[Federal Register Volume 65, Number 60 (Tuesday, March 28, 2000)]
[Notices]
[Pages 16423-16431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7584]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24346; File No. 812-11862]


Canada Life Insurance Company of America, et al.; Notice of 
Application

March 22, 2000.
AGENCY: The Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order of approval pursuant to 
Section 26(b) of the Investment Company Act of 1940 (the ``Act'') 
approving certain substitutions of securities.

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    Summary of Application: Applicants request an order under Section 
26(b) of the Act to permit certain registered unit investment trusts to 
substitute (a) Shares of the Money Market Portfolio (``Fidelity Money 
Market Portfolio'') of the Fidelity Variable Insurance products Fund 
(``Fidelity VIP'') for shares of the Money Market Portfolio of the 
Canada Life of America Series Fund, Inc. (the ``Series Fund''); (2) 
shares of the Investment Grade Bond Portfolio (``Fidelity Bond 
Portfolio'') of the Fidelity Variable Insurance Products Fund II 
(``Fidelity VIP II'') for shares of the Series Fund's Bond Portfolio; 
(3) shares of the Fidelity VIP's Overseas Portfolio (``Fidelity 
Overseas Portfolio'') for shares of the Series Fund's International 
Equity Portfolio; (4) shares of the American MidCap Growth Portfolio 
(``Alger MidCap Portfolio'') of The Alger American Fund (``Alger'') for 
shares of the Series Fund's Capital Portfolio; (5) shares of the 
Fidelity VIP II's Asset Manager Portfolio (``Fidelity Asset Manager 
Portfolio'') for shares of the Series Fund's Managed Portfolio; and (6) 
shares of the Fidelity VIP II's Contrafund Portfolio (``Fidelity 
Contrafund Portfolio'') for shares of the Series Fund's Value Equity 
Portfolio currently held by those unit investment trusts.
    Applicants: Canada Life Insurance Company of America (``Canada 
Life''), Canada Life Insurance Company of New York (``Canada Life of 
New York''), Canada Life of America Variable Annuity Account 1 (``the 
Canada Life Account'') and Canada Life of New York Variable Annuity 
Account 1 (``the Canada Life of New York Account'') (together, the 
``Applicants'').
    Filing Date:The application was filed on November 19, 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 April 17, 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, Commission, 450 Fifth Street, NW, Washington, DC 
20549-0609. Applicants, Charles MacPhaul, Esq., Senior Counsel, Canada 
Life Insurance Company of America, 6201 Powers Ferry Road, N.W., 
Atlanta, GA 30339. Copy to Stephen E. Roth, Esq., Sutherland Asbill & 
Brennan LLP, 1275 Pennsylvania Avenue, NW, Washington, DC 20004-2415.

FOR FURTHER INFORMATION CONTACT: Paul G. Cellupica, Senior Counsel, or 
Keith Carpenter, 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 may be obtained for a fee from 
the Public Reference Branch of the Commission, 450 5th Street, NW, 
Washington, DC 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Canada Life is a stock life insurance company incorporated under 
the laws of Michigan. Canada Life is engaged in the business of writing 
individual annuity contracts in the District of Columbia and all states 
except New York and Vermont. Canada Life is the depositor and sponsor 
of the Canada Life Account.
    2. Canada Life of New York is a stock life insurance company 
incorporated under New York law. Canada Life of New York is engaged in 
the business of writing individual life insurance and annuity contracts 
in the State of New York. Canada Life of New York is the depositor and 
sponsor of the Canada Life of New York Account.
    3. The Canada Life Account, a separate investment account 
established under Michigan law, is registered with the Commission as a 
unit investment trust. The assets of the Canada Life Account support 
individual flexible premium deferred variable annuity contracts 
(``Contracts''), and interests in the Canada Life Account offered 
through such Contracts have been registered under the Securities Act of 
1933 (the ``1933 Act'') on Form N-4.

[[Page 16424]]

