[Federal Register Volume 65, Number 10 (Friday, January 14, 2000)]
[Notices]
[Pages 2446-2449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-893]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24234; File No. 812-11584]


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

January 7, 2000.
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, as amemded.

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SUMMARY OF APPLICATION: Applicants seek an order approving the 
substitution of shares of the Janus Aspen Worldwide Growth Portfolio 
for the Van Eck Worldwide Hard Assets Fund; the Janus Aspen 
International Growth Portfolio for the Lexington Emerging Markets Fund; 
the SAFECO RST Growth Portfolio for the Stein Roe Special Venture Fund; 
the INVESCO VIF--Equity Income Fund for the INVESCO VIF--Total Return 
Fund; and the Alger American Growth Portfolio for the Janus Aspen 
Aggressive Growth Portfolio, Alger American Small Capitalization 
Portfolio, Strong Discovery Fund II and American Century VP Capital 
Appreciation Portfolio.

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'' or together, 
with the GWL&A Account, the ``Accounts'') (hereinafter, all parties are 
collectively referred to as the ``Applicants'').

FILING DATE: The application was filed on April 16, 1999, and amended 
and restated on September 29, 1999, and December 28, 1999.

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 January 31, 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 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 
Boors Cicchetti Benson & Johnson, LLP, 1025 Thomas Jefferson Street, 
N.W., Suite 400 East, Washington, DC 20007-0805; Attention: Tom Ira, 
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 Street 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 an indirect, wholly-owned subsidiary 
of 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, Guam and in all states of the 
United States, except New York.
    2. FGWLA is a stock life insurance company organized under the laws 
of the State of New York. FGWLA is a wholly owned subsidiary of GWL&A, 
and is principally engaged in the sale of life insurance, accident and 
health insurance, and annuities. FGWLA is admitted to do business in 
New York and Iowa.
    3. The GWL&A Account and the FGWLA Account are distinct investment 
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'' or the 
``Contracts''). Charles Schwab & Co., Inc. (``Schwab'') is the 
principal underwriter and distributor of the Schwab Contracts. The 
assets of the GWL&A Account and the FGWLA Account are owned by GWL&A 
and FGWLA, respectively, and the obligations under the Schwab Contracts 
are obligations of GWL&A and FGWLA, respectively. GWL&A and FGWLA each 
are required to maintain sufficient assets in the GWL&A Account and 
FGWLA Account, respectively, to meet anticipated obligations of the 
Schwab Contracts.
    4. The Schwab Contracts currently offer twenty-eight investment 
sub-accounts, each of which invest exclusively in one of the 
corresponding portfolios (the ``underlying portfolios'') of sixteen 
open-end management investment companies. The assets of the Accounts 
are kept separate from the other assets of GWL&A and FGWLA. The income, 
gains, and losses of the Accounts, whether or not realized, are 
credited to or charged against the Accounts without regard to other 
income, gains, or losses of any other separate account or arising out 
of any other business that GWL&A or FGWLA may conduct.
    5. The GWL&A Account is a unit investment trust (``UIT'') and has 
filed a registration statement on form N-4 (Registration Nos. 811-07549 
and 333-01153) for the purpose of registering the GWL&A Account under 
the 1940 Act

[[Page 2447]]

