The Variable Annuity Life Insurance Company, et al., Notice of Application, 26122-26130 [E6-6660]
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26122
Federal Register / Vol. 71, No. 85 / Wednesday, May 3, 2006 / Notices
(CRDA) is the design basis accident for the
subject TS changes. In order to minimize the
impact of a CRDA, the BPWS process was
developed to minimize control rod reactivity
worth for BWR plants. The proposed
improved BPWS further simplifies the
control rod insertion process and, in order to
evaluate it, the staff followed the guidelines
of Standard Review Plan Section 15.4.9, and
referred to General Design Criterion 28 of
Appendix A to 10 CFR part 50 as its
regulatory requirement. The TSTF stated the
improved BPWS provides the following
benefits: (1) Allows the plant to reach the allrods-in condition prior to significant reactor
cool down, which reduces the potential for
re-criticality as the reactor cools down; (2)
reduces the potential for an operator
reactivity control error by reducing the total
number of control rod manipulations; (3)
minimizes the need for manual scrams
during plant shutdowns, resulting in less
wear on control rod drive (CRD) system
components and CRD mechanisms; and, (4)
eliminates unnecessary control rod
manipulations at low power, resulting in less
wear on reactor manual control and CRD
system components. The addition of
procedural requirements and verifications
specified in NEDO–33091–A, along with the
proper use of the BPWS will prevent a
control rod drop accident (CRDA) from
occurring while power is below the low
power setpoint (LPSP). The net change to the
margin of safety is insignificant. Therefore,
this change does not involve a significant
reduction in a margin of safety.
Based upon the reasoning presented above
and the previous discussion of the
amendment request, the requested change
does not involve a significant hazards
consideration.
Dated at Rockville, Maryland, this ll day
of llllll, 2006.
For the Nuclear Regulatory Commission.
Project Manager, Plant Licensing Branch [ ],
Division of Operating Reactor Licensing,
Office of Nuclear Reactor Regulation.
[FR Doc. E6–6678 Filed 5–2–06; 8:45 am]
BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Rel. No. IC–27306; File No. 812–13188]
The Variable Annuity Life Insurance
Company, et al., Notice of Application
April 27, 2006.
Securities and Exchange
Commission (the ‘‘Commission’’).
ACTION: Notice of application for an
order of approval pursuant to Section
26(c) of the Investment Company Act of
1940, as amended (the ‘‘Act’’), and an
order of exemption pursuant to Section
17(b) of the Act from Section 17(a) of
the Act.
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AGENCY:
Applicants: The Variable Annuity Life
Insurance Company (‘‘VALIC’’), VALIC
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Separate Account A (‘‘Separate Account
A’’ and, collectively with VALIC, the
‘‘Applicants’’), and VALIC Company I
(‘‘VALIC I’’ and, collectively with
VALIC and Separate Account A, the
‘‘Section 17 Applicants’’).
Summary of Application: Applicants
seek an order approving the proposed
substitution of shares of Evergreen
Fundamental Large Cap Fund with
Large Cap Core Fund; Evergreen Equity
Income Fund with Broad Cap Value
Fund; American Century Ultra Fund
with VALIC Ultra Fund; AIM Large Cap
Growth Fund, Janus Fund and Putnam
New Opportunities Fund with Large
Capital Growth Fund; MSIF Mid Cap
Growth Fund, Putnam OTC & Emerging
Growth Fund and SIT Mid Cap Growth
Fund with Mid Cap Strategic Growth
Fund; Evergreen Special Values Fund
with Small Cap Special Values Fund;
SIT Small Cap Growth Fund and
Evergreen Special Equity Fund with
Small Cap Strategic Growth Fund;
Credit Suisse Small Cap Growth Fund
with Small Cap Aggressive Growth
Fund; Janus Adviser Worldwide Fund
and Putnam Global Equity Fund with
Global Equity Fund; Templeton Global
Asset Allocation Fund with Global
Strategy Fund; Templeton Foreign Fund
with Foreign Value Fund; and Dreyfus
Basic U.S. Mortgage Securities Fund
with Capital Conservation Fund (the
‘‘Substitution’’). Section 17 Applicants
seek an order pursuant to Section 17(b)
of the Act to permit certain in-kind
transactions in connection with the
Substitution.
Filing Date: The application was
originally filed on May 6, 2005, and an
amended and restated application was
filed on April 26, 2006.
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 must be
received by the Commission by 5:30
p.m. on May 22, 2006, 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 requester’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.
Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090.
ADDRESSES:
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Applicants, 2929 Allen Parkway,
Houston, Texas 77019.
FOR FURTHER INFORMATION CONTACT:
Rebecca A. Marquigny, Senior Counsel,
or Joyce M. Pickholz, Branch Chief,
Office of Insurance Products, Division of
Investment Management, at (202) 551–
6795.
The
following is a summary of the
application. The complete application is
available for a fee from the Public
Reference Branch of the Commission,
100 F Street, NE., Washington, DC
20549 (202–551–8090).
SUPPLEMENTARY INFORMATION:
Applicants’ and Section 17 Applicants’
Representations
1. VALIC is a stock life insurance
company originally organized in 1955
under the laws of Washington, DC and
reorganized in Texas in 1968. VALIC is
an indirect wholly-owned subsidiary of
American International Group, Inc., a
United States based international
insurance and financial services
organization.
2. Separate Account A was
established in 1979. Separate Account A
is registered under the Act as a unit
investment trust (File No. 811–3240)
and is used to fund variable annuity
contracts (the ‘‘Contracts’’) (File No. 33–
75292) issued by VALIC.
3. VALIC I was incorporated in
Maryland on December 7, 1984 and is
registered under the Act as an open-end
management investment company (File
Nos. 811–3738 and 002–83631).
4. Purchase payments under the
Contracts may be allocated to one or
more divisions (‘‘Divisions’’) of Separate
Account A. Income, gains and losses,
whether or not realized, from assets
allocated to Separate Account A are, as
provided in the Contracts, credited to or
charged against Separate Account A
without regard to other income, gains or
losses of VALIC. The assets maintained
in Separate Account A will not be
charged with any liabilities arising out
of any other business conducted by
VALIC. Nevertheless, all obligations
arising under the Contracts, including
the commitment to make annuity
payments or death benefit payments, are
general corporate obligations of VALIC.
Accordingly, Applicants represent that
all of VALIC’s assets are available to
meet its obligations under the Contracts.
5. The Contracts permit allocations of
account value to available Divisions that
invest in specific investment portfolios
of underlying registered investment
companies (a ‘‘Fund’’ and, collectively,
the ‘‘Mutual Funds’’). VALIC I is one of
the available Mutual Funds and each of
the following is a series of VALIC I:
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Federal Register / Vol. 71, No. 85 / Wednesday, May 3, 2006 / Notices
Large Cap Core Fund, Broad Cap Value
Fund, VALIC Ultra Fund, Large Capital
Growth Fund, Mid Cap Strategic Growth
Fund, Small Cap Special Values Fund,
Small Cap Strategic Growth Fund, Small
Cap Aggressive Growth Fund, Global
Equity Fund, Global Strategy Fund,
Foreign Value Fund, and Capital
Conservation Fund (collectively, the
‘‘Replacement Funds’’). The other
Funds involved in this application
(collectively, the ‘‘Replaced Funds’’) are
all registered under the Act as open-end
management investment companies and
include the following: AIM Large Cap
Growth Fund, American Century Ultra
Fund, Credit Suisse Small Cap Growth
Fund, Dreyfus BASIC U.S. Mortgage
Securities Fund, Evergreen Equity
Income, Evergreen Fundamental Large
Cap Fund, Evergreen Special Equity,
Evergreen Special Values Funds, Janus
Adviser Worldwide Funds, Janus Fund,
MSIF Mid Cap Growth Portfolio,
Putnam Global Equity Fund, Putnam
New Opportunities Fund, Putnam OTC
& Emerging Growth Fund, Sit Mid Cap
Growth Fund, Sit Small Cap Growth
Fund, Templeton Foreign Fund, and
Templeton Global Asset Allocation
Fund.
6. The Contracts permit transfers of
accumulation value from one Division
to another Division at any time prior to
annuitization, subject to certain
restrictions. No sales charge applies to
such a transfer of accumulation value
among Divisions.
7. The Contracts reserve the right,
upon notice to contract owners (the
‘‘Contract Owners’’), to substitute shares
of another mutual fund for shares of a
Fund held by a Division.
8. The Replaced Funds involved in
the Substitution include 18 separate
portfolios representing ten investment
company complexes. After the
Substitution, there will be 12 portfolios,
all of which will be portfolios of VALIC
I. Applicants represent that the
investment objective and policies of
each Replacement Fund will be the
same as or substantially similar to the
investment objective and policies of the
corresponding Replaced Fund.
Applicants state that the Substitution is
being proposed to reduce the number of
overlapping portfolio offerings in
Evergreen Fundamental Large Cap Fund ................
Evergreen Equity Income Fund .................................
American Century Ultra Fund ....................................
AIM Large Cap Growth .............................................
Janus Fund.
Putnam New Opportunities Fund.
MSIF Mid Cap Growth Fund .....................................
Putnam OTC & Emerging Growth Fund.
SIT Mid Cap Growth Fund.
Evergreen Special Values Fund ................................
SIT Small Cap Growth Fund .....................................
Evergreen Special Equity Fund.
Credit Suisse Small Cap Growth Fund .....................
Janus Adviser Worldwide Fund .................................
Putnam Global Equity Fund.
Templeton Global Asset Allocation Fund ..................
Templeton Foreign Fund ...........................................
Dreyfus Basic U.S. Mortgage Securities Fund .........
certain classes and eliminate certain
portfolios whose performance levels in
the recent years have not maintained the
level of performance that was the basis
of their inclusion as variable account
options. Applicants represent that
relieving Separate Account A of the
administrative burdens of interfacing
with ten unaffiliated investment
company complexes is expected to
simplify compliance, accounting and
auditing and, generally, to allow VALIC
to administer the Contracts more
efficiently. Applicants state that VALIC
will serve as the investment adviser for
each Replacement Fund, and many of
the Replacement Funds will retain as
sub-adviser the investment adviser of
the Replaced Fund. Applicants state
that, because VALIC I has ‘‘manager of
managers’’ exemptive relief, VALIC, as
investment adviser, will be able to act
more quickly and efficiently, subject to
Board of Directors approval, to protect
Contract Owners’ interests if the
performance of one or more of the subadvisers does not meet expectations.1
9. Applicants propose the following
substitutions of shares:
Replaced portfolio
A ......................................................
B ......................................................
