[Federal Register Volume 63, Number 141 (Thursday, July 23, 1998)]
[Notices]
[Pages 39603-39606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19651]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23317; File No. 812-10896]


Equitable Life Insurance Company of Iowa, et al.; Notice of 
Application

July 16, 1998.
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 (the ``1940 Act'') 
and an order granting exemptive relief pursuant to Section 17(b) of the 
1940 Act.

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SUMMARY OF APPLICATION: Applicants seek an order pursuant to Section 
26(b) of the 1940 Act approving the substitution of shares of certain 
portfolios of the GCG Trust for shares of certain portfolios of the ESS 
Trust. Applicants also seek an order, pursuant to Section 17(b) of the 
1940 Act, granting exemptions from Section 17(a) to permit Applicants 
to carry out the substitutions by means of in-kind redemption and 
purchase transactions, and to permit Applicants to combine certain 
subaccounts holding shares of the same substitute fund after the 
substitutions.

APPLICANTS: Equitable Life Insurance Company of Iowa (``Equitable''), 
Equitable Life Insurance Company of Iowa Separate Account A 
(``Equitable Separate Account A''), 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''), First Golden American Life Insurance Company of 
New York (``First Golden''), First Golden American Life Insurance 
Company of New York Separate Account NY-B (``First Golden Separate 
Account NY-B''), The GCG Trust (``GCG Trust''), and the Equi-Select 
Series Trust (``ESS Trust'') (collectively, ``Applicants'').

FILING DATES: The application was filed on December 15, 1997, and 
amended and restated on March 18, 1998, and July 2, 1998.

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 SEC's Secretary 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 
August 10, 1998, and should be accompanied by proof of service on 
Applicants in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing request should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
who wish to be notified of a hearing may request notification by 
writing to the SEC's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, DC 20549. Applicants, Marilyn Talman, 
Esquire, Golden American Life Insurance Company, 1001 Jefferson Street, 
Suite 400, Wilmington, DE 19801.

FOR FURTHER INFORMATION CONTACT:
Megan Dunphy, Attorney, or Mark C. Amorosi, 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 SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, 
DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Equitable and Golden American are stock life insurance companies 
organized under the insurance laws of Iowa and Delaware, 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. Equitable, Golden American and 
First Golden (collectively, ``Applicant Insurance Companies'') are 
indirect wholly owned subsidiaries of ING Groep, N.V. (``ING''), a 
global financial services holding company.
    2. Equitable Separate Account A, Golden American Separate Account 
A, Golden American Separate Account B and First Golden Separate Account 
NY-B (collectively ``Applicant Separate Accounts'') are separate 
accounts for which one of the Applicant Insurance Companies serves as 
the sponsor and depositor. Equitable serves as sponsor and depositor of 
Equitable Separate Account A; Golden American serves as sponsor and 
depositor of Golden American Separate Account A and Golden American 
Separate Account B; First Golden serves as the 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 1940 Act as a unit investment trust.
    3. Each Applicant Separate Account serves as a funding vehicle for 
certain variable annuity or variable life insurance contracts 
(collectively, ``Variable Contracts'') issued by the Applicant 
Insurance Company of which it is a part. Applicant Separate Accounts 
are divided into separate subaccounts, each dedicated to owning shares 
of a designated investment portfolio of either the GCG Trust (the ``GCG 
Subaccounts'') or the ESS Trust (``ESS Subaccounts''). Holders of any 
Variable Contracts (``Contractholders'') may select one or more of the 
investment options available under the Variable 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.
    4. The ESS Trust is registered under the 1940 Act as an open-end, 
management, services investment company and currently offers nine 
investment portfolios. Of these portfolios, five--Growth & Income, OTC, 
Total Return, Value+Growth and Research Portfolios--invest primarily in 
equity securities. The remaining portfolios--Advantage, Mortgage-Backed 
Securities, International Fixed Income and Money Market Portfolios--
invest primarily in fixed income securities. Overall management 
services are provided to the ESS Trust and each of its individual 
series by Directed Services, Inc. (``DSI''), an indirect, wholly owned 
subsidiary of ING. DSI is an investment adviser registered under the 
Investment Advisers Act of 1940 (``Advisers Act'') and a broker-dealer 
registered under the Securities Exchange Act of 1934.
    5. The GCG Trust is registered under the 1940 Act as an open-end, 
management, series investment company. The GCG Trust offers shares of 
twenty two separate investment series, including six new investment 
series created in anticipation of the