and the Schwab Contracts as securities under the Securities Act of 
1933, as amended (``the 1933 Act'').
    6. The FGWLA Account is a UIT and has filed a registration 
statement on Form N-4 (Registration Nos. 811-08183 and 333-25289) for 
the purpose of registering the FGWLA Account under the 1940 Act and the 
Schwab Contracts as securities under the 1933 Act.
    7. 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, other retirement plans 
which do not qualify under the Code or to individuals in non-plan 
contexts.
    8. The Schwab Contracts do not have either contingent deferred or 
front-end sales loads and no sales charge applies to the transfer among 
sub-accounts offered in the Contracts. Under the Contracts, there are 
no limits on the number of transfers a Contract owner can make. There 
is, however, a $10.00 fee for each transfer in excess of twelve in any 
calendar year. The proposed substitution will not count as a transfer 
for this purpose. The Contracts also have an annual contract fee of 
$25.00. The contract charge currently is waived for Contracts with an 
Annuity Account Value of at least $50,000. These charges will not be 
affected by the transfer.
    9. The Contracts expressly reserve GWL&A's and FGWLA's respective 
rights, both on their own behalf and on behalf of the Accounts, to 
eliminate sub-accounts, combine two or more sub-accounts are invested 
or for a new underlying portfolio.
    10. GWL&A and FGWLA, on their own behalf and on behalf of the 
Accounts, propose to exercise their contractual right to eliminate the 
Van Eck Worldwide Hard Assets Fund, Lexington Emerging Markets Fund, 
Stein Roe Special Venture fund, Janus Aspen Aggressive Growth 
Portfolio, Alger American Small Capitalization Portfolio, Strong 
Discovery Fund II, American Century VP Capital Appreciation Portfolio, 
and the INVESCO VIF--Total Return Fund as funding options under the 
Contracts.
    Collectively, the portfolios being eliminated will hereinafter be 
referred to as the ``Eliminated Portfolios.''
    11. GWL&A and FGWLA each propose the following substitutions. 
Applicants state that none of the funds are affiliated with GWL&A or 
FGWLA under the 1940 Act.

------------------------------------------------------------------------
       Substituted portfolios               Eliminated portfolios
------------------------------------------------------------------------
Janus Aspen Worldwide Growth         Van Eck Worldwide Hard Assets Fund.
 Portfolio.
Janus Aspen International Growth     Lexington Emerging Markets Fund.
 Portfolio.
SAFECO RST Growth Portfolio........  Stein Roe Special Venture Fund.
INVESCO VIF--Equity Income Fund....  INVESCO VIF--Total Return Fund.
Alger American Growth Portfolio....  Janus Aspen Aggressive Growth
                                      Portfolio.
                                     Alger American Small Capitalization
                                      Portfolio.
                                     Strong Discovery Fund II.
                                     American Century VP Capital
                                      Appreciation Portfolio.
------------------------------------------------------------------------

    12. In each case, Applicants have determined that the Substituted 
Portfolio is the most appropriate investment alternative in relation to 
the respective Eliminated Portfolio as compared with all other options 
available under the Contracts, taking into account all relevant 
factors. Applicants believe that the Substituted Portfolios have, as 
their primary emphasis, investment objectives that are similar to or 
consistent with those of the corresponding Eliminated Portfolios such 
that investment expectations of Contract owners would continue to be 
fulfilled upon consummation of each of the proposed substitutions. 
While, in a relatively few cases, an Eliminated Portfolio may seek to 
achieve its objective by employing a strategy that differs from the 
strategy employed by the respective Substituted Portfolio, Applicants 
argue that comparability of corresponding funds is but one factor, 
albeit an important one, to be considered for purposes of determining 
whether a proposed substitution should be approved pursuant to Section 
26(b). Further, in the few cases where the Eliminated Portfolio's 
strategy differs from the Substituted Portfolio's strategy, Applicants 
note that the Eliminated Portfolios have generated less Contract owner 
interest while the Applicants have observed increased demand for the 
Substituted Portfolios. Applicants believe that essentially all other 
appropriate factors weigh in favor of each of the proposed 
substitutions. These include, among others, comparative performance 
histories, relative asset bases, fee levels, the tax free nature of the 
proposed transactions, and the diversity of other investment options 
available under the Contracts. Applicants emphasize that, to the extent 
Contract owners seek a particular investment option, such as a small 
cap option, Contract owners will have ample opportunity to allocate 
their assets among the wide range and number of investment options 
available under the Contracts should they decide that the Substituted 
Portfolios are not appropriate for their needs.
    13. Applicants represent that, without taking waivers or reductions 
into account, the total expenses of the Substituted Portfolios compared 
to the Eliminated Portfolios are as follows:

------------------------------------------------------------------------
       Substituted portfolios               Eliminated portfolios
------------------------------------------------------------------------
Janus Aspen Worldwide Growth         Van Eck Worldwide Hard Assets Fund--
 Portfolio--0.74% \1\.                1.17%.
Janus Aspen International Growth     Lexington Emerging Markets Fund--
 Portfolio--0.95% \2\.                1.84%.
SAFECO RST Growth Portfolio--0.80%.  Stein Roe Special Venture Fund--
                                      0.73%.
INVESCO VIF--Equity Income Fund--    INVESCO VIF--Total Return Fund--
 0.91%.                               0.92%.
Alger American Growth Portfolio--    Janus Aspen Aggressive Growth
 0.79%.                               Portfolio--0.76%.
                                     Alger American Small Capitalization
                                      Portfolio--0.89%.
                                     Strong Discovery Fund II--01.20%.
                                     American Century VP Capital
                                      Appreciation Portfolio--1.00%.
------------------------------------------------------------------------
\1\ With waivers or reductions, the total expenses for the Janus Aspen
  Worldwide Growth Portfolio would be 0.72%.
\2\ With waivers or reductions, the total expenses for the Janus Aspen
  International Growth Portfolio would be 0.86%.


[[Page 2448]]

    14. Applicants represent that the Average Annual Total Return of 
the Substituted and Eliminated Portfolios over one, three, five and ten 
years as of the period ended December 31, 1998, was as follows:

------------------------------------------------------------------------
         Substituted Portfolios               Eliminated Portfolios
------------------------------------------------------------------------
 


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         Janus Aspen Worldwide Growth Portfolio                     Van Eck Worldwide Hard Assets Fund
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    1 Year        3 Years        5 Years      10 Years       1 Year        3 Years       5 Years      10 Years
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      28.92%         26.66%        21.32%           N/A       -30.92%        -7.13%        -3.26%           N/A
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       Janus Aspen International Growth Portfolio                     Lexington Emerging Markets Fund
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    1 Year        3 Years        5 Years      10 Years       1 Year        3 Years       5 Years      10 Years
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      17.23%         23.23%           N/A           N/A       -28.21%       -11.96%           N/A           N/A
----------------------------------------------------------------------------------------------------------------


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               SAFECO RST Growth Portfolio                            Stein Roe Special Venture Fund
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    1 Year        3 Years        5 Years      10 Years       1 Year        3 Years       5 Years      10 Years
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       1.83%         24.80%        25.13%           N/A       -17.31%         4.21%         5.06%           N/A
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             INVESCO VIF--Equity Income Fund                          INVESCO VIF--Total Return Fund
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    1 Year        3 Years        5 Years      10 Years       1 Year        3 Years       5 Years      10 Years
----------------------------------------------------------------------------------------------------------------
      15.30%         21.81%           N/A           N/A         9.56%        14.75%           N/A           N/A
----------------------------------------------------------------------------------------------------------------


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             Alger American Growth Portfolio                      Janus Aspen Aggressive Growth Portfolio
----------------------------------------------------------------------------------------------------------------
    1 Year        3 Years        5 Years      10 Years       1 Year        3 Years       5 Years      10 Years
----------------------------------------------------------------------------------------------------------------
      48.08%         27.93%        23.50%           N/A        34.26%        17.76%        19.35%           N/A
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             Alger American Growth Portfolio                   Alger American Small Capitalization Portfolio
----------------------------------------------------------------------------------------------------------------
    1 Year        3 Years        5 Years      10 Years       1 Year        3 Years       5 Years      10 Years
----------------------------------------------------------------------------------------------------------------
      48.08%         27.93%        23.50%           N/A        15.53%        10.25%        13.21%        20.21%
----------------------------------------------------------------------------------------------------------------


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             Alger American Growth Portfolio                             Strong Discovery Fund II
----------------------------------------------------------------------------------------------------------------
    1 Year        3 Years        5 Years      10 Years       1 Year        3 Years       5 Years      10 Years
----------------------------------------------------------------------------------------------------------------
      48.08%         27.93%        23.50%           N/A        34.26%        17.76%        19.35%           N/A
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
             Alger American Growth Portfolio                American Century VP Capital Appreciation Portfolio
----------------------------------------------------------------------------------------------------------------
    1 Year        3 Years        5 Years      10 Years       1 Year        3 Years       5 Years      10 Years
----------------------------------------------------------------------------------------------------------------
      48.08%         27.93%        23.50%           N/A        -2.22%        -3.40%         3.10%         8.40%
----------------------------------------------------------------------------------------------------------------