C ......................................................
D ......................................................
E ......................................................
F ......................................................
G ......................................................
H ......................................................
I .......................................................
J .......................................................
K ......................................................
L ......................................................
M .....................................................
N ......................................................
O ......................................................
P ......................................................
Q ......................................................
R ......................................................
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Substitution
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Replacement portfolio
Large Cap Core Fund.
Broad Cap Value Fund.
VALIC Ultra Fund.
Large Capital Growth Fund.
Mid Cap Strategic Growth Fund.
Small Cap Special Values Fund.
Small Cap Strategic Growth Fund.
Small Cap Aggressive Growth Fund.
Global Equity Fund.
Global Strategy Fund.
Foreign Value Fund.
Capital Conservation Fund.
10. Substitution A: Applicants
describe the investment objective for the
Evergreen Fundamental Large Cap Fund
and the Large Cap Core Fund
identically. Each Fund invests, under
normal conditions, at least 80% of its
assets in the common stock of large U.S.
companies. Each Fund’s stock selection
is based on a diversified style of equity
management that allows it to invest in
both value and growth oriented equity
securities. Applicants represent that
both the Replaced Fund and the
Replacement Fund have similar
investment strategies and have no
significant risk disparities.
Charges for the Replaced Fund
include Management Fees of 0.61%,
12b–1 Fees of 0.30%, and Other
Expenses of 0.59%.2 Charges for the
Replacement Fund include:
Management Fees of 0.70% and Other
Expenses of 0.15%; it does not charge a
12b–1 Fee. Respectively, the Replaced
Fund’s total gross and net operating
expenses are 1.50% and 1.39%
(reflecting a 0.11% fee reduction
arrangement). Both total gross and net
annual operating expenses for the
Replacement Fund equal 0.85%. Under
the Contracts, both Funds’ Separate
Account fee is the same. Applicants
represent that the Replacement Fund is
an appropriate substitute for the
Replaced Fund because: (1) The
investment objective and policies of the
two Funds are nearly identical; and (2)
the Replacement Fund assets will be
managed by the same investment
adviser (using the same management
style and strategy) as the Replaced
Fund.
1 Investment Company Act Release Nos. 23386
(Aug. 12, 1998) (Notice) and 23429 (Sept. 9, 1998)
(Order).
2 For the descriptions of charges involved in the
Substitution, all percentages for the Management
Fees, 12b–1 Fees, Other Expenses, Fee Reductions,
Total Gross and Net Annual Operating Expenses,
and Separate Account Fees represent a percentage
of average annual assets.
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Federal Register / Vol. 71, No. 85 / Wednesday, May 3, 2006 / Notices
11. Substitution B: Applicants state
that the Evergreen Equity Income Fund
seeks current income and capital growth
by investing primarily in equity
securities across all market
capitalizations that on the purchase date
pay a higher yield than the average yield
of companies included in the Russell
1000 Value Index. Applicants represent
that the Broad Cap Value Fund seeks
total return through capital appreciation
with income as a secondary
consideration. The Replacement Fund
invests primarily in large capitalization
companies whose stocks are considered
to be undervalued. The Replacement
Fund may also invest in companies with
mid-sized or small market
capitalizations and may invest up to
20% in foreign securities. Applicants
state that the investment strategies of
the funds differ such that the Replaced
Fund invests in ‘‘growth’’ and ‘‘value’’
securities whereas the Replacement
Fund invests in what it determines are
‘‘value’’ securities. However, Applicants
also represent that notwithstanding
these differences, the risk profile of the
two funds is very similar.
Charges for the Replaced Fund
include Management Fees of 0.59%,
12b–1 Fees of 0.30%, and Other
Expenses of 0.34%. Charges for the
Replacement Fund include Management
Fees of 0.70%, and Other Expenses of
0.15%. The Replacement Fund does not
charge a 12b–1 Fee. There is no fee
reduction arrangement applicable to
either Fund. The total gross annual
operating expenses for the Replaced and
Replacement Funds are 1.23% and
0.85%, respectively. Under the
Contracts, the Separate Account fee is
the same for both Funds. Applicants
represent that the Replacement Fund is
an appropriate substitute for the
Replaced Fund because: (1) The
investment objective (current income
and capital growth) and policies of the
two Funds are substantially similar; (2)
the income yield of the Replacement
Fund has been comparable to the
Replaced Fund for the past five years,
and (3) the Replacement Fund’s overall
risk profile is very similar to that of the
Replaced Fund.
13. Substitution C: Applicants state
that the Replaced Fund seeks long-term
capital growth through investments
primarily in common stocks that are
considered to have a greater-thanaverage chance to increase in value over
time. Applicants represent that the
Replacement Fund seeks long term
capital growth by investing primarily in
common stocks of growing companies
using a strategy that looks for companies
with earnings and revenues that are
growing at a successively faster or
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accelerating pace. Applicants represent
that the Replaced and Replacement
Funds have no significant risk
disparities and have nearly identical
investment strategies.
Charges for the Replaced Fund
include only a Management Fees of
0.99%; there are no 12b–1 Fees or Other
Expenses. The Replacement Fund
charges Management Fees of 0.80% and
Other Expenses of 0.15%; there are no
12b–1 Fees. There is no fee reduction
arrangement applicable to the Replaced
or the Replacement Fund. The total
gross annual operating expenses are for
the Replaced and Replacement Funds
are 0.99% and 0.95%, respectively.
Under the Contracts, the Separate
Account fee is 1.04% for the Replace
Fund and 1.00% for the Replacement
Fund. Applicants represent that the
Replacement Fund is an appropriate
substitute for the Replaced Fund
because: (1) The investment objective
and policies of the two Funds are nearly
identical; and (2) the Replacement Fund
assets will be managed by the same
investment adviser (using the same
management style and strategy) as the
Replaced Fund.
14. Substitution D: Applicants state
that both Replaced and Replacement
Funds seek long-term capital growth
through investment in largecapitalization companies within the
range of the Russell 1000 Index.
Applicants also represent that (1) the
Replaced and Replacement Funds have
no significant risk disparities; (2) AIM
serves as adviser to both funds (though
as a co-subadviser for the Replacement
Fund); and (3) the Funds have very
similar investment strategies.
Charges for the Replaced Fund
include Management Fees of 0.75%,
12b–1 Fees of 0.25%, and Other
Expenses of 0.45%. As of January 18,
2006, charges for the Replacement Fund
include a new reduced Management Fee
of 0.64% and Other Expenses of 0.15%;
it has no 12b–1 Fee. Respectively, the
Replaced Funds’ total gross and net
annual operating expenses are 1.45%
and 1.37% (reflecting a 0.08% fee
reduction arrangement). The
Replacement Fund has no fee reduction
arrangement; its total gross and net
annual operating expenses are 0.79%.
Under the Contracts, both Funds’
Separate Account fee is identical.
Applicants represent that the
Replacement Fund is an appropriate
substitute for the Replaced Fund
because: (1) The investment objective
and policies of the two Funds are
substantially similar; (2) the investment
advisor of the Replaced Fund, AIM
Advisors, will continue to serve as one
of the two sub-advisers of the
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Replacement Fund; and (3) in
subadvising the Replacement Fund,
AIM Advisors will continue using the
same style and strategy as is used in
managing the Replaced Fund.
15. Substitution E: Applicants state
that the Replaced Fund seeks long-term
growth of capital consistent with
preservation of capital through
investment in common stocks of larger,
more established companies selected for
their growth potential. The Replacement
Fund seeks long-term growth of capital
through investment in common stocks
of well-established, high-quality growth
companies no smaller than the smallest
capitalized company included in the
Russell 1000 Index. Applicants
represent that the Replaced and
Replacement Funds have no significant
risk disparities.
Charges for the Replaced Fund
include Management Fees of 0.64%,
Other Expenses of 0.25%, and no 12b–
1 Fee. As of January 18, 2006, charges
for the Replacement Fund include a
new reduced Management Fee of 0.64%,
Other Expenses of 0.15%, and no 12b–
1 Fee. Neither Replaced nor
Replacement Fund has a fee reduction
arrangement. Total gross annual
operating expenses for Replaced and
Replacement Funds are 0.89% and
0.79%, respectively. Under the
Contracts, Separate Account fees for
both Funds are identical. Applicants
represent that the Replacement Fund is
an appropriate substitute for the
Replaced Fund because: (1) The
investment objective (long-term capital
growth) and policies of the two Funds
are substantially similar; and (2) both
the Replaced and Replacement Fund
have similar risk profiles.
16. Substitution F: Applicants state
that the Replaced Fund seeks long-term
capital appreciation by investing mainly
in common stocks of U.S. companies,
focusing on growth stocks in sectors of
the economy the adviser believes have
high growth potential. The Replacement
Fund seeks long-term growth of capital
through investment in common stocks
of well-established, high-quality growth
companies no smaller than the smallest
capitalized company included in the
Russell 1000 Index. Applicants
represent that (1) the Replaced Fund is
more likely to be subject to small and
mid-cap risks than the Replacement
Fund; (2) the active trading risk
associated with the Replacement Fund
is anticipated as a principal risk only for
the Fund’s first year of operations; and
(3) both Funds may invest in
derivatives, convertible securities and
foreign securities.
Charges for the Replaced Fund
include Management Fees of 0.52%,
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12b–1 Fees of 0.25%, and Other
Expenses of 0.35%. As of January 18,
2006, charges for the Replacement Fund
include a new reduced Management Fee
of 0.64%, Other Expenses of 0.15%, and
no 12b–1 Fee. There is no fee reduction
arrangement applicable to either Fund.
Total gross annual operating expenses
for Replaced and Replacement Funds
are 1.12% and 0.79%, respectively.
Under the Contracts, Separate Account
fees for both Funds are identical.
Applicants represent that the
Replacement Fund is an appropriate
substitute for the Replaced Fund
because: (1) The investment objective
(long-term growth of capital) and
policies of both Replaced and
Replacement Funds are substantially
similar; and (2) both the Replaced and
Replacement Fund have similar risk
profiles.
17. Substitution G: Applicants state
that the Replaced and Replacement
Funds each seek long-term capital
growth by investing primarily in
growth-oriented equity securities of U.S.
mid-cap companies and, to a limited
extent, foreign companies. Applicants
represent that for the Replaced Fund,
the market capitalization of Mid-cap
companies is generally less than $35
billion. Applicants represent that the
Replacement Fund identifies a company
as a mid cap company if, at the time of
purchase, its capitalization is (1) within
the range of companies represented in
the Russell Mid Cap Growth Index, or
(2) between $1 billion and $12 billion.