The Canada Life Account is currently divided into twenty-six 
subaccounts. Each subaccount invests exclusively in shares representing 
an interest in a corresponding investment portfolio (``Portfolio'') of 
one of nine management investment companies of the series type 
(``Management Companies'').
    4. The Canada Life of New York Account, a separate investment 
account established under New York law, is registered with the 
Commission as a unit investment trust. The assets of the Canada Life of 
New York Account support the Contracts, and interests in the Canada 
Life of New York Account offered through such Contracts have been 
registered under the 1933 Act on Form N-4. The Canada Life of New York 
Account is currently divided into twenty-six subaccounts. Each 
subaccount invests exclusively in shares representing an interest in a 
Portfolio.
    5. The Series Fund, a Maryland corporation, is registered under the 
Act as an open-end management investment company. The Series Fund is 
currently comprised of six portfolios, all of which would be involved 
in the proposed substitutions. The Series Fund issues a separate series 
of shares of beneficial interest in connection with each portfolio, and 
has registered such shares under the 1933 Act on Form N-1A. CL Capital 
Management, Inc. serves as the investment adviser to the Series Fund's 
Bond Portfolio, Money Market Portfolio and to the debt and money market 
portions of the Managed Portfolio, and, in general, supervises the 
management and investment program for all of the Series Fund 
portfolios. The investments of the Capital Portfolio, Value Equity 
Portfolio, and International Equity Portfolio and the equity portion of 
the Managed Portfolio are managed by subadvisers that are supervised by 
CL Capital Management, Inc.
    6. Fidelity VIP, a Massachusetts business trust, is registered 
under the Act as an open-end management investment company. Fidelity 
VIP is currently comprised of five portfolios, two of which would be 
involved in the proposed substitutions. Fidelity VIP issues a separate 
series of shares of beneficial interest in connection with each 
portfolio, and has registered such shares under the 1933 Act on Form N-
1A. Fidelity Management & Research Company serves as the investment 
adviser to Fidelity VIP's Portfolios.
    7. Fidelity VIP II, a Massachusetts business trust, is registered 
under the Act as an open-end management investment company. Fidelity 
VIP II is currently comprised of five portfolios, three of which would 
be involved in the proposed substitutions. Fidelity VIP II issues a 
separate series of shares of beneficial interest in connection with 
each portfolio, and has registered such shares under the 1933 Act on 
Form N-1A. Fidelity Management & Research Company serves as the 
investment adviser to Fidelity VIP II's Portfolios.
    8. Alger, a Massachusetts business trust, is registered under the 
Act as an open-end management investment company. Alger is currently 
comprised of six portfolios, one of which would be involved in the 
proposed substitutions. Alger issues a separate series of shares of 
beneficial interest in connection with each portfolio, and has 
registered such shares under the 1933 Act on Form N-1A. Fred Alger 
Management Inc. serves as the investment adviser to Alger's Portfolios.
    9. The Series Fund's Money Market Portfolio seeks as high a level 
of current income as is consistent with preservation of capital and 
liquidity. It invests primarily in high-quality U.S. dollar-denominated 
money market instruments of U.S. and foreign issuers that generally 
have remaining maturities of thirteen months or less. The Money Market 
Portfolio's investment adviser complies with industry-standard 
requirements for money market funds regarding the quality, maturity and 
diversification of the fund's investments. The investment adviser 
stresses maintaining a stable $10.00 share price, liquidity and income. 
The Portfolio's investments are comprised of U.S. government 
securities, obligations issued or guaranteed as to principal and 
interest by the Government of Canada, the government of any Canadian 
province, or any Canadian or provincial Crown agency, obligations such 
as certificates of deposits and bankers' acceptances of banks, prime 
commercial paper; and repurchase agreements backed by U.S. government 
securities.
    10. The Series Fund's Bond Portfolio seeks as high a level of 
current income and capital appreciation as is consistent with 
preservation of principal. Its primary investments are debt securities, 
and it normally invests at least 80% of its total assets in U.S. 
government securities; publicly traded debt instruments rated within 
the four highest categories by a rating agency; and Canadian government 
obligations. The Portfolio only invests in U.S. dollar-denominated debt 
instruments.
    11. The Series Fund's International Equity Portfolio seeks long-
term capital appreciation by investing inequity or equity type 
securities of companies located outside the United States. The 
International Equity Portfolio's subadviser seeks diversification by 
purchasing securities of at least four different countries that offer 
varying investment opportunities and are affected by different economic 
trends. The Portfolio may invest in developed countries, in American 
Depository Receipts, European Depositary Receipts and up to 30% of its 
total assets in emerging markets countries. In seeking to limit risks, 
the Portfolio's exposure is limited as follows: to a single industry 
group to 25% of its total assets; to a single country, excluding the 
United Kingdom and Japan, to 25% of its total assets; by normally 
holding investments in at least 4 countries and at least 40 different 
companies; and by investing in a minimum of at least 5 to 8 different 
industry groups.
    12. The Series Fund's Capital Portfolio seeks capital appreciation, 
not current income, by investing in common stocks and securities 
convertible into or exchangeable for common stocks, in common stock 
purchase warrants, in debt securities, and in preferred stocks believed 
to provide capital appreciation opportunities. The Capital Portfolio's 
subadviser selects common stocks based on their near- or intermediate-
term prospects, and its portfolio manager selects stock believed to be 
underpriced or stocks of growth companies, cyclical companies, or 
companies believed to be undergoing a basic change for the better. The 
Capital Portfolio may invest in stocks of companies showing earnings 
growth and predictability and newer, less-seasoned companies believed 
to have better-than-average prospects.
    13. The Series Fund's Managed Portfolio seeks as high a level of 
return as possible, through capital appreciation and income, consistent 
with prudent invesmtent risk and preservation of capital. The Managed 
Portfolio follows a fully managed investment policy by investing in 
three types of investments: equities, debt obligations, and money 
market instruments. There are no maximum or minimum percentages as to 
the amount of the Portfolio's assets that may be invested in any one 
type of investment. The Managed Portfolio's investment adviser 
determines the asset mix based on its overall analysis of the political 
and economic outlook over the next six to eighteen months, taking into 
account such factors as inflation, commodity prices, growth, relative 
values of stocks and bonds, and trends in currency values.
    14. The Series Fund's Value Equity Portfolio seeks long-term growth 
of capital and income by investing in equity securities which are 
believed to have appreciation potential. The portfolio manager 
principal approach is to invest in common stocks having depressed 
values based on poor current

