[Federal Register Volume 65, Number 5 (Friday, January 7, 2000)]
[Notices]
[Pages 1192-1195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-382]


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

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24228; File No. 812-11748]


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'').

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

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 Growth Opportunities 
Series of The GCG Trust.

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''), and First Golden 
American Life Insurance Company of New York Separate Account NY-B 
(``First Golden Separate Account NY-B'').

FILING DATES: The application was filed on August 13, 1999, and amended 
and restated on 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 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 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-B 
(collectively,

[[Page 1193]]

``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 A 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 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 Growth Opportunities 
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 Montgomery & Associates, Limited as portfolio 
manager of the Growth Opportunities 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 Growth 
Opportunities 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 Growth 
Opportunities 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 Growth Opportunities Series 
(``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 
Growth Opportunities Series to assure that the essential objectives and 
risk expectations of those Contractholders with interest in the Growth 
Opportunities Series subaccounts (``Affected Contractholders'') will be 
met. Both the Mid-Cap Growth Series and the Growth Opportunity 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 Growth Opportunities 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. The Mid-Cap Growth Series 
and the Growth Opportunities Series may invest up to 20% and 35%, 
respectively, in foreign issuers. Both may also invest in over-the-
counter securities. The chief distinction between the series is that 
the Growth Opportunities 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 Growth Opportunities 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 Growth Opportunities Series and Mid-
Cap Growth Series were 1.06% and 0.91%, respectively, and 1.15% and 
0.95%, respectively for fiscal year 1998. Unified Fees as of September 
30, 1999 based on net assets for that day for the Growth Opportunities 
Series and Mid-Cap Growth Series were 1.03% and 0.90%, respectively.

[[Page 1194]]

    11. Applicants also state that the better investment performance of 
the Mid-Cap Growth Series was considered.
    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 GCP Trust to eliminate a 
portfolio with poor performance and higher expenses and place 
Contractholders in a position to 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 
Growth Opportunities 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 Growth Opportunities 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 Growth Opportunities 
subaccounts of the Applicant Separate Accounts will be redeemed for 
cash. Applicants, on behalf of the Growth Opportunities subaccounts of 
Applicant Separate Accounts will simultaneously place a redemption 
request with the Growth Opportunities 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 
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 Growth Opportunities 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 of 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 
Growth Opportunities subaccount accumulation value without incurring 
any costs or excessive allocation charges.
    16. Immediately following the Substitution, Applicants will cause 
the Growth Opportunities 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 no result in any adverse tax 
liability on Affected Contractholders, or any change in the economic 
interest or contract value of Affected Contractholders.
    17. Affected Contractholders were notified of the Application by 
means of a supplement to the GCG Trust prospectus on or about August 
30, 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 Growth 
Opportunities 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 tot he 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 Growth Opportunities 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. Applicants represent that the terms of the redemptions and 
purchases 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 will 
be done at values consistent with the policies of both the Growth 
Opportunities 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 
Growth Opportunities Series and the Mid-Cap Growth Series.
    4. Applicants represent that the combination of the Mid-Cap Growth

[[Page 1195]]

Series and the Growth Opportunities 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. Thhe 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. 00-382 Filed 1-6-00; 8:45 am]
BILLING CODE 8010-01-M