Applicants represent that (1) the
Replaced Fund invests up to 10% of its
assets in REITs compared to the
Replacement Fund which typically
invests only up to 5% in REITs; (2) the
active trading risk associated with the
Replacement Fund is anticipated as a
principal risk only for the Fund’s first
year of operations; and (3) both Funds
may invest in derivatives and initial
public offerings (‘‘IPOs’’).
Charges for the Replaced Fund
include Management Fees of 0.50%,
12b–1 Fees of 0.25%, and Other
Expenses of 0.13%. Charges for the
Replacement Fund include Management
Fees of 0.70%, Other Expenses of
0.15%, and no 12b–1 Fee. There is no
fee reduction arrangement applicable to
either Fund. Total gross annual
operating expenses for Replaced and
Replacement Funds are 0.88% and
0.85%, respectively. Under the
Contracts, the Separate Account fee is
identical for both Funds. Applicants
represent that the Replacement Fund is
an appropriate substitute for the
Replaced Fund because: (1) The
investment objective and policies of
both Replaced and Replacement Funds
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are substantially similar; (2) the
investment adviser of the Replaced
Fund, Morgan Stanley Investment
Management (‘‘MSIM’’), will continue to
serve as one of two sub-advisers of the
Replacement Fund; and (3) MSIM will
continue using the same style and
strategy as is used in managing the
Replaced Fund.
18. Substitution H: Applicants state
that the Replaced Funds seeks capital
appreciation by investing mainly in
common stocks of U.S. companies
traded in the over-the-counter market
and ‘‘emerging growth’’ companies
listed on securities exchanges, with a
focus on growth stocks. Applicants state
that the Replacement Fund seeks longterm capital growth by investing
primarily in growth-oriented equity
securities of U.S. mid-cap companies
and, to a limited extent, foreign
companies. Applicants represent that (1)
the Replaced Fund may invest more of
its assets in small-cap companies than
the Replacement Fund; (2) the active
trading risk associated with the
Replacement Fund is anticipated as a
principal risk only for that Fund’s first
year of operations; and (3) both Funds’
overall risk profile is very similar.
Charges for the Replaced Fund
include Management Fees of 0.62%,
12b–1 Fees of 0.25%, and Other
Expenses of 0.54%. Charges for the
Replacement Fund include Management
Fees of 0.70%, Other Expenses of
0.15%, and no 12b–1 Fee. Respectively,
the Replaced Funds’ total gross and net
annual operating expenses are 1.41%
and 1.40% (reflecting a 0.01% fee
reduction arrangement). The
Replacement Fund has no fee reduction
arrangement; its total gross and net
annual operating expenses are 0.85%.
Under the Contracts, the Separate
Account fee is identical for both Funds.
Applicants represent that the
Replacement Fund is an appropriate
substitute for the Replaced Fund
because: (1) The investment objective
(long-term capital growth) and policies
of both Funds are substantially similar;
and (2) both Replaced and Replacement
Funds have similar risk profiles.
19. Substitution I: Applicants state
that the Replaced Funds seeks long-term
capital appreciation by investing in the
common stocks of companies with
capitalizations of $2 billion to $15
billion at the time of purchase.
Applicants state that the Replacement
Fund seeks long-term capital growth by
investing primarily in growth-oriented
equity securities of U.S. and, to a
limited extent, foreign, mid-cap
companies with market capitalization at
the time of purchase is between $1
billion and $12 billion or within the
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26125
range of companies represented in the
Russell Mid Cap Growth Index.
Applicants represent that there are no
significant risk disparities between the
Replaced and Replacement Funds.
The Replaced Fund carries a
Management Fee of 1.25%, and has no
12b–1 Fees or Other Expenses. Charges
for the Replacement Fund include
Management Fees of 0.70%, Other
Expenses of 0.15%, and no 12b–1 Fee.
Respectively, the Replaced Funds’ total
gross and net annual operating expenses
are 1.25% and 1.15% (reflecting a
0.10% fee reduction arrangement). The
Replacement Fund has no fee reduction
arrangement; its total gross and net
annual operating expenses are 0.85%.
Under the Contracts, the Separate
Account fee is identical for both Funds.
Applicants represent that the
Replacement Fund is an appropriate
substitute for the Replaced Fund
because: (1) The investment objective
and policies of both Replaced and
Replacement Funds are substantially
similar; (2) although the Replaced and
Replacement Funds define ‘‘mid-cap
companies’’ slightly differently, the
investment objective of both Funds is to
seek long-term capital growth; and (3)
both the Replaced and Replacement
Fund have similar risk profiles.
20. Substitution J: Applicants state
that the investment objective of both the
Replaced and Replacement Funds is to
produce capital growth by investing
primarily in common stocks of small
U.S. Companies. The capitalization
range is identical for both Funds.
Applicants represent that Replaced and
Replacement Funds have no significant
risk disparities.
Charges for the Replaced Fund
include Management Fees of 0.78%,
12b–1 Fees of 0.25%, and Other
Expenses of 0.34%. Charges for the
Replacement Fund include Management
Fees of 0.75%, Other Expenses of
0.15%, and no 12b–1 Fee. Respectively,
the Replaced Funds’ total gross and net
annual operating expenses are 1.37%
and 1.32% (reflecting a 0.05% fee
reduction arrangement). The
Replacement Fund has no fee reduction
arrangement; its total gross and net
annual operating expenses are 0.90%.
Under the Contracts, the Separate
Account fee is identical for both Funds.
Applicants represent that the
Replacement Fund is an appropriate
substitute for the Replaced Fund
because: (1) The investment objective
and policies of the Replaced and
Replacement Funds are substantially
similar; (2) the investment adviser of the
Replaced Fund, Evergreen Investment
Management (‘‘EIM’’), will continue to
serve as one of two sub-advisers of the
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Replacement Fund; and (3) EIM will
continue using the same style and
strategy as is used in managing the
Replaced Fund.
21. Substitution K: Applicants state
that the investment objective of the
Replaced Fund is to maximize long-term
capital appreciation by investing in
common stocks of companies with
capitalizations of $2.5 billion or less at
the time of purchase. Applicants state
that the Replacement Fund seeks capital
growth by investing primarily in
common stocks of small U.S. companies
whose market capitalization at purchase
is within the range tracked by the
Russell 2000 Index. Noting that only the
Replacement Fund may invest in
emerging market securities and IPOs,
Applicants represent that the Funds
have similar investment strategies and
overall risk profiles.
The Replaced Fund carries a
Management Fee of 1.50%, and has no
12b–1 Fees or Other Expenses. Charges
for the Replacement Fund include
Management Fees of 0.85%, Other
Expenses of 0.15%, and no 12b–1 Fee.
There is no fee reduction arrangement
applicable to either Fund. Total gross
annual operating expenses for Replaced
and Replacement Funds are 1.50% and
1.00%, respectively. Under the
Contracts, the Separate Account fee is
identical for both Funds. Applicants
represent that the Replacement Fund is
an appropriate substitute for the
Replaced Fund because: (1) The
investment objective and policies of
both Funds are substantially similar; (2)
although the Replaced and Replacement
Funds define ‘‘small companies’’
slightly differently, the investment
objective of both Funds is to seek capital
growth by investing in small companies;
and (3) both the Replaced and
Replacement Fund have similar risk
profiles.
22. Substitution L: Applicants state
that the investment objective of both the
Replaced and Replacement Funds is to
produce capital growth by investing
primarily in common stocks of small
U.S. companies. The capitalization
range is identical for both Funds.
Applicants represent that the Replaced
and Replacement Funds have no
significant risk disparities.
Charges for the Replaced Fund
include Management Fees of 0.89%,
12b–1 Fees of 0.30%, and Other
Expenses of 0.36%. Charges for the
Replacement Fund include Management
Fees of 0.85%, Other Expenses of
0.15%, and no 12b–1 Fee. There is no
fee reduction arrangement applicable to
either Fund. Total gross annual
operating expenses for Replaced and
Replacement Funds are 1.55% and
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1.00%, respectively. Under the
Contracts, the Separate Account fee is
identical for both Funds. Applicants
represent that the Replacement Fund is
an appropriate substitute for the
Replaced Fund because: (1) The
investment objective and policies of
both Funds are nearly identical; and (2)
the Replacement Fund will be managed
by the same portfolio manager (using
the same management style and
strategy) as the Replaced Fund.
23. Substitution M: Applicants state
that both Replaced and Replacement
Funds seek capital growth through
investment in securities of small U.S.
companies. Applicants describe the
capitalization range for both Funds
identically and represent that the
Replaced and Replacement Funds are
managed by the same portfolio
managers and have similar investment
strategies.
Charges for the Replaced Fund
include Management Fees of 1.00%,
12b–1 Fees of 0.25%, and Other
Expenses of 0.74%. Charges for the
Replacement Fund include Management
Fees of 0.85%, Other Expenses of
0.15%, and no 12b–1 Fee. Respectively,
the Replaced Funds’ total gross and net
annual operating expenses are 1.99%
and 1.40% (reflecting a 0.59% fee
reduction arrangement). The
Replacement Fund has no fee reduction
arrangement; its total gross and net
annual operating expenses are 1.00%.
Under the Contracts, the Separate
Account fee is identical for both Funds.
Applicants represent that the
Replacement Fund is an appropriate
substitute for the Replaced Fund
because: (1) The investment objective
and policies of both Funds are nearly
identical; and (2) the Replacement Fund
will be managed by the same portfolio
manager (using the same management
style and strategy) as the Replaced
Fund.
24. Substitution N: Applicants state
that Replaced Fund seeks long-term
growth of capital in a manner consistent
with the preservation of capital by
investing in common stocks of
companies of any size located
throughout the world. Applicants state
that the Replacement Fund seeks capital
appreciation by investing primarily in
common stocks of mid-sized and large
companies worldwide. Applicants
represent that the Replacement Fund
will invest mainly in developed
countries but also may invest in
developing markets. Applicants state
that both Funds may invest in
companies of any size.
Charges for the Replaced Fund
include Management Fees of 0.60%,
12b–1 Fees of 0.25%, and Other
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Expenses of 0.31%. Charges for the
Replacement Fund include Management
Fees of 0.79%, Other Expenses of
0.30%, and no 12b–1 Fee. Respectively,
the Replaced Funds’ total gross and net
annual operating expenses are 1.16%
and 1.15% (reflecting a 0.01% fee
reduction arrangement). The
Replacement Fund has no fee reduction
arrangement; its total gross and net
annual operating expenses are 1.09%.
Under the Contracts, the Separate
Account fee is identical for both Funds.