[[Page 16425]]

market and appearing undervalued relative to normal earnings power. The 
portfolio manager chooses investments emphasizing companies with good 
financial resources, satisfactory rate of return on capital, good 
industry position, and superior management skills.
    15. The Fidelity Money Market Portfolio seeks as high a level of 
current income as is consistent with preservation of capital and 
liquidity. The principal investment strategies of the Portfolio's 
investment adviser include investing in U.S. dollar-denominated money 
market securities, including U.S. Government securities and repurchase 
agreements, and entering into reverse repurchase agreements; investing 
more than 25% of total assets in the financial services industry; and 
investing in compliance with industry-standard requirements for money 
market funds for the quality, maturity and diversification of 
investments. The investment adviser stresses maintaining a stable 41.00 
share price, liquidity and income.
    16. The Fidelity Overseas Portfolio seeks long-term growth of 
capital. The principal investment strategies of the Portfolio's 
investment adviser include investing at least 65% of total assets in 
foreign securities; investing primarily in common stocks; allocating 
investments across countries and regions considering the size of the 
market in each country and region relative to the size of the 
international market as a whole; and using fundamental analysis of each 
issuer's financial condition and industry position and market and 
economic conditions to select investments.
    17. The Fidelity Bond Portfolio seeks as high a level of current 
income as is consistent with the preservation of capital. The principal 
investment strategies of the Portfolio's investment adviser include 
investing in U.S. dollar-denominated investment-grade bonds; managing 
the fund to have similar overall interest rate risk to the Lehman 
Brothers Aggregate Bond Index; allocating assets across different 
market sectors and maturities; and using analysis of a security's 
structural features, current pricing and trading opportunities, and the 
credit quality of its issuer to select investments.
    18. The Fidelity Asset Manager Portfolio seeks to obtain high 
return with reduced risk over the long term by allocating its assets 
among stocks, bonds, and short-term instruments. The principal 
investment strategies of the Portfolio's investment adviser include 
allocating the fund's assets among stocks, bonds, and short-term and 
money market instruments; maintaining a neutral mix over time of 50% of 
assets in stocks, 40% of assets in bonds, and 10% of assets in short-
term and money market instruments; adjusting allocation among asset 
classes gradually within the following ranges: stock class (30%-70%), 
bond class (20%-60%), and short-term/money market class (0%-50%); 
investing in domestic and foreign issuers; and using analysis off 
fundamental and/or quantitative factors and evaluation of each 
security's current price relative to estimated long-term value to 
select investments.
    19. The Alger MidCap Portfolio seeks long-term capital 
appreciation. The Alger MidCap Portfolio focuses on midsize companies 
with promising growth potential. Under normal circumstances, the 
Portfolio invests primarily in the equity securities of companies 
having a market capitalization within the range of companies in the S&P 
Mid Cap 400 Index.
    20. The Fidelity Contrafund Portfolio seeks long-term capital 
appreciation. The principal investment strategies of the Portfolio's 
investment adviser include investing primarily in common stocks; 
investing in securities of companies whose value it believes is not 
fully recognized by the public; investing in domestic and foreign 
issuers; investing in either ``growth'' stocks or ``value'' stocks or 
both; and using fundamental analysis of each issuer's financial 
condition and industry position and market and economic conditions to 
select investments.
    21. The Contracts provide for the accumulation of values on a 
variable basis, fixed basis, or both, during the accumulation period, 
and provide settlement or annuity payment options on a fixed basis. 
Under the Contracts, Canada Life and Canada Life of New York reserve 
the right to substitute shares of another portfolio of the Management 
Companies or shares of a different management company. A policyowner 
may make unlimited transfers (in minimum amounts of $250 or the entire 
value of the subaccounts of the Accounts or the fixed account that is 
part of the general account of Canada Life or Canada Life of New York. 
The first twelve transfers during each policy year are free. Canada 
Life and Canada Life of New York assess a $25 transfer fee for each 
transfer in excess of twelve made during a policy year.
    22. Since its inception, the Series Fund has been relatively small 
for several reasons, including the fact that its Portfolios are only 
offered as funding vehicles for products of Canada Life and Canada Life 
of New York. As a result, the Series Fund has been able to generate a 
sufficient level of assets to achieve any significant economies of 
scale, and has not been able to achieve above-average performance 
results or otherwise distinguish itself from other Management Companies 
that offer comparable portfolios. In light of the fact that a number of 
unaffiliated mutual fund organizations have large and successful 
insurance product portfolios in which the Accounts could invest, 
including several that the Accounts already invest in, Canada Life and 
Canada Life of New York propose substituting shares of the Fidelity 
VIP, Fidelity VIP II and Alger Portfolios for shares of the Series Fund 
Portfolios. The Fidelity VIP, Fidelity VIP II and Alger Portfolios are 
all part of a larger group of funds and have more distribution channels 
that the Series Fund Portfolios. Although the immediate increase in the 
size of the Fidelity VIP, Fidelity VIP II and Alger Portfolios as a 
direct result of the proposed substitutions would be modes, Applicants 
understand that these Portfolios offer their shares to insurance 
companies other than Canada Life and Canada Life of New York as 
investment options under various variable annuity and variable life 
insurance contracts issued by such companies. Applicants believe that 
the Fidelity VIP, Fidelity VIP II and Alger Portfolios would offer 
policyowners invested in them better growth prospects and greater 
appeal than is currently the case with the Series Fund Portfolios.
    23. Canada Life and Canada Life of New York, on their behalf and on 
behalf of the Canada Life Account and the Canada Life of New York 
Account, propose to substitute: (1) Shares of the Fidelity Money Market 
Portfolio for shares of the Money Market Portfolio; (2) shares of the 
Fidelity Bond Portfolio for shares of the Bond Portfolio; (3) shares of 
the Fidelity Overseas Portfolio for shares of the International Equity 
Portfolio; (4) shares of the Alger MidCap Portfolio for shares of the 
Capital Portfolio; (5) shares of the Fidelity Asset Manager Portfolio 
for shares of the Managed Portfolio; and (6) shares of the Fidelity 
Contrafund Portfolio for shares of the Value Equity Portfolio.
    24. Certain subaccounts of the Canada Life Account and the Canada 
Life of New York Account currently invest in shares representing an 
interest in the Fidelity Overseas Portfolio, Alger MidCap Portfolio, 
Fidelity Asset Manager Portfolio and Fidelity Contrafund Portfolio. 
Accordingly, immediately following the substitution transactions, the 
Canada Life Account and the Canada Life of New York Account would each 
have two

