[Federal Register Volume 65, Number 5 (Friday, January 7, 2000)]
[Notices]
[Pages 1189-1192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-379]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24230; File No. 812-11438]


Golden American Life Insurance Company, et al.; Notice of 
Application

December 30, 1999.
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 (``Act'') and an 
order granting exemptive relief pursuant to Section 17(b) of the Act.

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SUMMARY OF APPLICATION: Applicants seek an order pursuant to Section 
26(b) of the Act, approving the substitution of shares of the Mid-Cap 
Growth Series of The GCG Trust for shares of the All-Growth Series of 
The GCG Trust. Applicants also seek an order, pursuant to Section 17(b) 
of the Act, granting exemptions from Section 17(a) to permit Applicants 
to carry out the substitution by means of in-kind redemption and 
purchase transactions.

APPLICANTS: 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''), Equitable Life Insurance Company of Iowa (``Equitable''), 
Equitable Life Insurance Company of Iowa Separate Account A 
(``Equitable Separate Account A''), 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''), and The GCG Trust (``GCG Trust'').

FILING DATES: The application was filed on December 18, 1998, and 
amended and restated on July 13, 1999, and December 23, 1999.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing the Secretary of the SEC and serving 
Applicants with a copy of the request, in person or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on January 24, 
2000, 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 of a hearing by 
writing to the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549-
0609. Applicants, Marilyn Talman, Esquire, Golden American Life 
Insurance Company, 1475 Dunwoody Drive, West Chester, Pennsylvania 
19380.

FOR FURTHER INFORMATION CONTACT: Ronald A. Holinsky, Attorney, or Susan 
M. 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 SEC, 450 Fifth Street, NW, Washington, 
DC 20549-0102, or call (202) 942-8090.

Applicants' Representations

    1. Golden American and Equitable are stock life insurance companies 
organized under the insurance laws of Delaware and Iowa, 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 and Delaware. Golden American, 
Equitable and First Golden (collectively, ``Applicant Insurance 
Companies'') are wholly owned subsidiaries of ING Groep N.V. (``ING''), 
a global financial services holding company.
    2. Equitable Separate Account A, Golden Separate Account A, Golden 
Separate Account B and First Golden Separate Account NY-BH 
(collectively, ``Applicant Separate Accounts'') are separate accounts 
for which one of the Applicant Insurance Companies serves as the 
sponsor and depositor. Golden American serves as sponsor and depositor 
of Golden Separate Account and Golden Separate Account B; Equitable 
serves as sponsor and depositor of Equitable Separate Account A; First 
Golden serves as 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 Act as a 
unit investment trust. Each Applicant Separate Account is administered 
and accounted for as part of the general business of the Applicant 
Insurance Company of which it is a part. The income, gains or losses of 
Applicant