Applicants represent that the
Replacement Fund is an appropriate
substitute for the Replaced Fund
because: (1) The investment objective
(capital appreciation by investing in
common stocks of companies
worldwide) and policies of both Funds
are substantially similar; and (2) the
Replaced and Replacement Funds have
similar risk profiles.
25. Substitution O: Applicants state
that both Replaced and Replacement
Funds seek capital appreciation by
investing principally in common stocks
of companies worldwide and employ a
strategy of investing primarily in midsized and large companies in developed
countries. Applicants state that each
Fund may invest in companies of any
size and companies located in
developing markets. Applicants
represent that the Funds have no
significant risk disparities.
Charges for the Replaced Fund
include Management Fees of 0.67%,
12b–1 Fees of 0.25%, and Other
Expenses of 0.37%. Charges for the
Replacement Fund include Management
Fees of 0.79%, Other Expenses of
0.30%, and no 12b–1 Fee. There is no
fee reduction arrangement applicable to
either Fund. Total gross annual
operating expenses for Replaced and
Replacement Funds are 1.29% and
1.00%, respectively. Under the
Contracts, the Separate Account fee is
identical for both Funds. Applicants
represent that the Replacement Fund is
an appropriate substitute for the
Replaced Fund because: (1) The
investment objective and policies of the
Replacement Fund are nearly identical
to those of the Replaced Fund; and (2)
the Replacement Fund will be managed
by the same portfolio manager (using
the same management style and
strategy) as the Replaced Fund.
26. Substitution P: Applicants state
that the Replaced Fund seeks high total
return by normally investing in equity
securities of companies of any country,
debt securities of companies and
governments of any country, and money
market instruments. Applicants state
that the Replacement Fund seeks high
total return by investing in equity
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securities of companies in any country,
fixed income (debt) securities of
companies and governments of any
country, and in money market
instruments. Applicants also represent
that the Funds have no significant risk
disparities.
Charges for the Replaced Fund
include Management Fees of 0.61% and
Other Expenses of 0.24%; it has no 12b–
1 Fee. Charges for the Replacement
Fund include Management Fees of
0.50% and Other Expenses of 0.30%; it
also has no 12b–1 Fee. Respectively, the
Replaced Funds’ total gross and net
annual operating expenses are 0.85%
and 0.84% (reflecting a 0.01% fee
reduction arrangement). The
Replacement Fund has no fee reduction
arrangement; its total gross and net
annual operating expenses are 0.80%.
Under the Contracts, the Separate
Account fee is 1.25% for the Replace
Fund and 1.00% for the Replacement
Fund. Applicants represent that the
Replacement Fund is an appropriate
substitute for the Replaced Fund
because: (1) The investment objective
and policies of the Replaced and
Replacement Funds are nearly identical;
and (2) the Replacement Fund will be
managed by the same portfolio manager
(using the same management style and
strategy) as the Replaced Fund.
27. Substitution Q: Applicants state
that both the Replaced and Replacement
Funds seek long-term capital growth by
investing mainly in equity securities of
companies located outside the U.S.,
including emerging markets. Applicants
further represent that both Funds may
invest in companies of any market
capitalization, and they have no
significant risk disparities.
Charges for the Replaced Fund
include Management Fees of 0.61%,
12b–1 Fees of 0.25%, and Other
Expenses of 0.37%. Charges for the
Replacement Fund include Management
Fees of 0.70% and Other Expenses of
0.30%; it has no 12b–1 Fee. There is no
fee reduction arrangement applicable to
either Fund. Total gross annual
operating expenses for Replaced and
Replacement Funds are 1.23% and
1.00%, respectively. Under the
Contracts, the Separate Account fee is
identical for both Funds. Applicants
represent that the Replacement Fund is
an appropriate substitute for the
Replaced Fund because: (1) The
investment objective and policies of the
Replaced and Replacement Funds are
nearly identical; and (2) the
Replacement Fund will be managed by
the same portfolio manager (using the
same management style and strategy) as
the Replaced Fund.
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28. Substitution R: Applicants state
that the Replaced Fund seeks as high a
level of current income as is consistent
with the preservation of capital and
invests in mortgage-related securities
issued or guaranteed by the U.S.
government, its agencies or
instrumentalities to achieve this
objective. Applicants represent that the
Replacement Fund seeks the highest
possible total return consistent with the
preservation of capital through current
income and capital gains on
investments in intermediate and longterm debt instruments and other income
producing securities. Applicants state
that the Replaced Fund invests more
significantly in mortgage-related
securities than the Replacement Fund
and that the Replacement Fund may
invest a larger portion of its assets in
foreign securities such as U.S. dollar
denominated emerging market debt.
Charges for the Replaced Fund
include Management Fees of 0.60% and
Other Expenses of 0.21%. Charges for
the Replacement Fund include
Management Fees of 0.50% and Other
Expenses of 0.20%. Neither Fund has a
12b–1 Fee or a fee reduction
arrangement. Total gross operating
annual expenses for Replaced and
Replacement Funds are 0.81% and
0.70%, respectively. Under the
Contracts, the Separate Account fee is
identical for both Funds. Applicants
represent that the Replacement Fund is
an appropriate substitute for the
Replaced Fund because: (1) The
investment objective and policies of the
Replacement Fund are substantially
similar to those of the Replaced Fund;
(2) both Funds invest in fixed-income
securities with a focus on current
income; (3) the Replaced and
Replacement Funds have similar risk
profiles and similar long-term
performance; and (4) considering all of
VALIC’s currently offered investment
options, the Applicants believe that the
Replacement Fund is the most
appropriate substitute for the Replaced
Fund because of its similarities in terms
of its investment objectives, policies,
media and risk.
29. Applicants represent that the
Substitution will take place at the
Funds’ relative net asset values
determined on the date of the
Substitution in accordance with Section
22 of the Act and Rule 22c–1 thereunder
with no change in the amount of any
Contract Owner’s account value or
death benefit or in the dollar value of
his or her investment in any of the
Divisions. Applicants represent that
there will be no financial impact on any
Contract Owner. Applicants assert that
the Substitution will generally be
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26127
effected by having each of the Divisions
that invests in the Replaced Funds
redeem its shares at the net asset value
calculated on the date of the
Substitution and purchase shares of the
respective Replacement Funds at the net
asset value calculated on the same date.
30. Applicants represent that, in the
alternative, should a Replaced Fund
determine that a cash redemption would
adversely affect its shareholders, it may
redeem the interest ‘‘in-kind.’’
Applicants represent that in such a case,
the Substitution will be effected by the
Division contributing all the securities it
receives from the Replaced Fund for an
amount of Replacement Fund shares
equal to the fair market value of the
securities contributed. Applicants assert
that all in-kind redemptions from a
Replaced Fund of which any of the
Applicants is an affiliated person will
be effected in accordance with the
conditions set forth in the Commission’s
no-action letter issued to Signature
Financial Group, Inc. (available
December 28, 1999).
31. Applicants state that the
Substitution was described in a
supplement to the prospectuses for the
Contracts (‘‘Supplements’’) dated and
filed with the Commission on March 1,
2006 and mailed to Contract Owners.
Applicants represent that the
Supplements provided Contract Owners
with notice of the Substitution and
described the reasons for engaging in
the Substitution. Applicants further
represent that the Supplements
informed Contract Owners with assets
allocated to a Division investing in the
Replaced Funds that the Replaced
Funds will not be an available
investment option after the date of the
Substitution and that Contract Owners
will have the opportunity to reallocate
account value:
• Prior to the Substitution, from the
Divisions investing in the Replaced
Funds, and
• For 30 days after the Substitution,
from the Divisions investing in the
Replacement Funds to Divisions
investing in other Funds available under
the respective Contracts,
without diminishing the number of free
transfers that may be made in a given
contract year and without the
imposition of any transfer charge or
limitation, other than any applicable
limitations in place to deter potentially
harmful excessive trading.
32. Applicants represent that the
prospectuses for the Contracts will
contain the substance of the information
contained in the Supplements
concerning the Substitution. Applicants
represent that each Contract Owner will
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be provided with a prospectus for the
Replacement Funds before the
Substitution and that within five days
after the Substitution, VALIC will send
affected Contract Owners written
confirmation that the Substitution has
occurred and notice that Contract
Owners will have the opportunity to
reallocate account value for 30 days
after the Substitution, from the
Divisions investing in the Replacement
Funds to Divisions investing in other
Funds available under the respective
Contracts, without diminishing the
number of free transfers that may be
made in a given contract year and
without the imposition of any transfer
charge or limitation, other than any
applicable limitations in place to deter
potentially harmful excessive trading.
33. Applicants state that VALIC will
pay all direct and indirect expenses and
transaction costs of the Substitution,
including all legal, accounting and
brokerage expenses relating to the
Substitution, and no costs will be borne
by Contract Owners. Further,
Applicants represent that affected
Contract Owners will not incur any fees
or charges as a result of the Substitution,
nor will their rights or the obligations of
the Applicants under the Contracts be
altered in any way. Applicants represent
that (1) the Substitution will not cause
the fees and charges under the Contracts
currently being paid by Contract
Owners, including Separate Account
Fees, to be greater after the Substitution
than before the Substitution; (2) the
Substitution will have no adverse tax
consequences to Contract Owners; and
(3) the Substitution will in no way alter
the tax benefits to Contract Owners.
34. Applicants believe that their
request satisfies the standards for relief
pursuant to Section 26(c) of the Act, as
set forth below, because the affected
Contract Owners will have:
(1) Account values allocated to a
Division invested in a Replacement
Fund with an investment objective and
policies substantially similar to the
investment objective and policies of the
Replaced Fund; and
(2) Replacement Funds whose current
total annual expenses are equal to or
lower than those of the Replaced Funds
for their 2005 fiscal years. In addition,
VALIC has agreed that, for a period of
24 months following the Substitution, it
will reimburse affected Contract Owners
to the extent the expenses of a
Replacement Fund exceed those of the
Replaced Fund for the 2005 fiscal years.
Applicants’ Section 26(c) Legal
Analysis
1. Section 26(c) of the Act makes it
unlawful for any depositor or trustee of
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a registered unit investment trust
holding the security of a single issuer to
substitute another security for such
security unless the Commission
approves the substitution. The
Commission may approve such a
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
the Act.
2. Applicants assert that the purposes,
terms and conditions of the Substitution
are consistent with the principles and
purposes of Section 26(c) and do not
entail any of the abuses that Section
26(c) is designed to prevent. Applicants
have reserved the right to make such a
substitution under the Contracts and
represent that this reserved right is
disclosed in the prospectus for the
Contracts.