[[Page 16426]]

subaccounts holding shares of Fidelity Overseas Portfolio, two 
subaccounts holding shares of Alger MidCap Portfolio, two subaccounts 
holding shares of Fidelity Asset Manager Portfolio, and two subaccounts 
holding shares of Fidelity Contrafund Portfolio. The Canada Life 
Account and the Canada Life of New York Account would immediately 
combine the two subaccounts holding shares of the Fidelity Overseas 
Portfolio by transferring shares on the same date from one of the 
subaccounts holding shares of the Fidelity Overseas Portfolio to the 
other subaccount holding shares of the Overseas Portfolio. The Canada 
Life Account and the Canada Life of New York Account would similarly 
combine the two subaccounts holding shares of Alger MidCap Portfolio, 
Fidelity Asset Manager Portfolio, and Fidelity Contrafund Portfolio.
    25. With respect to the proposed substitution of shares of the 
Fidelity Money Market Portfolio for shares of the Money Market 
Portfolio, both Portfolios share substantially similar investment 
objectives using similar investment policies by seeking to provide 
policyowners with as high a level of current income as is consistent 
with preservation of capital and liquidity. Applicants believe that by 
making the proposed substitution, they can better serve the interests 
of policyowners by offering them a Portfolio which in recent years has 
had lower expenses and better performance than the Money Market 
Portfolio. The assets of the Fidelity Money Market Portfolio have been 
significantly greater than the assets of the Money Market Portfolio for 
each of the past three years. As a result of its size, the Fidelity 
Money Market Portfolio has been able to achieve economies of scale that 
the Money Market Portfolio could not attain. These economies of scale 
are reflected in the fidelity Money Market Portfolio's ratio of total 
operating expenses to net asset value. Even after the Money Market 
Portfolio received an expense reimbursement, the Fidelity Money Market 
Portfolio's expense ratios have been less than one-half those of the 
Money Market Portfolio over the past three years. Applicants believe 
that the Fidelity Money Market Portfolio in the near future. Further, 
the Fidelity Money Market Portfolio has had better cumulative 
performance than has the Money Market Portfolio during the past three 
years. Accordingly, this proposed substitution would move policyowners 
currently invested in the Money Market Portfolio to a much larger fund 
with a significantly greater level of net assets, lower expense ratios, 
and substantially the same risk and reward characteristics. The net 
assets, expense ratios (expressed as a percentage of net assets), and 
returns of the two funds are shown in the following charts:

----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                     Money market portfolio\1\                         Net assets at     ratio \2\      return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................         $7,599,213         0.75         4.58
1997...............................................................          9,149,393         0.75         4.95
1998...............................................................         12,309,897         0.75        4.77
----------------------------------------------------------------------------------------------------------------
\1\ The Money Market Portfolio began operations on Dec. 4, 1989.
 \2\ Before expense reimbursement, the Money Market Portfolio's expense ratios for 1996, 1997, and 1998 were
  1.09%, 1.16% and 0.95%, respectively.


----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                 Fidelity money market portfolio\1\                    Net assets at       ratio        return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................     $1,126,155,000         0.30         5.41
1997...............................................................      1,020,794,000         0.31         5.51
1998...............................................................      1,507,489,000         0.30        5.46
----------------------------------------------------------------------------------------------------------------
\1\ The Fidelity Money Market Portfolio began operations on April 1, 1982.

    26. With respect to the proposed substitution of shares of the 
Fidelity Bond Portfolio for shares of the Bond Portfolio, both 
Portfolios have substantially the same investment objective and pursue 
this objective using similar investment policies. Both Portfolios seek 
to provide policyowners with as high a level of current income as is 
consistent with the preservation of capital by investing in U.S. 
dollar-denominated debt instruments. Applicants believe that the 
interests of policyowners will be better served by making the proposed 
substitutions and offering policyowners a Portfolio which has 
experienced lower expenses and a greater level of assets than the Bond 
Portfolio in recent years. The assets of the Fidelity Bond Portfolio 
have been significantly greater than the assets of the Bond Portfolio 
for each of the past three years. Due to the fact that the Fidelity 
Bond Portfolio is a much larger Portfolio than the Bond Portfolio, it 
has been able to take advantage of much greater economies of scale. 
These economies of scale are reflected in the Fidelity Bond Portfolio's 
lower expense ratios, which have been approximately one-third less than 
those of the Bond Portfolio's expense ratios,after expense 
reimbursement, during the past three years. Applicants believe that the 
Fidelity Bond Portfolio will continue to have significantly greater 
assets than the Bond Portfolio, and have no reason to believe, given 
the limited distribution of the Bond Portfolio, that the Bond Portfolio 
will match the low expense ratios of the Fidelity Bond Portfolio in the 
near future. Further, although the Fidelity Bond Portfolio and Bond 
Portfolio have both experienced approximately the same cumulative 
performance during the past three years, Applicants have no reason to 
believe that, in the near future, the performance of the Bond Portfolio 
will significantly exceed that of the Fidelity Bond Portfolio. 
Accordingly, this proposed substitution would offer policyowners 
currently invested in the Bond Portfolio the opportunity to invest in a 
much larger fund with a significantly greater level of net assets, 
lower expense ratios, and substantially the same risk and reward 
characteristics. The net assets, expense ratios (expressed as a 
percentage of net assets), and returns of the two funds are shown in 
the following charts:

[[Page 16427]]



----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                         Bond portfolio \1\                            Net assets at     ratio \2\      return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................         $6,712,914         0.90         4.66
1997...............................................................          7,065,818         0.90         8.09
1998...............................................................         16,705,618         0.90        9.00
----------------------------------------------------------------------------------------------------------------
\1\ The Bond Portfolio began operations on December 4, 1989.
\2\ Before expense reimbursement, the Bond Portfolio's expense ratios for 1996, 1997, and 1998 were 1.08%, 1.02%
  and 0.92%, respectively.


----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                    Fidelity bond portfolio \1\                        Net assets at     ratio \2\      return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................       $228,594,000         0.58         3.19
1997...............................................................        324,525,000         0.58         9.06
1998...............................................................        674,813,000         0.57        8.85
----------------------------------------------------------------------------------------------------------------
\1\ The Fidelity Bond Portfolio began operations on December 5, 1988.
\2\ The investment adviser has voluntarily agreed to reimburse the Fidelity Bond Portfolio to the extent that
  total operating expenses (excluding interest, taxes, securities lending fees, brokerage commissions and
  extraordinary expenses), as a percentage of its average net assets, exceed 0.80%.

    27. With respect to the proposed substitution of shares of the 
Fidelity Overseas Portfolio for shares of the International Equity 
Portfolio, both Portfolios seek to provide policyowners with long-term 
growth of capital by investing primarily in equity or equity type 
securities of companies located outside the United States. The two 
Portfolios have substantially similar investment objectives and similar 
investment policies. Applicants believe that policyowners will be 
better off if, as proposed, they are offered the Fidelity Overseas 
Portfolio which in recent years has had a greater level of assets and 
lower expenses than the International Equity Portfolio. The assets of 
the Fidelity Overseas Portfolio have been significantly greater than 
the assets of the International Equity Portfolio for each of the past 
three years. The Fidelity Overseas Portfolio's ratio of total operating 
expenses to net asset value, which have been much lower than the 
International Equity Portfolio's during the past three years, reflect a 
level of economies of scale that the International Equity Portfolio has 
not been able to achieve. Applicants believe that the Fidelity Overseas 
Portfolio will continue to have significantly greater assets than the 
International Equity Portfolio, and have no reason to believe, given 
the limited distribution of the International Equity Portfolio, that 
the International Equity Portfolio will match the low expense ratios of 
the Fidelity Overseas Portfolio in the near future. Further, although 
neither Portfolio has consistently outperformed the other during the 
past three years, this proposed substitution would move policyowners 
currently invested in the International Equity Portfolio to a much 
larger fund with a significantly greater level of net assets, lower 
expense ratios, and substantially the same risk and reward 
characteristics. The net assets, expense ratios (expressed as a 
percentage of net assets), and returns of the two funds are shown in 
the following charts:

----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                 International equity portfolio \1\                    Net assets at     ratio \2\      return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................         $3,305,190         1.20        19.44
1997...............................................................          4,771,122         1.20         4.32
1998...............................................................          6,259,057         1.20       13.37
----------------------------------------------------------------------------------------------------------------
\1\ The International Equity Portfolio began operations on April 24, 1995.
\2\ Before expense reimbursement, the International Equity Portfolio's expense ratios for 1996, 1997, and 1998
  were 1.56%, 1.32% and 1.47%, respectively.


----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                  Fidelity overseas portfolio \1\                      Net assets at     ratio \2\      return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................     $1,667,601,000         0.92        13.15
1997...............................................................      1,926,322,000         0.90        11.56
1998...............................................................      2,074,843,000         0.89       12.81
----------------------------------------------------------------------------------------------------------------
\1\ The Fidelity Overseas Portfolio began operations on Jan. 28, 1987.
\2\ The investment adviser or the Fidelity Overseas Portfolio has entered into varying arrangements with third
  parties who either paid or reduced a portion of the Portfolio's expenses. Before such reimbursements or
  reductions, the Portfolio's expense ratios for 1996, 1997, and 1998 were 0.93%, 0.92% and 0.91%, respectively.
  The investment adviser has voluntarily agreed to reimburse the Fidelity Overseas Portfolio to the extent that
  total operating expenses (excluding interest, taxes, securities lending fees, brokerage commissions and
  extraordinary expenses), as a percentage of its average net assets, exceed 1.50%.