    15. Applicants have concluded that the Substitution would be 
appropriate in light of, among other things, the relatively poor 
performance of the Eliminated Portfolios. Applicants assert that the 
Eliminated Portfolios will be replaced with portfolios having 
comparable investment objectives and better historical performance 
returns and, accordingly, Applicants believe the Substituted Portfolios 
are more likely to provide Contract owners with favorable investment 
performance in the future. Applicants assert that the Substitution will 
not expose Contract owners to any unreasonable risks and that, in each 
case, expense ratios of the Substituted Portfolios are less than or 
comparable to the respective Eliminated Portfolios and the historical 
performance of the Substituted Portfolios are better than those of the 
respective Eliminated Portfolios.
    16. If Contract owners are not satisfied with the Substituted 
Portfolio to which their assets will be reallocated upon consummation 
of the Substitution, Contract owners will have the opportunity to 
transfer those assets into any of the other investment options 
available under their Contracts. In this regard, Applicants state that 
even after the Substitution is effected, there will still be a total of 
27 other investment options (not including the Substituted Portfolio).
    17. GWL&A and FGWLA will schedule the Substitution to occur on the 
Automatic Selection Date. Such date will be soon as practicable 
following the issuance of an order by the Commission granting the 
relief requested in the Application. As of the Automatic Selection 
Date, all Contract values allocated to the Eliminated Portfolios

[[Page 2449]]

will be reallocated to the corresponding Substituted Portfolios. 
Contract owners can always exercise their own judgment as to the most 
appropriate alternative investment and transfer their assets from the 
Eliminated Portfolios to any one or a mix of the remaining sub-accounts 
available under their Contracts. Applicants note that, even after the 
Substitution, the Contracts will continue to offer a wide array of 
investment options having diverse investment objectives. No sales load 
deductions or other charges will be assessed in connection with any 
transfers among sub-accounts because of the Substitution.
    18. By way of sticker, the Schwab Variable Annuity prospectuses 
have disclosed the proposed Substitution for several months. The 
stickers also disclosed that the Eliminated Portfolios will not accept 
additional premium payments (i.e. new money or transfers) on or after 
June 1, 1999, and that contract values allocated to the Eliminated 
Portfolios can be transferred without assessment of any charges and 
without such transfers counting toward the twelve free transfers 
permitted each calendar year. These stickers were mailed to all 
Contract owners at or around the time of filing of the initial 
Application. After the Notice of Application is issued, a second 
notification will be provided to all Contract owners 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 sub-accounts of their choice (or remain in the Eliminated 
Portfolios until the automatic substitution on the Automatic Selection 
Date).
    19. The Contract owners also will be mailed a confirmation of the 
Substitution transaction within five days of the Automatic Selection 
Date. The confirmation will contain a reminder of the Contract owner's 
ability to effect one transfer 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.
    20. 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 corresponding Substituted Portfolio 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 Portfolios. The Substitution will not increase Contract or 
separate account fees and charges after the Substitution. Expenses 
incurred in connection with the Substitution, including legal, 
accounting and other expenses, will not be borne by Contract owners. 
Contract values will remain unchanged and fully invested following the 
consummation of the Substitution. In addition, Applicants represent 
that, as of the date of filing of the second amended Application, and 
to Applicants' best knowledge, the Substitution will not result in any 
adverse federal income tax impact on owners. Following the 
Substitution, the sub-accounts which invest in the Eliminated 
Portfolios will be terminated.

Applicant's Legal Analysis and Conditions

    1. Section 26(b) of the 1940 Act provides that it 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; and the Commission shall issue an order approving such 
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 request an order pursuant to Section 26(b) of the 
1940 Act approving the substitution of securities.
    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. Any Contract owner who does not want his or her assets allocated 
to the Substituted Portfolio would be able to transfer assets to any 
one of the other investment divisions available under his or her 
Contract without charge. Such transfers could be made prior to or after 
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. All Contract values will remain unchanged and fully 
invested. In addition, Applicants represent that, as of the date of 
filing the second amended Application, and to Applicants' best 
knowledge, the Substitution will not have any adverse federal income 
tax impact on Contract owners. Contract owners', GWL&A's, and FGWLA's 
rights and obligations under the Schwab Contracts will not be affected 
in any way by the Substitution.

Conclusion

    In light of the foregoing facts and representations, Applicants 
believe that the request to allow the Substitution meets the applicable 
standards of 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. 00-893 Filed 1-13-00; 8:45 am]
BILLING CODE 8010-01-M