3. Applicants represent that for all 18
Substitutions, the investment objectives
and policies of the Replacement Funds
are sufficiently similar to those of the
corresponding Replaced Funds that
Contract Owners will have reasonable
continuity in investment expectations.
Accordingly, Applicants believe the
Replacement Funds are appropriate
investment vehicles for those Contract
Owners who have account values
allocated to the Replaced Funds.
4. For each of the 18 Substitutions,
Applicants represent that the
Replacement Funds’ current annual
expenses are lower than the annual
expenses of the corresponding Replaced
Funds for their 2005 fiscal years.
Applicants represent that for the 24
month period following the date of the
Substitution, VALIC agrees that if, on
the last day of each fiscal quarter during
the 24 month period, the total operating
expenses of a Replacement Fund (taking
into account any expense waiver or
reimbursement) exceed on an
annualized basis the net expense level
of the corresponding Replaced Fund for
the 2005 fiscal year, it will, for each
Contract outstanding on the date of the
Substitution, make a corresponding
reimbursement of Separate Account
expenses as of the last day of such fiscal
quarter, such that the amount of the
Replacement Fund’s net expenses,
together with those of the corresponding
Separate Account will, on an
annualized basis, be no greater than the
sum of the net expenses of the
corresponding Replaced Fund and the
expenses of the Separate Account for
the 2005 fiscal year. Applicants also
represent that VALIC agrees that,
notwithstanding any higher maximum
permitted Separate Account Fee
disclosed in a prospectus and set forth
in a variable annuity contract, the net
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Separate Account Fee charged in the
future to a Contract Owner on a Division
that invests in a Replacement Fund will
be no higher than the net Separate
Account Fee charged in the most recent
fiscal year to that Contract Owner on the
Division that invests in the
corresponding Replaced Fund. In
addition, Applicants represent that for
24 months following the Substitution,
VALIC will not increase contractual
asset-based fees or charges for Contracts
outstanding on the day of the
Substitution.
5. VALIC represents that the
Substitution and the selection of the
Replacement Funds were not motivated
by any financial consideration paid or to
be paid by the Replacement Funds, their
advisors or underwriters, or their
respective affiliates.
6. Applicants represent that the
Substitution will not result in the type
of costly forced redemption that Section
26(c) was intended to guard against and
represent that the Substitution is
consistent with the protection of
investors and the purposes fairly
intended by the Act because:
(1) Each of the Replacement Funds is
an appropriate fund to which to move
Contract Owners with account values
allocated to the Replaced Funds because
the new funds have substantially similar
investment objectives and policies.
(2) The direct and indirect costs of the
Substitution, including any brokerage
costs, will be borne by VALIC and will
not be borne by Contract Owners. No
charges will be assessed to effect the
Substitution.
(3) The Substitution will be at the net
asset values of the respective shares
without the imposition of any transfer
or similar charge and with no change in
the amount of any Contract Owner’s
account value.
(4) The Substitution will not cause the
fees and charges under the Contracts
currently being paid by Contract
Owners, including Separate Account
Fees, to be greater after the Substitution
than before the Substitution and will
result in Contract Owners’ account
values being moved to a Fund with the
same or lower current total annual
expenses.
(5) All Contract Owners will be given
notice of the Substitution prior to the
Substitution and will have an
opportunity beginning after such notice
and until 30 days after the Substitution
to reallocate account value among other
available Divisions without the
reallocation being counted as one of the
Contract Owner’s free transfers in a
contract year and without the
imposition of any transfer charge or
limitation, other than any applicable
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limitations in place to deter potentially
harmful excessive trading.
(6) Within five days after the
Substitution, VALIC will send to its
affected Contract Owners written
confirmation that the Substitution has
occurred.
(7) The Substitution will in no way
alter the insurance benefits to Contract
Owners or the contractual obligations of
VALIC.
(8) The Substitution will have no
adverse tax consequences to Contract
Owners and will in no way alter the tax
benefits to Contract Owners.
(9) No Replacement Fund will rely on
the previously granted ‘‘manager of
managers’’ exemptive relief unless such
action is approved by a majority of the
Replacement Fund’s shareholders at a
meeting whose record date is after the
Substitution has been effected.
Section 17 Applicants’ Legal Analysis
1. Section 17(a)(1) of the Act, in
relevant part, prohibits any affiliated
person of a registered investment
company, or any affiliated person of
such person, acting as principal, from
knowingly selling any security or other
property to that company. Section
17(a)(2) of the Act generally prohibits
the persons described above, acting as
principal, from knowingly purchasing
any security or other property from the
registered company.
2. Because shares held by Separate
Account A are legally owned by VALIC,
VALIC will own of record substantially
all of the shares of the Replacement
Funds. In addition, as investment
adviser to each Replacement Fund,
VALIC could be deemed to control each
Replacement Fund. Therefore, each
Replacement Fund could be deemed to
be an affiliate of VALIC and, to the
extent Separate Account A uses assets
received in-kind to purchase shares of a
Replacement Fund, the Substitution
may be deemed to involve one or more
purchases or sales of securities or
property between persons who are
affiliates of affiliates. Accordingly, the
Section 17 Applicants are seeking relief
to the extent necessary from Section
17(a) for the in-kind purchases and sales
of Replacement Fund Shares.
3. Section 17(b) of the Act provides
that the Commission may, upon
application, grant an order exempting
any transaction from the prohibitions of
Section 17(a) if the evidence establishes
that: The terms of the proposed
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned; the proposed transaction is
consistent with the policy of each
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registered investment company
concerned, as recited in its registration
statement and records filed under the
Act; and the proposed transaction is
consistent with the general purposes of
the Act.
4. The Section 17 Applicants
represent that the terms of the proposed
in-kind purchases of shares of the
Replacement Funds by Separate
Account A, including the consideration
to be paid and received by each Fund
involved are reasonable, fair and do not
involve overreaching on the part of any
person concerned. The Section 17
Applicants also represent that the
proposed in-kind purchases by Separate
Account A are consistent with the
policies of VALIC I and the individual
Replacement Funds. Finally, the Section
17 Applicants submit that the proposed
substitutions are consistent with the
general purposes of the Act.
5. To the extent that Separate Account
A’s in-kind purchases of Replacement
Fund shares are deemed to involve
principal transactions between entities
which are affiliates of affiliates,
Applicants assert that the procedures
described herein should be sufficient to
assure that the terms of the proposed
transactions are reasonable and fair to
all participants because (1) the proposed
transactions will take place at relative
net asset value in conformity with the
requirements of Section 22(c) of the Act
and Rule 22c–1 thereunder with no
change in the amount of any Contract
Owner’s account value or death benefit
or in the dollar value of his or her
investment in any Division; (2) Contract
Owners will not suffer any adverse tax
consequences as a result of the
substitutions; and (3) the fees and
charges under the Contracts will not
increase because of the substitutions.
6. Even though they may not rely on
Rule 17a–7, the Section 17 Applicants
represent that they will carry out the
proposed in-kind purchases in
conformity with all of the conditions of
Rule 17a–7 and each Fund’s procedures
thereunder, except that: (1) The
consideration paid for the securities
being purchased or sold may not be
entirely cash, and (2) the Board of
Directors of VALIC I will not separately
review each portfolio security
purchased by the Replacement Funds.
Section 17 Applicants assert that the
circumstances surrounding the
proposed substitutions will offer the
same degree of protection to each
Replacement Fund from overreaching
that Rule 17a–7 provides to them
generally in connection with their
purchase and sale of securities under
that Rule in the ordinary course of their
business. In particular, Section 17
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Applicants assert that VALIC (or any of
its affiliates) cannot effect the proposed
transactions at a price that is
disadvantageous to any of the
Replacement Funds. Section 17
Applicants represent that although the
transactions may not be entirely for
cash, each will be effected based upon
(1) the independent market price of the
portfolio securities valued as specified
in paragraph (b) of Rule 17a–7, and (2)
the net asset value per share of each
Fund involved valued in accordance
with the procedures disclosed in its
registration statement and as required
by Rule 22c–1 under the Act. Further,
Section 17 Applicants represent that no
brokerage commission, fee (except for
customary transfer fees), or other
remuneration will be paid to any party
in connection with the proposed
transactions.
7. The Section 17 Applicants assert
that the sale of shares of Replacement
Funds for investment securities, as
contemplated by the proposed in-kind
transactions, is consistent with the
investment policy and restrictions of the
Replacement Funds because (1) the
shares are sold at their net asset value,
and (2) the portfolio securities are of the
type and quality that the Replacement
Funds would each have acquired with
the proceeds from share sales had the
shares been sold for cash. To assure that
the second of these conditions is met,
Section 17 Applicants represent that
each sub-adviser will examine the
portfolio securities being offered to each
Replacement Fund and accept only
those securities as consideration for
shares that it would have acquired for
each such fund in a cash transaction.
8. Section 17 Applicants assert that
the proposed in-kind transactions (1) are
consistent with the general purposes of
the Act as stated in the Findings and
Declaration of Policy in Section I of the
Act; (2) do not present any of the
conditions or abuses that the Act was
designed to prevent; and (3) the abuses
described in Sections l(b)(2) and (3) of
the Act will not occur in connection
with the proposed in-kind purchases.
Conclusions
1. Applicants submit that for the
reasons and upon the facts set forth in
their application, the requested order
meets the standards set forth in Section
26(c) and should, therefore, be granted.
2. Section 17 Applicants represent
that the proposed in-kind transactions
meet all of the requirements of Section
17(b) of the Act and that an exemption
should be granted, to the extent
necessary, from the provisions of
Section 17(a).
E:\FR\FM\03MYN1.SGM
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26130
Federal Register / Vol. 71, No. 85 / Wednesday, May 3, 2006 / Notices
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6–6660 Filed 5–2–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
(202) 551–6990, or Janet M. Grossnickle,
Branch Chief, at (202) 551–6821 (Office
of Investment Company Regulation,
Division of Investment Management).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained for a fee at the
Commission’s Public Reference Branch,
100 F Street, NE., Washington, DC
20549–0104 (telephone (202) 551–8090).
jlentini on PROD1PC65 with NOTICES
[Investment Company Act Release No.