    28. With respect to the proposed substitution of shares of the 
Alger MidCap Portfolio for shares of the Capital Portfolio, although 
the Alger MidCap Portfolio invests primarily in the equity securities 
of companies having a market capitalization within the range of 
companies in the S&P MidCap 400 Index, it shares substantially the same 
investment objective as the Capital Portfolio in that both Portfolios 
seek to provide

[[Page 16428]]

policyowners with capital appreciation by focusing on companies with 
promising growth potential. Applicants believe that by making the 
proposed substitution, they can better serve the interests of 
policyowners by offering them a Portfolio which in recent years has had 
lower expenses and in the past year a higher total return than the 
Capital Portfolio. The assets of the Alger MidCap Portfolio have been 
significantly greater than the assets of the Capital Portfolio for each 
of the past three years. As a result of its size, the Alger MidCap 
Portfolio has been able to achieve economies of scale that the Capital 
Portfolio could not attain, which are reflected in the Alger MidCap 
Portfolio's ratio of total operating expenses to net asset value. 
Applicants believe that the Alger MidCap Portfolio will continue to 
have significantly greater assets than the Capital Portfolio, and have 
no reason to believe, given the limited distribution of the Capital 
Portfolio, that the Capital Portfolio will match the lower expense 
ratios of the Alger MidCap Portfolio in the near future. Further, 
although the Capital Portfolio experienced higher total returns than 
the Alger MidCap Portfolio in 1996 and 1997, the Alger MidCap 
Portfolio's total return in 1998 was substantially higher than the 
Capital Portfolio's return. Applicants believe that this proposed 
substitution would move policyowners currently invested in the Capital 
Portfolio to a much larger fund with a significantly greater level of 
net assets, lower expense ratios, and substantially the same risk and 
reward characteristics. The net assets, expense ratios (expressed as a 
percentage of net assets), and returns of the two funds are shown in 
the following charts:

----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                       Capital portfolio \1\                           Net assets at     ratio \2\      return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................         $6,676,516         0.90        12.65
1997...............................................................          6,494,058         0.90        21.14
1998...............................................................          8,407,733         0.90       20.23
----------------------------------------------------------------------------------------------------------------
\1\ The Capital Portfolio began operations on May 1, 1993.
\2\ Before expense reimbursement, the Capital Portfolio's expense ratios for 1996, 1997, and 1998 were 0.99%,
  0.99% and 0.99%, respectively.


----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                     Alger MidCap portfolio \1\                        Net assets at     ratio \2\      return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................       $394,847,000         0.84        11.90
1997...............................................................        444,967,000         0.84        15.01
1998...............................................................        689,571,000         0.84       30.30
----------------------------------------------------------------------------------------------------------------
\1\ The Alger MidCap Portfolio began operations on May 3, 1993.

    29. With respect to the proposed substitution of shares of the 
Fidelity Asset Manager Portfolio for shares of the Managed Portfolio, 
both Portfolios have substantially the same investment objective and 
both pursue this objective using similar investment policies. Both 
Portfolios seek to provide policyowners with high total return, 
consistent with prudent investment risk, by allocating the Portfolio 
assets among equities, debt obligations, and short-term and money 
market instruments. Applicants believe that by making the proposed 
substitution, they can better serve the interests of policyowners by 
offering them a Portfolio which in recent years has had lower expenses 
and better performance than the Managed Portfolio. The assets of the 
Fidelity Asset Manager Portfolio have been significantly greater than 
the assets of the Managed Portfolio for each of the past three years. 
As a result of its size, the Fidelity Asset Manager Portfolio has been 
able to achieve economies of scale that the Managed Portfolio could not 
attain. These economies of scale are reflected in the Fidelity Asset 
Manager Portfolio's lower expense ratios. Applicants believe that the 
Fidelity Asset Manager Portfolio will continue to have significantly 
greater assets than the Managed Portfolio, and have no reason to 
believe, given the limited distribution of the Managed Portfolio, that 
the Managed Portfolio will match the low expense ratios of the Fidelity 
Asset Manager Portfolio in the near future. Further, the Fidelity Asset 
Manager Portfolio has had better cumulative performance than has the 
Managed Portfolio during the past three years. Accordingly, this 
proposed substitution would move policyowners currently invested in the 
Managed Portfolio to a much larger fund with a significantly greater 
level of net assets, lower expense ratios, higher total returns and 
substantially the same risk and reward characteristics. The net assets, 
expense ratios (expressed as a percentage of net assets), and returns 
of the two funds are shown in the following charts:

----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                        Managed portfolio 1                            Net assets at      ratio 2       return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................        $15,972,639         0.90         5.75
1997...............................................................         15,277,567         0.90        17.61
1998...............................................................         13,308,554         0.90        5.15
----------------------------------------------------------------------------------------------------------------
1 The Managed Portfolio began operations on Dec. 4, 1989.
2 Before expense reimbursement, the Managed Portfolio's expense ratios for 1996, 1997, and 1998 were 0.95%,
  0.95% and 0.96%, respectively.


----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                 Fidelity asset manager portfolio 1                    Net assets at      ratio 2       return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................     $3,641,194,000         0.73        14.60

[[Page 16429]]

 
1997...............................................................      4,399,937,000         0.64        20.65
1998...............................................................      4,905,468,000         0.63       15.05
----------------------------------------------------------------------------------------------------------------
1 The Fidelity Asset Manager Portfolio began operations on Sept. 6, 1989.
2 The investment adviser of the Fidelity Asset Manager Portfolio has entered into varying arrangements with
  third parties who either paid or reduced a portion of the Portfolio's expenses. Before such reimbursements or
  reductions, the Portfolio's expense ratios for 1996, 1997 and 1998 were 0.74%, 0.65% and 0.64%, respectively.
  The investment adviser has voluntarily agreed to reimburse the Fidelity Asset Manager Portfolio to the extent
  that total operating expenses (excluding interest, taxes, securities lending fees, brokerage commissions and
  extraordinary expenses) as a percentage of its average net assets, exceed 1.25%.

