Applicants, 
Applicants also concluded that the Substituted Portfolio will not 
represent an unreasonable risk to investors.
    26. As of December 31, 1998, the Maxim Balanced Portfolio had total 
assets of $152.83 million and the Asset Manager Portfolio had total 
assets of approximately $4,793 million. Applicants represent that the 
smaller asset base of the Maxim Balanced Portfolio as compared with the 
Asset Manager Portfolio will not disadvantage affected Contract owners/
participants. First, the Maxim Balanced Portfolio assesses an all-
inclusive annual fee of 1.00% under its advisory agreement and, 
therefore, the expense ratio cannot be affected by the size of the 
asset base. Moreover, Applicants represent that the Maxim Balanced 
Portfolio is sufficiently large so as to be capable of being managed 
efficiently and effectively in accordance with its investment 
objectives and policies. Additionally, if the proposed substitution is 
carried out, an additional $31.29 million (as of December 31, 1998) 
would be added to the Maxim Balanced Portfolio's asset base.
    27. In sum, based on comparative investment objectives and 
policies, historical performance information, and other factors deemed 
relevant by Applicants, the Applicants believe that the Maxim Balanced 
Portfolio will provide Contract owners/participants with an investment 
option that (1) has a proven track record of outperforming the 
Eliminated Portfolio, (2) has investment objectives and policies which 
are comparable to the Eliminated Portfolio, and (3) is not believed to 
expose Contract owners/participants to a materially greater risk than 
is presented by the Eliminated Portfolio.
    28. GWL&A will schedule the Substitution to occur on a date as soon 
as practicable following the issuance of an order by the Commission 
granting the relief requested in the Application (the ``Automatic 
Selection Date''). By way of sticker, the FutureFunds Contract and MVP 
Contract prospectuses have disclosed the proposed Substitution for 
several months. The stickers also disclose that the investment 
divisions relating to the Eliminated Portfolios will not accept 
additional contributions (i.e., new money or transfers) on or after 
February 5, 1999, and that FutureFunds Contract and MVP Contract values 
allocated to the Eliminated Portfolios can be transferred without 
assessment of any charges at any time prior to the Automatic Selection 
Date. Notifications similar to the stickers were mailed to all current 
Contract owners/participants shortly after the initial filing of the 
Application. MSA-2 Contract owners also were mailed a similar 
notification of the proposed Substitution and the Automatic Selection 
Date. After the order is issued, a second notification will be provided 
to all Contract owners/participants who have amounts allocated to the 
Eliminated Portfolios, again advising them of the pending Substitution 
and of their ability to transfer free of charge to the remaining 
investment division(s) of their choice (or remain in the Eliminated 
Portfolios until the automatic substitution on the Automatic Selection 
Date).
    29. Affected Contract owners/participants also will receive 
confirmation of the Substitution transaction that will be mailed within 
five days of the Automatic Selection Date. The confirmation will 
contain a reminder that the Contract owners/participants may effect 
transfers from the investment divisions corresponding to the Stock 
Index Portfolio or Balanced Portfolio, as applicable, to any other

[[Page 57493]]

investment division without incurring any charges.
    30. Applicants argue that the Substitution provides Contract 
owners/participants investment divisions which are currently available 
under the respective Contracts, and which are sufficiently similar so 
as to continue to fulfill the Contract owners/participants' objectives 
and risk expectations. If a Contract owner/participant with current 
allocations in the Eliminated Portfolios determines that another 
investment option is more appropriate for his or her needs, he or she 
may always transfer his or her assets to any remaining investment 
division available under the respective Contracts without incurring any 
charges.
    31. Applicants represent that the proposed Substitution will be 
effected by redeeming shares of the Eliminated Portfolios on the 
Automatic Selection Date at net asset value and using the proceeds to 
purchase shares of the Stock Index Portfolio and/or the Balanced 
Portfolio, as applicable, at net asset value on the same date. Contract 
owners/participants will not incur any fees or charges as a result of 
the transfer of account values from the Eliminated Portfolios. All 
contract values will remain unchanged and fully invested. The 
Substitution will not increase Contract or Separate Account fees and 
charges after the Substitution and will not alter Contract owners/
participants' rights and GWL&A's obligations under the Contracts. In 
addition, Applicants represent that, as of the date of filing the 
second amended Application, the Substitution will not result in any 
adverse federal income tax consequences for Contract owners/
participants. Following the Substitution, the investment divisions 
which invest in the Eliminated Portfolios will be terminated.

Applicant's Legal Analysis and Conditions

    1. Applicants request an order pursuant to Section 26(b) of the 
1940 Act approving the substitutions of securities. Section 26(b) of 
the 1940 Act makes it unlawful for any depositor or trustee of a 
registered UIT holding the security of a single issuer to substitute 
another security for such security unless the Commission approves the 
substitution. The Commission will issue an order approving such a 
substitution if the evidence establishes that it is consistent with the 
protection of investors and the purposes fairly intended by the 
policies and provisions of the 1940 Act.
    2. Applicants represent that the purposes, terms, and conditions of 
the Substitution are consistent with the protection for which Section 
26(b) was designed and will not result in any of the harms which 
Section 26(b) was designed to prevent. Applicants believe the 
substitution will benefit Contract owners/participants by eliminating 
portfolios with below average historical returns and replacing them 
with portfolios that have demonstrated superior performance histories.
    3. Any Contract owner/participant who does not want his or her 
assets allocated to the Stock Index Portfolio or the Balanced 
Portfolio, as applicable, would be able to transfer assets to any one 
of the other investment divisions available under their respective 
Contracts without charge. Such transfers could be made prior to or 
after the Automatic Selection Date.
    4. 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/participants will not incur any fees or charges as a 
result of the transfer of account values from any investment division. 
There will be no increase in the Contract or Separate Account fees and 
charges after the Substitution. All Contract values will remain 
unchanged and fully invested. In addition, Applicants represent that, 
as of the date of filing the second amended Application, the 
Substitution will not result in any adverse federal income tax 
consequences for Contract owners/participants.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
requested order approving the Substitution should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27713 Filed 10-22-99; 8:45 am]
BILLING CODE 8010-01-M