27304; 812–13113]
Applicants’ Representations
1. The Trust, a Delaware statutory
trust, is registered under the Act as an
Forum Funds, et al.; Notice of
open-end management investment
Application
company. The Trust currently is
April 26, 2006.
comprised of twenty-eight series
AGENCY: Securities and Exchange
(‘‘Funds’’), each with a separate
Commission (‘‘Commission’’).
investment objective, policy, and
ACTION: Notice of an application for an
restrictions.1 The Advisor, a Maryland
order under section 6(c) of the
corporation, is registered as an
Investment Company Act of 1940
investment adviser under the
(‘‘Act’’) for an exemption from section
Investment Advisers Act of 1940
15(a) of the Act and rule 18f–2 under
(‘‘Advisers Act’’) and serves as
the Act, as well as from certain
investment adviser to nine of the
disclosure requirements.
existing Funds (‘‘Series’’) pursuant to
investment advisory agreements
Summary of the Application:
(‘‘Advisory Agreements’’). Each
Applicants request an order that would
Advisory Agreement has been approved
permit them to enter into and materially
by the Trust’s board of trustees (the
amend subadvisory agreements without
‘‘Board’’),2 including a majority of the
shareholder approval and would grant
trustees who are not ‘‘interested
relief from certain disclosure
persons,’’ as defined in section 2(a)(19)
requirements.
of the Act, of the Trust or the Advisor
Applicants: Forum Funds (‘‘Trust’’),
(‘‘Independent Trustees’’), as well as by
and Brown Investment Advisory
the shareholders of each Series.
Incorporated (‘‘Advisor’’).
2. Applicants propose to establish a
Filing Dates: The application was
program in which the Advisor, in its
filed on July 29, 2004, and amended on
capacity as investment adviser to each
February 13, 2006 and April 25, 2006.
Series, oversees the portfolio
Hearing or Notification of Hearing: An
management of a Series by its
order granting the application will be
subadvisers (each, a ‘‘Subadvisor’’). The
issued unless the Commission orders a
Advisor would provide overall
hearing. Interested persons may request
investment management services to
a hearing by writing to the
each Series, including Subadvisor
Commission’s Secretary and serving
monitoring and evaluation and would
applicants with a copy of the request,
personally or by mail. Hearing requests
1 Applicants also request relief with respect to
should be received by the Commission
future series of the Trust and any other existing or
future registered open-end management investment
by 5:30 p.m. on May 22, 2006 and
company or series thereof that: (a) Is advised by the
should be accompanied by proof of
Advisor or an entity controlling, controlled by, or
service on applicants, in the form of an
under common control with the Advisor; (b) uses
affidavit or, for lawyers, a certificate of
the multi-manager structure as described in the
application; and (c) complies with the terms and
service. Hearing requests should state
conditions of the application (included in the term
the nature of the writer’s interest, the
‘‘Series’’). The only existing registered open-end
reason for the request, and the issues
management investment company that currently
contested. Persons who wish to be
intends to rely on the requested order is named as
an applicant. All references to the term ‘‘Advisor’’
notified of a hearing may request
herein include (a) the Advisor or its successor in
notification by writing to the
interest (limited to any entity resulting from a
Commission’s Secretary.
reorganization of the Advisor into another
jurisdiction or a change in the type of business
ADDRESSES: Secretary, U.S. Securities
organization), and (b) an entity controlling,
and Exchange Commission, 100 F
controlled by, or under common control with the
Street, NE., Washington, DC 20549–
Advisor. If the name of any Series contains the
1090. Applicants: Anthony C.J. Nuland, name of a Subadvisor (as defined below), the name
of the Advisor will precede the name of the
Seward & Kissel LLP, 1200 G Street,
Subadvisor.
NW., Washington, DC 20005.
2 With respect to a Series not part of the Trust,
FOR FURTHER INFORMATION CONTACT:
the term ‘‘Board’’ refers to the board of directors/
trustees of the relevant Series.
Barbara T. Heussler, Senior Counsel, at
VerDate Aug<31>2005
17:19 May 02, 2006
Jkt 208001
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
be responsible for recommending the
hiring, termination and replacement of
Subadvisors to the Board. All
subadvisory agreements (‘‘Subadvisory
Agreements’’) will be approved by the
Board, including a majority of the
Independent Trustees. Under each
Subadvisory Agreement, the Subadvisor
would determine which securities will
be purchased and sold for a Series’
investment portfolio or for a portion of
the portfolio. Each Subadvisor will be
registered under the Advisers Act and
paid by the Advisor out of the fee it
receives from the Series under its
Advisory Agreement. Applicants
request an order to permit the Advisor,
subject to Board approval, to enter into
and materially amend Subadvisory
Agreements without obtaining
shareholder approval. The requested
relief will not extend to any Subadvisor
that is an affiliated person, as defined in
section 2(a)(3) of the Act, of a Series or
of the Advisor, other than by reason of
serving as a Subadvisor to one or more
of the Series (‘‘Affiliated Subadvisor’’).
3. Applicants also request an
exemption from the various disclosure
provisions described below that may
require a Series to disclose fees paid by
the Advisor to each Subadvisor. An
exemption is requested to permit each
Series, in the event that a Series has
more than one Subadvisor, to disclose
(both as a dollar amount and as a
percentage of a Series’ net assets): (a)
The aggregate fees paid to the Advisor
and Affiliated Subadvisors; and (b)
aggregate fees paid to Subadvisors other
than Affiliated Subadvisors (‘‘Aggregate
Fee Disclosure’’). For any Series that
employs an Affiliated Subadvisor, the
Series will provide separate disclosure
of any fees paid to such Affiliated
Subadvisor.
Applicants’ Legal Analysis
1. Section 15(a) of the Act provides,
in relevant part, that it is unlawful for
any person to act as an investment
adviser to a registered investment
company except under a written
contract that has been approved by the
vote of a majority of the company’s
outstanding voting securities. Rule 18f–
2 under the Act provides that each
series or class of stock in a series
company affected by a matter must
approve such matter if the Act requires
shareholder approval.
2. Form N–1A is the registration
statement used by open-end investment
companies. Item 14(a)(3) of Form N–1A
requires disclosure of the method and
amount of the investment adviser’s
compensation.
3. Rule 20a–1 under the Act requires
proxies solicited with respect to an
E:\FR\FM\03MYN1.SGM
03MYN1
]]>Agencies
[Federal Register Volume 71, Number 85 (Wednesday, May 3, 2006)]
[Notices]
[Pages 26122-26130]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-6660]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-27306; File No. 812-13188]
The Variable Annuity Life Insurance Company, et al., Notice of
Application
April 27, 2006.
AGENCY: Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of application for an order of approval pursuant to
Section 26(c) of the Investment Company Act of 1940, as amended (the
``Act''), and an order of exemption pursuant to Section 17(b) of the
Act from Section 17(a) of the Act.
-----------------------------------------------------------------------
Applicants: The Variable Annuity Life Insurance Company
(``VALIC''), VALIC Separate Account A (``Separate Account A'' and,
collectively with VALIC, the ``Applicants''), and VALIC Company I
(``VALIC I'' and, collectively with VALIC and Separate Account A, the
``Section 17 Applicants'').
Summary of Application: Applicants seek an order approving the
proposed substitution of shares of Evergreen Fundamental Large Cap Fund
with Large Cap Core Fund; Evergreen Equity Income Fund with Broad Cap
Value Fund; American Century Ultra Fund with VALIC Ultra Fund; AIM
Large Cap Growth Fund, Janus Fund and Putnam New Opportunities Fund
with Large Capital Growth Fund; MSIF Mid Cap Growth Fund, Putnam OTC &
Emerging Growth Fund and SIT Mid Cap Growth Fund with Mid Cap Strategic
Growth Fund; Evergreen Special Values Fund with Small Cap Special
Values Fund; SIT Small Cap Growth Fund and Evergreen Special Equity
Fund with Small Cap Strategic Growth Fund; Credit Suisse Small Cap
Growth Fund with Small Cap Aggressive Growth Fund; Janus Adviser
Worldwide Fund and Putnam Global Equity Fund with Global Equity Fund;
Templeton Global Asset Allocation Fund with Global Strategy Fund;
Templeton Foreign Fund with Foreign Value Fund; and Dreyfus Basic U.S.
Mortgage Securities Fund with Capital Conservation Fund (the
``Substitution''). Section 17 Applicants seek an order pursuant to
Section 17(b) of the Act to permit certain in-kind transactions in
connection with the Substitution.
Filing Date: The application was originally filed on May 6, 2005,
and an amended and restated application was filed on April 26, 2006.
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 must be received by the
Commission by 5:30 p.m. on May 22, 2006, 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 requester'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, 100 F Street,
NE., Washington, DC 20549-1090. Applicants, 2929 Allen Parkway,
Houston, Texas 77019.
FOR FURTHER INFORMATION CONTACT: Rebecca A. Marquigny, Senior Counsel,
or Joyce M. Pickholz, Branch Chief, Office of Insurance Products,
Division of Investment Management, at (202) 551-6795.
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, 100 F Street, NE.,
Washington, DC 20549 (202-551-8090).
Applicants' and Section 17 Applicants' Representations
1. VALIC is a stock life insurance company originally organized in
1955 under the laws of Washington, DC and reorganized in Texas in 1968.
VALIC is an indirect wholly-owned subsidiary of American International
Group, Inc., a United States based international insurance and
financial services organization.
2. Separate Account A was established in 1979. Separate Account A
is registered under the Act as a unit investment trust (File No. 811-
3240) and is used to fund variable annuity contracts (the
``Contracts'') (File No. 33-75292) issued by VALIC.
3. VALIC I was incorporated in Maryland on December 7, 1984 and is
registered under the Act as an open-end management investment company
(File Nos. 811-3738 and 002-83631).
4. Purchase payments under the Contracts may be allocated to one or
more divisions (``Divisions'') of Separate Account A. Income, gains and
losses, whether or not realized, from assets allocated to Separate
Account A are, as provided in the Contracts, credited to or charged
against Separate Account A without regard to other income, gains or
losses of VALIC. The assets maintained in Separate Account A will not
be charged with any liabilities arising out of any other business
conducted by VALIC. Nevertheless, all obligations arising under the
Contracts, including the commitment to make annuity payments or death
benefit payments, are general corporate obligations of VALIC.
Accordingly, Applicants represent that all of VALIC's assets are
available to meet its obligations under the Contracts.