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Separate Accounts are credited to or charged against the assets of each 
such separate account, without regard to income, gains or losses of 
such Applicant Insurance Company.
    3. Each Applicant Separate Account serves as a finding vehicle for 
certain variable annuity and/or variable life contracts (collectively, 
``Variable Contracts'') written by the respective Applicant Insurance 
Companies. Applicant Separate Accounts are divided into separate 
subaccounts, each dedicated to owning shares of one of the investment 
options available under the Variable Contracts. The Variable Contracts 
are structured such that holders of any of the Variable Contracts 
(``Contractholders'') may select one or more of the investment options 
available under the 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. Thereafter, 
Contractholders accumulate funds, on a tax-deferred basis, based on the 
investment experience of the selected subaccount(s). Contractholders 
may, during the life of the contract, make unlimited transfers of 
accumulation values among the subaccounts available under the contract 
held, subject to any applicable administrative and/or transfer fees.
    4. The GCG Trust is registered under the Act as an open-end 
management series investment company. The GCG Trust offers shares of 
several separate investment series, including the All-Growth Series and 
the Mid-Cap Growth Series.
    5. Under the terms of an investment advisory agreement (``Trust 
Management Agreement'') between the GCG Trust and Directed Services, 
Inc. (``DSI''), 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 of the GCG Trust. Under the Trust Management Agreement, DSI is 
authorized to exercise full investment discretion and make all 
determinations with respect to the investment of the assets of the 
respective series, but may, at its own cost and expense, retain 
portfolio managers for the purpose of making investment decisions and 
research information available to the GCG Trust. DSI has retained 
Massachusetts Financial Services Company as portfolio manager of the 
Mid-Cap Growth Series and Pilgrim Baxter & Associates, Limited as 
portfolio manager of the All-Growth Series.
    6. Pursuant to the Trust Management Agreement, DSI is responsible 
for providing the GCG Trust (or arranging and paying for the provision 
to the GCG Trust) a comprehensive package of administrative and other 
services necessary for the ordinary operation of certain selected 
series of the Trust, including the Mid-Cap Growth Series and the All-
Growth Series. This fee (``Unified Fee'') is calculated for the 
participating GCG Trust series based on a percentage of assets basis 
and in accordance with schedules that provide, for most of the GCG 
Trust series, fee reductions at specified asset levels or ``break 
points.'' One feature of the Unified Fee is that certain of the GCG 
Trust series, which include the Mid-Cap Growth Series and the All-
Growth Series, albeit in different groups, are grouped together for the 
purpose of determining whether a break point has been reached. The rate 
at which the Unified Fee payable to DSI is calculated will be reduced 
when the combined assets of all of the GCG Trust series in the 
designated fee group reach the scheduled break points. As a result, a 
GCG Trust 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. The Variable Contracts expressly reserve to Applicant Insurance 
Companies the right, subject to compliance with applicable law, to 
substitute shares of another open-end management investment company for 
shares of an open-end management investment company held by a sub-
account of the appropriate Separate Account. The prospectuses for the 
Variable Contracts and Applicant Separate Accounts contain appropriate 
disclosure of this right.
    8. Applicant Insurance Companies propose to substitute shares of 
the Mid-Cap Series for those of the All-Growth Series by means of cash 
and in-kind redemptions and purchases (``Substitution''). Following the 
Substitution, Applicant Separate Accounts will have two subaccounts 
holding shares of the Mid-Cap Growth Series and will combine these 
subaccounts.
    9. Applicants state that the investment objectives and policies of 
the Mid-Cap Growth Series are sufficiently similar to those of the All-
Growth Series to assure that the essential objectives and risk 
expectations of those Contractholders with interest in the All-Growth 
Series subaccounts (``Affected Contractholders'') will be met. Both the 
Mid-Cap Growth Series and the All-Growth Series share the primary 
objective of increase in value of the shares of the portfolio 
securities (capital growth). The Mid-Cap Growth Series also has the 
same investment strategy as the All-Growth Series, of allocating assets 
primarily among equity and bond classes of investments, with the 
majority invested in equity investments in companies with medium market 
capitalization. Both may be invested significantly in over-the-counter 
securities. In addition, the All-Growth Series is authorized to 
allocate 10% of its assets investing in securities of foreign issuers, 
the Mid-Cap Growth Series is authorized to invest 20% of its net assets 
in equity securities of foreign issuers. The chief distinction between 
the series is that the All-Growth Series is diversified and the Mid-Cap 
Growth Series is non-diversified, although it is not currently taking 
advantage of that distinction and has no present intention of doing so. 
Applicants state that several factors could cause the Mid-Cap Growth 
Series to change its investment style to non-diversified including a 
response to extreme market conditions or a change of the portfolio 
manager, although Applicants state that there is no desire to change 
the portfolio manager. Golden American has, therefore, concluded that 
the overall investment objectives of the All-Growth Series and the Mid-
Cap Growth Series are sufficiently similar such that the Mid-Cap Growth 
Series is appropriate for substitution.
    10. Applicants state that the lower expenses of the Mid-Cap Growth 
Series was considered. The expense ratio for the nine-month period 
ended September 30, 1999, for the All-Growth Series and Mid-Cap Growth 
Series were 0.96% and 0.91%, respectively, and 0.99% and 0.95%, 
respectively, for fiscal year 1998. Unified Fees as of September 30, 
1999 based on net assets for that day for the All-Growth Series and 
Mid-Cap Growth Series were 0.96% and 0.90%, respectively.
    11. Applicants also state that the Mid-Cap Growth Series has more 
consistent investment performance. Applicants state that the All-Growth 
Series has not generated the hope for total returns on a consistent 
basis.
    12. Applicants state that the Substitution and the related 
subaccount combinations 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 represent that the Substitution 
is appropriate because it will allow the GCG Trust to eliminate a 
portfolio with erratic performance and higher expenses and place 
Contractholders in a position to