[[Page 39604]]

issuance of the Commission order requested in the application and two 
existing investment series that also will be involved in the 
substitutions described in the application. The new series include (1) 
five series the investment objectives and policies of which will be 
identical to those of the Growth & Income, Total Return, Value+Growth, 
Research and International Fixed Income Portfolios currently offered by 
ESS Trust; and (2) a new series, MidCap Growth Series, that will have 
investment objectives and policies substantially similar to those of 
the OTC Portfolio currently offered by the ESS Trust. The existing 
series include the Liquid Asset Series and the Limited Maturity Bond 
Series. Applicants state that these series have investment objectives 
and policies similar to those of the portfolios which they will 
replace.
    6. Overall management services are provided to the GCG Trust by 
DSI. Under the terms of an investment advisory agreement between GCG 
Trust and DSI (``GCG Trust Management Agreement''), 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. Under the GCG Trust 
Management Agreement, DSI is entitled to receive a fee (``Unified 
Fee'') for its services from each series of the GCG Trust from which 
fee DSI pays the fees of any subadviser or other service providers. The 
Unified Fee is calculated for each GCG Series on a percentage of assets 
basis and in accordance with schedules that provide, for some of the 
GCG Series, fee reductions at specified asset levels or ``break 
points.'' On feature of the Unified Fee is that certain of the GCG 
Series are grouped together for the purpose of determining whether a 
break point has been reached. As a result, a GCG 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. Applicant Insurance Companies have approved a proposal whereby 
the ESS Subaccounts would substitute for securities issued by each 
portfolio of the ESS Trust (each, a ``Replaced ESS Portfolio''), 
securities of a designated series of the GCG Trust (each, a 
``Substitute GCG Series''). Following these transactions (collectively, 
the ``Substitutions''), Equitable Separate Account A will have two 
subaccounts holding shares of the GCG Limited Maturity Bond Series and 
will combine these subaccounts by transferring shares at net asset 
value on the same date from one subaccount to the other. The several 
Substitutions are set forth in Table 1.