5. The Contracts permit allocations of account value to available
Divisions that invest in specific investment portfolios of underlying
registered investment companies (a ``Fund'' and, collectively, the
``Mutual Funds''). VALIC I is one of the available Mutual Funds and
each of the following is a series of VALIC I:
[[Page 26123]]
Large Cap Core Fund, Broad Cap Value Fund, VALIC Ultra Fund, Large
Capital Growth Fund, Mid Cap Strategic Growth Fund, Small Cap Special
Values Fund, Small Cap Strategic Growth Fund, Small Cap Aggressive
Growth Fund, Global Equity Fund, Global Strategy Fund, Foreign Value
Fund, and Capital Conservation Fund (collectively, the ``Replacement
Funds''). The other Funds involved in this application (collectively,
the ``Replaced Funds'') are all registered under the Act as open-end
management investment companies and include the following: AIM Large
Cap Growth Fund, American Century Ultra Fund, Credit Suisse Small Cap
Growth Fund, Dreyfus BASIC U.S. Mortgage Securities Fund, Evergreen
Equity Income, Evergreen Fundamental Large Cap Fund, Evergreen Special
Equity, Evergreen Special Values Funds, Janus Adviser Worldwide Funds,
Janus Fund, MSIF Mid Cap Growth Portfolio, Putnam Global Equity Fund,
Putnam New Opportunities Fund, Putnam OTC & Emerging Growth Fund, Sit
Mid Cap Growth Fund, Sit Small Cap Growth Fund, Templeton Foreign Fund,
and Templeton Global Asset Allocation Fund.
6. The Contracts permit transfers of accumulation value from one
Division to another Division at any time prior to annuitization,
subject to certain restrictions. No sales charge applies to such a
transfer of accumulation value among Divisions.
7. The Contracts reserve the right, upon notice to contract owners
(the ``Contract Owners''), to substitute shares of another mutual fund
for shares of a Fund held by a Division.
8. The Replaced Funds involved in the Substitution include 18
separate portfolios representing ten investment company complexes.
After the Substitution, there will be 12 portfolios, all of which will
be portfolios of VALIC I. Applicants represent that the investment
objective and policies of each Replacement Fund will be the same as or
substantially similar to the investment objective and policies of the
corresponding Replaced Fund. Applicants state that the Substitution is
being proposed to reduce the number of overlapping portfolio offerings
in certain classes and eliminate certain portfolios whose performance
levels in the recent years have not maintained the level of performance
that was the basis of their inclusion as variable account options.
Applicants represent that relieving Separate Account A of the
administrative burdens of interfacing with ten unaffiliated investment
company complexes is expected to simplify compliance, accounting and
auditing and, generally, to allow VALIC to administer the Contracts
more efficiently. Applicants state that VALIC will serve as the
investment adviser for each Replacement Fund, and many of the
Replacement Funds will retain as sub-adviser the investment adviser of
the Replaced Fund. Applicants state that, because VALIC I has ``manager
of managers'' exemptive relief, VALIC, as investment adviser, will be
able to act more quickly and efficiently, subject to Board of Directors
approval, to protect Contract Owners' interests if the performance of
one or more of the sub-advisers does not meet expectations.\1\
---------------------------------------------------------------------------
\1\ Investment Company Act Release Nos. 23386 (Aug. 12, 1998)
(Notice) and 23429 (Sept. 9, 1998) (Order).
---------------------------------------------------------------------------
9. Applicants propose the following substitutions of shares:
------------------------------------------------------------------------
Replacement
Substitution Replaced portfolio portfolio
------------------------------------------------------------------------
A............................... Evergreen Large Cap Core
Fundamental Large Fund.
Cap Fund.
B............................... Evergreen Equity Broad Cap Value
Income Fund. Fund.
C............................... American Century VALIC Ultra Fund.
Ultra Fund.
D............................... AIM Large Cap Large Capital
Growth. Growth Fund.
E............................... Janus Fund........
F............................... Putnam New
Opportunities
Fund.
G............................... MSIF Mid Cap Mid Cap Strategic
Growth Fund. Growth Fund.
H............................... Putnam OTC &
Emerging Growth
Fund.
I............................... SIT Mid Cap Growth
Fund.
J............................... Evergreen Special Small Cap Special
Values Fund. Values Fund.
K............................... SIT Small Cap Small Cap
Growth Fund. Strategic Growth
Fund.
L............................... Evergreen Special
Equity Fund.
M............................... Credit Suisse Small Cap
Small Cap Growth Aggressive Growth
Fund. Fund.
N............................... Janus Adviser Global Equity
Worldwide Fund. Fund.
O............................... Putnam Global
Equity Fund.
P............................... Templeton Global Global Strategy
Asset Allocation Fund.
Fund.
Q............................... Templeton Foreign Foreign Value
Fund. Fund.
R............................... Dreyfus Basic U.S. Capital
Mortgage Conservation
Securities Fund. Fund.
------------------------------------------------------------------------
10. Substitution A: Applicants describe the investment objective
for the Evergreen Fundamental Large Cap Fund and the Large Cap Core
Fund identically. Each Fund invests, under normal conditions, at least
80% of its assets in the common stock of large U.S. companies. Each
Fund's stock selection is based on a diversified style of equity
management that allows it to invest in both value and growth oriented
equity securities. Applicants represent that both the Replaced Fund and
the Replacement Fund have similar investment strategies and have no
significant risk disparities.
Charges for the Replaced Fund include Management Fees of 0.61%,
12b-1 Fees of 0.30%, and Other Expenses of 0.59%.\2\ Charges for the
Replacement Fund include: Management Fees of 0.70% and Other Expenses
of 0.15%; it does not charge a 12b-1 Fee. Respectively, the Replaced
Fund's total gross and net operating expenses are 1.50% and 1.39%
(reflecting a 0.11% fee reduction arrangement). Both total gross and
net annual operating expenses for the Replacement Fund equal 0.85%.
Under the Contracts, both Funds' Separate Account fee is the same.
Applicants represent that the Replacement Fund is an appropriate
substitute for the Replaced Fund because: (1) The investment objective
and policies of the two Funds are nearly identical; and (2) the
Replacement Fund assets will be managed by the same investment adviser
(using the same management style and strategy) as the Replaced Fund.
---------------------------------------------------------------------------
\2\ For the descriptions of charges involved in the
Substitution, all percentages for the Management Fees, 12b-1 Fees,
Other Expenses, Fee Reductions, Total Gross and Net Annual Operating
Expenses, and Separate Account Fees represent a percentage of
average annual assets.
---------------------------------------------------------------------------
[[Page 26124]]
11. Substitution B: Applicants state that the Evergreen Equity
Income Fund seeks current income and capital growth by investing
primarily in equity securities across all market capitalizations that
on the purchase date pay a higher yield than the average yield of
companies included in the Russell 1000 Value Index. Applicants
represent that the Broad Cap Value Fund seeks total return through
capital appreciation with income as a secondary consideration. The
Replacement Fund invests primarily in large capitalization companies
whose stocks are considered to be undervalued. The Replacement Fund may
also invest in companies with mid-sized or small market capitalizations
and may invest up to 20% in foreign securities. Applicants state that
the investment strategies of the funds differ such that the Replaced
Fund invests in ``growth'' and ``value'' securities whereas the
Replacement Fund invests in what it determines are ``value''
securities. However, Applicants also represent that notwithstanding
these differences, the risk profile of the two funds is very similar.
Charges for the Replaced Fund include Management Fees of 0.59%,
12b-1 Fees of 0.30%, and Other Expenses of 0.34%. Charges for the
Replacement Fund include Management Fees of 0.70%, and Other Expenses
of 0.15%. The Replacement Fund does not charge a 12b-1 Fee. There is no
fee reduction arrangement applicable to either Fund. The total gross
annual operating expenses for the Replaced and Replacement Funds are
1.23% and 0.85%, respectively. Under the Contracts, the Separate
Account fee is the same for both Funds. Applicants represent that the
Replacement Fund is an appropriate substitute for the Replaced Fund
because: (1) The investment objective (current income and capital
growth) and policies of the two Funds are substantially similar; (2)
the income yield of the Replacement Fund has been comparable to the
Replaced Fund for the past five years, and (3) the Replacement Fund's
overall risk profile is very similar to that of the Replaced Fund.
13. Substitution C: Applicants state that the Replaced Fund seeks
long-term capital growth through investments primarily in common stocks
that are considered to have a greater-than-average chance to increase
in value over time. Applicants represent that the Replacement Fund
seeks long term capital growth by investing primarily in common stocks
of growing companies using a strategy that looks for companies with
earnings and revenues that are growing at a successively faster or
accelerating pace. Applicants represent that the Replaced and
Replacement Funds have no significant risk disparities and have nearly
identical investment strategies.
Charges for the Replaced Fund include only a Management Fees of
0.99%; there are no 12b-1 Fees or Other Expenses. The Replacement Fund
charges Management Fees of 0.80% and Other Expenses of 0.15%; there are
no 12b-1 Fees. There is no fee reduction arrangement applicable to the
Replaced or the Replacement Fund. The total gross annual operating
expenses are for the Replaced and Replacement Funds are 0.99% and
0.95%, respectively. Under the Contracts, the Separate Account fee is
1.04% for the Replace Fund and 1.00% for the Replacement Fund.
Applicants represent that the Replacement Fund is an appropriate
substitute for the Replaced Fund because: (1) The investment objective
and policies of the two Funds are nearly identical; and (2) the
Replacement Fund assets will be managed by the same investment adviser
(using the same management style and strategy) as the Replaced Fund.
14. Substitution D: Applicants state that both Replaced and
Replacement Funds seek long-term capital growth through investment in
large-capitalization companies within the range of the Russell 1000
Index. Applicants also represent that (1) the Replaced and Replacement
Funds have no significant risk disparities; (2) AIM serves as adviser
to both funds (though as a co-subadviser for the Replacement Fund); and
(3) the Funds have very similar investment strategies.
Charges for the Replaced Fund include Management Fees of 0.75%,
12b-1 Fees of 0.25%, and Other Expenses of 0.45%. As of January 18,
2006, charges for the Replacement Fund include a new reduced Management
Fee of 0.64% and Other Expenses of 0.15%; it has no 12b-1 Fee.
Respectively, the Replaced Funds' total gross and net annual operating
expenses are 1.45% and 1.37% (reflecting a 0.08% fee reduction
arrangement). The Replacement Fund has no fee reduction arrangement;
its total gross and net annual operating expenses are 0.79%. Under the
Contracts, both Funds' Separate Account fee is identical. Applicants
represent that the Replacement Fund is an appropriate substitute for
the Replaced Fund because: (1) The investment objective and policies of
the two Funds are substantially similar; (2) the investment advisor of
the Replaced Fund, AIM Advisors, will continue to serve as one of the
two sub-advisers of the Replacement Fund; and (3) in subadvising the
Replacement Fund, AIM Advisors will continue using the same style and
strategy as is used in managing the Replaced Fund.
15. Substitution E: Applicants state that the Replaced Fund seeks
long-term growth of capital consistent with preservation of capital
through investment in common stocks of larger, more established
companies selected for their growth potential. The Replacement Fund
seeks long-term growth of capital through investment in common stocks
of well-established, high-quality growth companies no smaller than the
smallest capitalized company included in the Russell 1000 Index.