    30. With respect to the proposed substitution of shares of the 
Fidelity Contrafund Portfolio for shares of the Value Equity Portfolio, 
the investment objectives of both Portfolios are substantially similar 
in that both Portfolios seek long-term capital appreciation, although 
the Value Equity Portfolio also pursues long-term growth of income. 
Further, although the Fidelity Contrafund Portfolio's investment 
policies are broader than those of the Value Equity Portfolio, one of 
its principal investment strategies parallels the primary approach of 
the Value Equity Portfolio: to invest in securities which appear to be 
undervalued. In addition, Applicants believe that by making the 
proposed substitution, they can better serve the interests of 
policyowners by offering them a Portfolio which in recent years has had 
lower expenses and better overall total returns than the Value Equity 
Portfolio. The assets of the Fidelity Contrafund Portfolio have been 
significantly greater than the assets of the Value Equity Portfolio for 
each of the past three years. As with all of the Portfolios proposed as 
adequate substitutions for the Series Fund Portfolios, the Fidelity 
Contrafund Portfolio's size has resulted in greater economies of scale 
than that of the Value Equity Portfolio. The Fidelity Contrafund 
Portfolio's expense ratios have been consistently lower than the Value 
Equity Portfolio's expense ratios over the past three years. Applicants 
believe that the Fidelity Contrafund Portfolio will continue to have 
significantly greater assets than the Value Equity Portfolio, and have 
no reason to believe, given the limited distribution of the Value 
Equity Portfolio, that the Value Equity Portfolio will match the lower 
expense ratios of the Fidelity Contrafund Portfolio in the near future. 
Further, the Fidelity Contrafund Portfolio has experienced higher total 
returns in 1996 and 1998 than the Value Equity Portfolio. Applicants 
believe that this proposed substitution would move policyowners 
currently invested in the Value Equity Portfolio to a much larger fund 
with a significantly greater level of net assets and lower expense 
ratios. The net assets, expense ratios (expressed as a percentage of 
net assets), and returns of the two funds are shown in the following 
chairs:

----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                      Value equity portfolio 1                         Net assets at      ratio 2       return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................         $8,519,192         0.90        16.94
1997...............................................................         10,146,856         0.90        26.93
1998...............................................................         16,829,336         0.90        2.81
----------------------------------------------------------------------------------------------------------------
1 The Value Equity Portfolio began operations on Dec. 4, 1989.
2 Before expense reimbursement, the Value Equity Portfolio's expense ratios for 1996, 1997, and 1998 were 0.99%,
  1.01% and 0.97%, respectively.


----------------------------------------------------------------------------------------------------------------
                                                                                          Expense       Total
                 Fidelity contrafund portfolio \1\                     Net assets at     ratio \2\      return
                                                                          year-end       (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
1996...............................................................     $2,394,103,000          .71        21.22
1997...............................................................      4,107,868,000          .68        24.14
1998...............................................................      6,388,592,000          .66        29.98
----------------------------------------------------------------------------------------------------------------
\1\ The Fidelity Contrafund Portfolio began operations on January 3, 1995.
\2\ The investment adviser of the Fidelity Contrafund Portfolio has entered into varying arrangements with third
  parties who either paid or reduced a portion of the Portfolio's expenses. Before such reimbursements or
  reductions, the Portfolio's expense ratios for 1996, 1997 and 1998 were 0.74%, 0.71% and 0.70%, respectively.
  The investment adviser has voluntarily agreed to reimburse the Fidelity Contrafund Portfolio to the extent
  that total operating expenses (excluding interest, taxes, securities lending fees, brokerage commissions and
  extraordinary expenses) as a percentage of its average net assets, exceed 1.00%.

    31. Canada Life and Canada Life of New York will redeem the shares 
of the Series Fund Portfolios for cash and use the redemption proceeds 
to purchase shares of the Fidelity VIP, Fidelity VIP II and Alger 
Portfolios. The proposed substitutions will take place at relative net 
asset value with no change in the amount of any policyowner's policy 
value, cash value or death benefit or in the dollar value of his or her 
investment in either of the Accounts. As a result, policyowners will 
remain fully invested. Policyowners will not incur any fees or charges 
as a result of the proposed substitutions, nor will their rights or 
Canada Life's and Canada Life of New York's obligations under the 
Contracts be altered in any way. All expenses incurred in connection 
with the proposed substitutions, including legal, accounting and other 
fees and expenses, will be paid by Canada Life and Canada Life of New 
York. In addition, the proposed substitutions will not impose any tax 
liability on policyowners. The proposed substitutions will not cause 
the Contract fees and charges currently being paid by existing 
policyowners to be greater after