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participate in a portfolio with better, more consistent performance and 
a lower Unified Fee.
    13. Applicants state that DSI serves as overall manager of the All-
Growth Series and the Mid-Cap Growth Series. The portfolio manager of 
the Mid-Cap Growth Series is Massachusetts Financial Services Company. 
After the Substitution, Affected Contractholders whose interest in the 
All-Growth Series is redeemed and invested in the Mid-Cap Growth Series 
will continue to benefit from the services of DSI as overall manager.
    14. Applicants state that, as of the effective date of the 
Substitution (``Effective Date''), shares of the All-Growth subaccounts 
of the Applicant Separate Accounts will be redeemed for cash and 
certain securities will be transferred in-kind. Applicants, on behalf 
of the All-Growth subaccount of Applicant Separate Accounts will 
simultaneously place a redemption request with the All-Growth Series 
and a purchase order with the Mid-Cap Growth Series so that the 
purchase will be for the exact amount of the redemption proceeds. The 
proceeds of such redemptions, whether effected in cash or in-kind, will 
then be used to purchase the appropriate number of shares of the Mid-
Cap Growth Series. As a result, moneys attributable to Contractholders 
currently invested in the All-Growth Series will be fully invested.
    15. The Substitution will take place at relative net asset value 
(in accordance with Rule 22c-1 under the Act) with no change in the 
amount of any Affected Contractholder's accumulation value or death 
benefit or in the dollar value of his or her investment in the 
Applicant Separate Accounts. Affected Contractholders will not incur 
any fees or charges as a result of the proposed Substitution nor will 
their rights or Applicant Insurance Companies' obligations under the 
Variable Contracts be altered in any way. Applicant Insurance Companies 
or their affiliates will pay all expenses incurred in connection with 
the proposed Substitution, including legal, accounting, and other fees 
and expenses. In addition, the proposed Substitution will not impose 
any tax liability on Affected Contractholders. The proposed 
Substitution will not cause the Variable Contract fees and charges 
currently being paid by Affected Contractholders to be greater after 
the proposed Substitution than before the proposed Substitution. Also, 
after notification of the Substitution, and for thirty days after the 
Substitution, Affected Contractholders may reallocate, to any other 
investment options available under their Variable Contract, their All-
Growth subaccount accumulation value without incurring any costs or 
excessive allocation charges.
    16. Any transfer in-kind within the proposed Substitution will take 
place pursuant to rule 17a-7(d) under the Act and no brokerage 
commissions, fees (except customary transfer fees) or other 
remuneration will be paid by the All-Growth Series or the Mid-Cap 
Growth Series or Affected Contractholders in connection with the 
transactions. Applicants submit that the terms or the proposed 
transaction, including the consideration to be paid by the Mid-Cap 
Growth Series and received by the All-Growth Series, is fair and 
reasonable, and that the transactions do not involve overreaching. The 
transactions of the proposed Substitution will be consistent with the 
policies of each investment company involved and the general purposes 
of the Act, and comply with the requirements of section 17(b) of the 
Act.
    17. Immediately following the Substitution, Applicants will cause 
the All-Growth subaccounts of Applicant Separate Accounts to combine 
with the Mid-Cap Growth subaccounts of Applicant Separate Accounts at 
full net asset value so that there is no loss of account value for the 
Contractholders. Affected Contractholders will not incur any fees or 
charges as a result of this combination of subaccounts nor will their 
rights or Applicants' obligations under the Variable Contracts alter in 
any way. Applicants will pay all expenses incurred in connection with 
the combinations, including legal and/or accounting fees. In addition, 
the combination will not result in any adverse tax liability on 
Affected Contractholders, or any change in the economic interest or 
contract value of Affected Contractholders.
    18. Affected Contractholders were notified of the Application by 
means of a supplement to the GCG Trust prospectus on or about March 8, 
1999. Following the issuance of the requested order, but prior to the 
Effective Date, each Affected Contractholder will receive a notice 
setting forth the Effective Date and advising Affected Contractholders 
of their right, if they so chose, at any time prior to the Effective 
Date, to reallocate or withdraw accumulated value in the All-Growth 
subaccount under their Variable Contract or otherwise terminate their 
interest thereof in accordance with the terms and conditions of their 
Variable Contract. If Affected Contractholders reallocate accumulation 
value prior to the Effective Date or thirty days after the Effective 
Date, there will be no charge for the reallocation and it will not be 
counted toward the total number of reallocations made within the 
contract year. All current Contractholders have received a prospectus 
containing a description of the Mid-Cap Growth Series and another copy 
will be forwarded to any Contractholder who requests one. Within five 
days after the Effective Date, Affected Contractholders will receive a 
notice (``Substitution Notice'') stating that shares of the All-Growth 
Series have been redeemed and that the shares of the Mid-Cap Growth 
Series have been substituted. The Substitution Notice will include a 
written confirmation showing the before and after accumulation values 
(which will not have changed as a result of the substitution) and 
detailing the transactions effected on behalf of the Affected 
Contractholder with regard to the Substitution.