                                 Table 1                                
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    ESS replaced portfolio                Substitue GCG series          
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1  Growth & Income Portfolio.  Growth & Income Series.                  
2  Research Portfolio........  Research Series.                         
3  Total Return Portfolio....  Total Return Series.                     
4  Value+Growth Portfolio....  Value+Growth Series.                     
5  International Fixed Income  Global Fixed Income Series.              
 Portfolio.                                                             
6  OTC Portfolio.............  Mid-Cap Growth Series.                   
7  Money Market Portfolio....  Liquid Assets Series.                    
8  Mortgage-Backed Securities  Limited Maturity Bond Series.            
 Portfolio.                                                             
9  Advantage Portfolio.......  Limited Maturity Bond Series.            
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    8. Applicants state that, for each of the Substitutions numbers 1-5 
in Table 1 above, the respective Substitute GCG Series are ``mirror'' 
series of the respective Replaced ESS Portfolios. Applicants have 
concluded that, with respect to each Substitution, the investment 
objectives and policies of the Substitute GCG Series are either 
identical to, or sufficiently similar to, those of the Replaced ESS 
Portfolios to assure that the essential objectives and risk 
expectations of Contractholders with interests in any ESS Subaccount 
(``Affected Contractholders'') can continue to be met. Additionally, 
Applicants state that each Substitute GCG Series will be provided with 
portfolio management services by the same investment advisory 
organization that currently serves the Replaced ESS Portfolio.
    9. Applicants state that the Substitutions and the related 
combination of subaccounts 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 state that, while DSI currently 
provides virtually identical management services to ESS Trust and GGG 
Trust, performance of these services are governed by two different 
agreements. Service provided to ESS Trust are performed pursuant to the 
ESS Trust Management Contract, which requires the Trust (not DSI) to 
pay for services provided by third-party service organizations, such as 
custody, fund accounting, and transfer agency fees and fees for legal 
and auditing expenses. In contrast, services provided by DSI under the 
GGG Trust Management Agreement are offered under the Unified Fee 
arrangement under which DSI is responsible for paying virtually all of 
the expenses associated with managing GGG Trust, including the fees of 
third-party service organizations.
    10. Applicant Insurance Companies represent that the Substitutions 
are appropriate for the following reasons: (1) The implementation of 
the Unified Fee, with respect to each of the Substitute GGG Series, is 
likely to result in certain economies of scale, which savings will 
insure to the benefit of the Affected Contractholders generally and, in 
the case of seven of the nine ESS Portfolios involved in the 
Substitutions, will result in an immediate reduction in the fees 
currently borne by Affected Contractholders; (2) the Substitutions will 
eliminate certain portfolios with insufficient assets to remain cost 
efficient; and (3) the Substitutions will reduce the overlap among the 
investment options associated with the variable insurance products 
offered by Applicant Insurance Companies and thus reduce the potential 
for confusion among Contractholders and prospective investors.
    11. Applicants state that, as of the effective date of the 
Substitutions (``Effective Date''), each Substitution will be effected 
by the Applicant Insurance Companies by redeeming shares of the 
Replaced ESS Portfolios at net asset value and using the proceeds of 
such redemptions, which will be effected in-kind, to purchase the 
appropriate number of shares of the Substitute GGG Series at net asset 
value. Applicant Insurance Companies state that they will bear the 
costs of the Substitutions, including any legal, accounting, brokerage, 
and other fees

[[Page 39605]]

and expenses relating to the Substitutions, and that Affected 
Contractholders will not incur any additional fees or charges as a 
result of the Substitutions, nor will their rights or the obligations 
under any of the Variable Contracts diminish in any way. Applicants 
state that all redemptions of shares of the Replaced ESS Portfolios and 
purchases of shares of the Substitute GGG Series will be effected in 
accordance with Rule 22c-1 under the 1940 Act. Applicants further state 
that the Substitutions will not result in any adverse tax consequences 
to the Affected Contractholders, any change in the economic interest or 
contract values of any Affected Contractholder or any change in the 
dollar value of any Variable Contract held by an Affected 
Contractholder.
    12. Applicants state that Affected Contractholders have been 
notified of this Application by means of prospectus supplements. 
Applicants represent that prior to the Effective Date, each Affected 
Contractholder will be furnished with a copy of a prospectus relating 
to each of the Substitute GGG Series, if one has not already been 
forwarded to Affected Contractholders, and a notice setting forth the 
Effective Date for the Substitutions. The notice will also advise 
Affected Contractholders that contract values attributable to 
investments in the Replaced ESS Portfolios may be transferred to any 
other available subaccount without charge, either prior to, or within 
30 days after the Effective Date.
    13. Applicants state that each Applicant Insurance Company will 
furnish Affected Contractholders with a confirmation of the 
substitutions within five business days of the Substitution that shows 
before and after account values and details the transactions effected 
on behalf of the respective Affected Contractholder in connection with 
the Substitutions.
    14. Applicants maintain that the combination of the two subaccounts 
of Equitable Separate Account A that hold shares of the Limited 
Maturity Bond Series will not have any impact on the value of the 
Variable Contracts involved, the fees or rights of the Affected 
Contractholders, or diminish in any way the obligations of Equitable or 
any other Applicant Insurance Company under any Variable Contract. 
Equitable will bear the costs of such combination, including any legal 
or accounting fees relating to them, and the Affected Contractholders 
will not incur any fees or charges as a result of such combination. In 
addition, the subaccount combination will not result in any adverse tax 
consequences to the Affected Contractholders, or any change in the 
economic interest or contract values of any Affected Contractholder.