[[Page 16430]]

the proposed substitutions than before the proposed substitutions. The 
proposed substitutions will not be treated as a transfer for the 
purpose of assessing transfer charges or for determining the number of 
remaining permissible transfers in a policy year. Canada Life and 
Canada Life of New York will not exercise any right they may have under 
the Contracts to impose additional restrictions on transfers under any 
of the Contracts for a period of at least 30 days following the 
substitutions.
    32. By supplements to the various prospectuses for the Contracts 
and the Accounts, Canada Life and Canada Life of New York will notify 
all owners of the Contracts of their intention to effect the 
substitutions. The supplements advise policyowners that from the date 
of the supplement until the date of the proposed substitution, they are 
permitted to make one transfer of all amounts which are invested, as of 
the date of the supplement, in any one of the affected subaccounts to 
another subaccount (other than one of the other affected subaccounts) 
without that transfer counting as a ``free'' transfer under the 
Contract. The supplements also inform policyowners that Canada Life and 
Canada Life of New York will not exercise any rights reserved under any 
Contract to impose additional restrictions on transfers until at least 
30 days after the proposed substitutions.
    33. In addition to the prospectus supplements distributed to owners 
of Contracts, within five days after the proposed substitutions are 
effected, any policyowners who were affected by the substitutions will 
be sent a written notice informing them that the substitutions were 
carried out and that they may make one transfer of all policy value or 
cash value under a Contract invested in any one of the affected 
subaccounts on the date of the notice to another subaccount available 
under their Contract or to the fixed account without that transfer 
counting as one of any limited number of transfers permitted in a 
policy year or as one of a limited number of transfers permitted in a 
policy year free of charge. The notice will also reiterate the fact 
that Canada Life and Canada Life of New York will not exercise any 
rights reserved by them under the Contracts to impose additional 
restrictions on transfers until at least 30 days after the proposed 
substitutions. The notice as delivered in certain states also may 
explain that, under the insurance regulations in those states, 
policyowners who are affected by the substitutions may exchange their 
Contracts for fixed-benefit life insurance contracts or annuity 
contracts, as applicable, issued by Canada Life and Canada Life of New 
York (or one of their affiliates) during the 60 days following the 
proposed substitutions. The notices will be preceded or accompanied by 
current prospectuses for Fidelity VIP, Fidelity VIP II and Alger.

Applicants' Legal Analysis

    1. Section 26(b) of the Act requires the depositor of a registered 
unit investment trust holding the securities of a single issuer to 
obtain Commission approval before substituting the securities held by 
the trust. Specifically, Section 26(b) states 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. 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 policy and provisions of 
this title.

    2. Applicants state that the substitutions appear to involve 
substitutions of securities within the meaning of Section 26(b) of the 
Act and request that the Commission issue an order pursuant to Section 
26(b) of the Act approving the substitutions.
    3. The Contracts expressly reserve for Canada Life and Canada Life 
of New York the right, subject to compliance with applicable law, to 
substitute shares of another Management Company for shares of a 
Management Company held by a subaccount of the Canada Life Account or 
the Canada Life of New York Account. The prospectuses for the Contracts 
and the Canada Life Account and the Canada Life of New York Account 
contain appropriate disclosure of this right.
    4. Applicants request an order of the Commission pursuant to 
Section 26(b) of the Act approving the proposed substitutions by Canada 
Life and Canada Life of New York. Applicants assert that the proposed 
substitutions are consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    5. Applicants assert that the Fidelity VIP, Fidelity VIP II and 
Alger Portfolios would offer policyowners better growth prospects than 
the Series Fund Portfolios do. The Fidelity VIP, Fidelity VIP II and 
Alger Portfolios are all part of a larger group of funds and have more 
distribution channels than the Series Fund Portfolios. Applicants 
therefore believe that the Fidelity VIP, Fidelity VIP II and Alger 
Portfolios will offer greater appeal and the capacity for faster future 
growth to potential future investors than would the Series Fund 
Portfolios. Further, the investment objectives of the Series Fund 
Portfolios are substantially similar if not identical to those of their 
corresponding Fidelity VIP, Fidelity VIP II, and Alger Portfolios, with 
such objectives being pursued using the same or similar investment 
policies. Accordingly, although the Fidelity VIP, Fidelity VIP II and 
Alger Portfolios and the Series Fund Portfolios do not share the same 
investment adviser, Applicants assert that the proposed substitutions 
will result in an array of subaccounts that not only continue to meet 
policyholders' investment expectations and maintain investment 
flexibility, but that are essentially the same as the array offered 
prior to the substitution, except that the underlying portfolios will 
be larger with lower expense ratios. For these reasons, Applicants 
assert that policyowners would benefit from the proposed substitutions.
    6. Applicants assert that each of the substitutions is not the type 
of substitution which Section 26(b) was designed to prevent. Unlike 
traditional unit investment trusts where a depositor could only 
substitute an investment security in a manner which permanently 
affected all the investors in the trust, the Contracts provide each 
policyowner with the right to exercise his or her own judgment and 
transfer policy or cash values into other subaccounts. Moreover, the 
Contracts will offer policyowners the opportunity to transfer amounts 
out of the affected subaccounts into any of the remaining subaccounts 
without cost or other disadvantage. Applicants assert that the 
substitutions, therefore, will not result in the type of costly forced 
redemption which Section 26(b) was designed to prevent.
    7. Applicants further assert that the proposed substitutions also 
are unlike the type of substitution which Section 26(b) was designed to 
prevent in that by purchasing a Contract, policyowners select much more 
than a particular investment company in which to invest their account 
values. Applicants believe that they also select the specific type of 
insurance coverage offered by Canada Life and Canada Life of New York 
under their contract as well as numerous other rights and privileges 
set forth in the Contract. Applicants assert that policyowners may also 
have considered Canada Life's and Canada Life of New York's size, 
financial condition, type and their reputation for service in selecting 
their Contract. Applicants maintain that these factors will not

[[Page 16431]]

change as a result of the proposed substitutions.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
substitutions are consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-7584 Filed 3-27-00; 8:45 am]
BILLING CODE 8010-01-M