Applicants' Legal Analysis

    1. Section 26(b) of the Act prohibits any depositor or trustee of a 
unit investment trust that invests exclusively in the securities of a 
single issuer from substituting the securities of another issuer 
without the approval of the Commission. Section 26(b) provides that 
such approval shall be granted by order of the Commission, if the 
evidence establishes that the substitution is consistent with the 
protection of investors and the purposes of the Act.
    2. Applicants request an order pursuant to section 26(b) of the Act 
approving the Substitution and related transactions. Applicants assert 
that the purposes, terms, and conditions of the proposed Substitution 
and related transactions are consistent with the protection of 
investors and the purposes fairly intended by the Act. Applicants 
further assert that the Substitution will not result in the type of 
costly forced redemption against which section 26(b) was intended to 
guard.
    3. Section 17(a)(1) of the Act prohibits any affiliated person of a 
registered investment company, or an affiliated person of an affiliated 
person, from selling any security or other property to such registered 
investment company. Section 17(a)(2) of the Act prohibits any of the 
persons described above, from purchasing any security or other property 
from such registered investment company.
    4. Applicant Insurance Companies state that it could be said to be 
transferring unit values between subaccounts. The transfer of unit 
values could be said to involve purchase and sale transactions between 
divisions that

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are affiliated persons. The division investing in the All-Growth Series 
could be said to be selling shares of the All-Growth Series to the 
division investing in the Mid-Cap Growth Series, in return for units of 
that division. Conversely, it could be said that the division investing 
in the Mid-Cap Growth Series was purchasing shares of the All-Growth 
Series. If Substitution is effected through an in-kind transfer of 
securities the All-Growth Series could be said to be selling portfolio 
securities from an affiliate and the Mid-Cap Growth Series could be 
said to be purchasing portfolio securities from an affiliate.
    5. Applicants request an order pursuant to Section 17(b) of the Act 
exempting the in-kind transfer of portfolio securities and combination 
of subaccounts from the provision of Section 17(a) of that Act. Section 
17(b) of the Act provides that the Commission may grant an order 
exempting a proposed transaction from Section 17(a) if evidence 
establishes that: (i) The terms of the proposed transaction, including 
the consideration to be paid or received, are reasonable and fair and 
do not involve over-reaching on the part of any person concerned; (ii) 
the proposed transaction is consistent with the investment policy of 
each registered investment company concerned; and (iii) the proposed 
transaction is consistent with the general purposes of the Act.
    6. Applicants represent that the terms of the redemptions and 
purchases or the in-kind transfer, including the consideration to be 
paid and received, are reasonable and fair and do not involve 
overreaching on the part of any person concerned and that the interest 
of Contractholders will not be diluted. The redemptions and purchases 
or the in-kind transfer will be done at values consistent with the 
policies of both the All-Growth Series and the Mid-Cap Growth Series. 
Applicant Insurance Companies and DSI will review all the asset 
transfers to assure that the assets meet the objectives of the Mid-Cap 
Growth Series and that they are valued under the appropriate valuation 
procedures of the All-Growth Series and the Mid-Cap Growth Series. The 
Applicants represent that the transactions are consistent with Rule 
17a-7(d) under the Act, the transactions are consistent with the 
policies of each investment company involved and the general purposes 
of the Act, and the transactions comply with the requirements of 
Section 17(b) of the Act.
    7. Applicants represent that the combination of the Mid-Cap Growth 
Series and the All-Growth Series subaccounts in the manner set forth in 
the Application is intended to reduce expenses and raise investment 
return and thereby benefit Contractholders with assets in those 
subaccounts. The purchase and sale transactions described in the 
Application will be effected based on the net asset value of the 
investment company shares held in the subaccounts and the value of the 
units of the subaccount involved. Therefore, there will be no change in 
value to any Contractholder.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
requested order approving the Substitution and related transactions 
involving redemptions and the combination of certain separate account 
subaccounts should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-379 Filed 1-6-00; 8:45 am]
BILLING CODE 8010-01-M