Terms of the Substitutions and Related Transactions

    The significant terms of the Substitutions described in the 
application include:
    1. The Substitute GGG Series have objective and policies 
sufficiently similar to the objectives and policies of the Replaced ESS 
Portfolio so that the objective of the Affected Contractholders can 
continue to be met.
    2. With one exception, the expense ratios of the Substitute GGG 
Series will, immediately following the Effective Date, not exceed the 
expense ratios of the Replaced ESS Portfoios (``ESS Expenses Level''), 
absent significant decreases in the asset levels of such series. In the 
case of any Substitute GGG Series the expense ratio of which exceeds 
the ESS Expense Level immediately following the Effective Date, DSI 
will waive its fees and/or reimburse the expenses of the relevant 
Substitute GGG Series such that its expense ratio does not exceed the 
ESS Expense Level. DSI will continue to waive its fees and/or reimburse 
expenses, for each such Substitute GGG Series as necessary in 
accordance with this undertaking until December 31, 1999.
    3. Affected Contractholders may transfer assets from any ESS 
Subaccount to any other subaccount available under the Variable 
Contract held without charge from the date of the notice that the ESS 
Portfolios will be substituted through a date at least 30 days 
following the Effective Date. Affected Contractholders may also 
withdraw amounts under any contract held or terminate their interest in 
any such contract, in accordance with the terms and conditions of any 
such contract, including but not limited to payment of any applicable 
surrender charge.
    4. The Substitutions will be effected at the net asset value of the 
respective shares in conformity with Section 22(c) of the 1940 Act and 
rule 22c-1 thereunder, without the imposition of any transfer or 
similar charge by Applicants.
    5. The Substitutions will take place at respective net asset value 
without change in the amount or value of any Variable Contract held by 
Affected Contractholders. Affected Contractholders will not incur any 
fees or charges as a result of the Substitutions, nor will their rights 
or the obligations of Applicant Insurance Companies under such Variable 
Contracts be altered in any way. All expenses incurred in connection 
with the Substitutions, including legal, accounting and other fees and 
expenses, will be borne by Applicant Insurance Companies or their 
subsidiaries.
    6. Redemptions in kind will be handled in a manner consistent with 
the investment objectives, policies and diversification requirements of 
the GCG Substitute Series. Consistent with Rule 17a-7(d) under the 1940 
Act, no brokerage commissions, fees (except customary transfer fees) or 
other remuneration will be paid by the ESS Replaced Portfolios, GCG 
Substitute Series, or Affected Contractholders in connection with the 
in-kind transactions.
    7. The Substitutions will not be counted as transfers in 
determining the limit on the total number of transfers that Affected 
Contractholders are permitted to make under the Variable Contracts.
    8. Neither the Substitutions nor the subsequent transactions will 
alter in any way the annuity, life or tax benefits afforded under the 
Variable Contracts held by any Affected Contractholder.
    9. Each Applicant Insurance Company will send to its Affected 
Contractholders within five (5) business days of the Substitutions a 
written confirmation showing the before and after values (which will 
not have changed as a result of the Substitutions) and detailing the 
transactions effected on behalf of the respective Affected 
Contractholder with regard to the Substititions.

Conditions of the Substitutions and Related Transactions

    Applicants state that the Substitutions and related transactions 
described in the application will not be completed unless all of the 
following conditions are met:
    1. The Commission shall have issued an order (i) approving the 
Substitutions under Section 26(b) of the 1940 Act; and (ii) exempting 
the in-kind redemptions and the combination of subaccounts from the 
provisions of Section 17(a) of the 1940 Act as necessary to carry out 
the transactions described in the application.
    2. Each Affected Contractholder will have been sent (i) a copy of 
the effective prospectus relating to each of the Substitute GCG Series 
and any necessary amendments to the prospectuses relating to the 
Variable Contracts; and (ii) as soon as reasonably possible after the 
order has been issued and prior to the Effective Date, a notice 
describing the terms of the Substitutions and the rights of the 
Affected Contractholders in connection with the Substitutions.

[[Page 39606]]

    3. Applicant Insurance Companies shall have satisfied themselves, 
that (i) the Variable Contracts allow the substitution of investment in 
the manner contemplated by the Substitutions and related transactions 
described herein; (ii) the transactions can be consummated as described 
in the application under applicable insurance laws; and (iii) that any 
regulatory requirements in each jurisdiction where the Variable 
Contracts are qualified for sale, have been complied with to the extent 
necessary to complete the transactions.

Applicants' Legal Analysis

    1. Section 26(b) of the 1940 Act prohibits any depositor or trustee 
of a 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. Section 26(b) of the 1940 Act 
also provides that the Commission shall issue an order approving such 
substitution if the evidence establishes that the substitution 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 substitutions. Applicants maintain that the 
Substitutions, if implemented, would not raise any of the concerns that 
Congress sought to address when the 1940 Act was amended to include 
this provision (e.g., that a substitution might force shareholders 
dissatisfied with the substituted security to redeem their shares, 
thereby possibly incurring additional sales or surrender charges.) 
Applicants also maintain that, subject to the terms and conditions 
summarized in this notice, the Substitution is consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the 1940 Act.
    3. Section 17(a)(1) and (2) of the 1940 Act generally prohibits an 
affiliated person of a registered investment company, or an affiliated 
person of an affiliated person, from selling to or purchasing a 
security from such registered investment company. Applicants may be 
deemed to be affiliates of one another based upon the definition of 
``affiliated person'' in Section 2(a)(3) of the 1940 Act. Because the 
Substitutions and subsequent combination of subaccounts will be 
effected by means of an in-kind redemption and purchase, Applicants 
state that the Substitutions may be deemed to involve one or more 
purchases or sales of securities or property between a registered 
investment company and its affiliates.
    4. Applicants request an order pursuant to Section 17(b) of the 
1940 Act exempting the Substitutions and related transactions from the 
provisions of Section 17(a) of the 1940 Act. Section 17(b) of the 1940 
Act provides that the Commission may grant an order exempting proposed 
transactions from the prohibition of Section 17(a) if: (i) The terms of 
the proposed transaction, including the consideration to be paid and 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned; (ii) the proposed transaction is 
consistent with the policy of each registered investment company 
concerned; and (iii) the proposed transaction is consistent with the 
general purposes of the 1940 Act.
    5. Applicants represent that the terms of the proposed 
transactions, including the consideration to be paid and received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned. Applicants maintain that the interests of 
Contractholders will not be diluted and that the Substitutions will not 
effect any change in economic interest, contract value, or the dollar 
value of any Variable Contract held by an Affected Contractholder.
    6. Applicants also state that the Substitutions will take place in 
accordance with procedures, adopted by the Board of Trustees of each of 
the GCG Trust and the ESS Trust, respectively, designed to meet the 
requirements enumerated in Rule 17a-7 under the 1940 Act, except that 
transactions be effected in cash. Although the relief afforded by Rule 
17a-7 is not available in connection with the Substitutions, Applicants 
submit that structuring the Substitutions to comply with the 
requirements of that rule provides a strong basis upon which the 
Commission may base a finding that the standards necessary to grant an 
order of exemption pursuant to Section 17(b) of the 1940 Act have been 
satisfied.
    7. Applicants represent that the transactions are consistent with 
the investment policy of each investment company involved, as recited 
in the current prospectus relating to each investment company, and the 
general purposes of the 1940 Act, and do not present any of the 
conditions or abuses that the 1940 Act was designed to prevent.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
requested order approving the Substitutions and related transactions 
should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-19651 Filed 7-22-98; 8:45 am]
BILLING CODE 8010-01-M