Applicants represent that the Replaced and Replacement Funds have no
significant risk disparities.
Charges for the Replaced Fund include Management Fees of 0.64%,
Other Expenses of 0.25%, and no 12b-1 Fee. As of January 18, 2006,
charges for the Replacement Fund include a new reduced Management Fee
of 0.64%, Other Expenses of 0.15%, and no 12b-1 Fee. Neither Replaced
nor Replacement Fund has a fee reduction arrangement. Total gross
annual operating expenses for Replaced and Replacement Funds are 0.89%
and 0.79%, respectively. Under the Contracts, Separate Account fees for
both Funds are identical. Applicants represent that the Replacement
Fund is an appropriate substitute for the Replaced Fund because: (1)
The investment objective (long-term capital growth) and policies of the
two Funds are substantially similar; and (2) both the Replaced and
Replacement Fund have similar risk profiles.
16. Substitution F: Applicants state that the Replaced Fund seeks
long-term capital appreciation by investing mainly in common stocks of
U.S. companies, focusing on growth stocks in sectors of the economy the
adviser believes have high growth potential. The Replacement Fund seeks
long-term growth of capital through investment in common stocks of
well-established, high-quality growth companies no smaller than the
smallest capitalized company included in the Russell 1000 Index.
Applicants represent that (1) the Replaced Fund is more likely to be
subject to small and mid-cap risks than the Replacement Fund; (2) the
active trading risk associated with the Replacement Fund is anticipated
as a principal risk only for the Fund's first year of operations; and
(3) both Funds may invest in derivatives, convertible securities and
foreign securities.
Charges for the Replaced Fund include Management Fees of 0.52%,
[[Page 26125]]
12b-1 Fees of 0.25%, and Other Expenses of 0.35%. As of January 18,
2006, charges for the Replacement Fund include a new reduced Management
Fee of 0.64%, Other Expenses of 0.15%, and no 12b-1 Fee. There is no
fee reduction arrangement applicable to either Fund. Total gross annual
operating expenses for Replaced and Replacement Funds are 1.12% and
0.79%, respectively. Under the Contracts, Separate Account fees for
both Funds are identical. Applicants represent that the Replacement
Fund is an appropriate substitute for the Replaced Fund because: (1)
The investment objective (long-term growth of capital) and policies of
both Replaced and Replacement Funds are substantially similar; and (2)
both the Replaced and Replacement Fund have similar risk profiles.
17. Substitution G: Applicants state that the Replaced and
Replacement Funds each seek long-term capital growth by investing
primarily in growth-oriented equity securities of U.S. mid-cap
companies and, to a limited extent, foreign companies. Applicants
represent that for the Replaced Fund, the market capitalization of Mid-
cap companies is generally less than $35 billion. Applicants represent
that the Replacement Fund identifies a company as a mid cap company if,
at the time of purchase, its capitalization is (1) within the range of
companies represented in the Russell Mid Cap Growth Index, or (2)
between $1 billion and $12 billion. Applicants represent that (1) the
Replaced Fund invests up to 10% of its assets in REITs compared to the
Replacement Fund which typically invests only up to 5% in REITs; (2)
the active trading risk associated with the Replacement Fund is
anticipated as a principal risk only for the Fund's first year of
operations; and (3) both Funds may invest in derivatives and initial
public offerings (``IPOs'').
Charges for the Replaced Fund include Management Fees of 0.50%,
12b-1 Fees of 0.25%, and Other Expenses of 0.13%. Charges for the
Replacement Fund include Management Fees of 0.70%, Other Expenses of
0.15%, and no 12b-1 Fee. There is no fee reduction arrangement
applicable to either Fund. Total gross annual operating expenses for
Replaced and Replacement Funds are 0.88% and 0.85%, respectively. Under
the Contracts, the Separate Account fee is identical for both Funds.
Applicants represent that the Replacement Fund is an appropriate
substitute for the Replaced Fund because: (1) The investment objective
and policies of both Replaced and Replacement Funds are substantially
similar; (2) the investment adviser of the Replaced Fund, Morgan
Stanley Investment Management (``MSIM''), will continue to serve as one
of two sub-advisers of the Replacement Fund; and (3) MSIM will continue
using the same style and strategy as is used in managing the Replaced
Fund.
18. Substitution H: Applicants state that the Replaced Funds seeks
capital appreciation by investing mainly in common stocks of U.S.
companies traded in the over-the-counter market and ``emerging growth''
companies listed on securities exchanges, with a focus on growth
stocks. Applicants state that the Replacement Fund seeks long-term
capital growth by investing primarily in growth-oriented equity
securities of U.S. mid-cap companies and, to a limited extent, foreign
companies. Applicants represent that (1) the Replaced Fund may invest
more of its assets in small-cap companies than the Replacement Fund;
(2) the active trading risk associated with the Replacement Fund is
anticipated as a principal risk only for that Fund's first year of
operations; and (3) both Funds' overall risk profile is very similar.
Charges for the Replaced Fund include Management Fees of 0.62%,
12b-1 Fees of 0.25%, and Other Expenses of 0.54%. Charges for the
Replacement Fund include Management Fees of 0.70%, Other Expenses of
0.15%, and no 12b-1 Fee. Respectively, the Replaced Funds' total gross
and net annual operating expenses are 1.41% and 1.40% (reflecting a
0.01% fee reduction arrangement). The Replacement Fund has no fee
reduction arrangement; its total gross and net annual operating
expenses are 0.85%. Under the Contracts, the Separate Account fee is
identical for both Funds. Applicants represent that the Replacement
Fund is an appropriate substitute for the Replaced Fund because: (1)
The investment objective (long-term capital growth) and policies of
both Funds are substantially similar; and (2) both Replaced and
Replacement Funds have similar risk profiles.
19. Substitution I: Applicants state that the Replaced Funds seeks
long-term capital appreciation by investing in the common stocks of
companies with capitalizations of $2 billion to $15 billion at the time
of purchase. Applicants state that the Replacement Fund seeks long-term
capital growth by investing primarily in growth-oriented equity
securities of U.S. and, to a limited extent, foreign, mid-cap companies
with market capitalization at the time of purchase is between $1
billion and $12 billion or within the range of companies represented in
the Russell Mid Cap Growth Index. Applicants represent that there are
no significant risk disparities between the Replaced and Replacement
Funds.
The Replaced Fund carries a Management Fee of 1.25%, and has no
12b-1 Fees or Other Expenses. Charges for the Replacement Fund include
Management Fees of 0.70%, Other Expenses of 0.15%, and no 12b-1 Fee.
Respectively, the Replaced Funds' total gross and net annual operating
expenses are 1.25% and 1.15% (reflecting a 0.10% fee reduction
arrangement). The Replacement Fund has no fee reduction arrangement;
its total gross and net annual operating expenses are 0.85%. Under the
Contracts, the Separate Account fee is identical for both Funds.
Applicants represent that the Replacement Fund is an appropriate
substitute for the Replaced Fund because: (1) The investment objective
and policies of both Replaced and Replacement Funds are substantially
similar; (2) although the Replaced and Replacement Funds define ``mid-
cap companies'' slightly differently, the investment objective of both
Funds is to seek long-term capital growth; and (3) both the Replaced
and Replacement Fund have similar risk profiles.
20. Substitution J: Applicants state that the investment objective
of both the Replaced and Replacement Funds is to produce capital growth
by investing primarily in common stocks of small U.S. Companies. The
capitalization range is identical for both Funds. Applicants represent
that Replaced and Replacement Funds have no significant risk
disparities.
Charges for the Replaced Fund include Management Fees of 0.78%,
12b-1 Fees of 0.25%, and Other Expenses of 0.34%. Charges for the
Replacement Fund include Management Fees of 0.75%, Other Expenses of
0.15%, and no 12b-1 Fee. Respectively, the Replaced Funds' total gross
and net annual operating expenses are 1.37% and 1.32% (reflecting a
0.05% fee reduction arrangement). The Replacement Fund has no fee
reduction arrangement; its total gross and net annual operating
expenses are 0.90%. Under the Contracts, the Separate Account fee is
identical for both Funds. Applicants represent that the Replacement
Fund is an appropriate substitute for the Replaced Fund because: (1)
The investment objective and policies of the Replaced and Replacement
Funds are substantially similar; (2) the investment adviser of the
Replaced Fund, Evergreen Investment Management (``EIM''), will continue
to serve as one of two sub-advisers of the
[[Page 26126]]
Replacement Fund; and (3) EIM will continue using the same style and
strategy as is used in managing the Replaced Fund.
21. Substitution K: Applicants state that the investment objective
of the Replaced Fund is to maximize long-term capital appreciation by
investing in common stocks of companies with capitalizations of $2.5
billion or less at the time of purchase. Applicants state that the
Replacement Fund seeks capital growth by investing primarily in common
stocks of small U.S. companies whose market capitalization at purchase
is within the range tracked by the Russell 2000 Index. Noting that only
the Replacement Fund may invest in emerging market securities and IPOs,
Applicants represent that the Funds have similar investment strategies
and overall risk profiles.
The Replaced Fund carries a Management Fee of 1.50%, and has no
12b-1 Fees or Other Expenses. Charges for the Replacement Fund include
Management Fees of 0.85%, Other Expenses of 0.15%, and no 12b-1 Fee.
There is no fee reduction arrangement applicable to either Fund. Total
gross annual operating expenses for Replaced and Replacement Funds are
1.50% and 1.00%, respectively. Under the Contracts, the Separate
Account fee is identical for both Funds. Applicants represent that the
Replacement Fund is an appropriate substitute for the Replaced Fund
because: (1) The investment objective and policies of both Funds are
substantially similar; (2) although the Replaced and Replacement Funds
define ``small companies'' slightly differently, the investment
objective of both Funds is to seek capital growth by investing in small
companies; and (3) both the Replaced and Replacement Fund have similar
risk profiles.
22. Substitution L: Applicants state that the investment objective
of both the Replaced and Replacement Funds is to produce capital growth
by investing primarily in common stocks of small U.S. companies. The
capitalization range is identical for both Funds. Applicants represent
that the Replaced and Replacement Funds have no significant risk
disparities.
Charges for the Replaced Fund include Management Fees of 0.89%,
12b-1 Fees of 0.30%, and Other Expenses of 0.36%. Charges for the
Replacement Fund include Management Fees of 0.85%, Other Expenses of
0.15%, and no 12b-1 Fee. There is no fee reduction arrangement
applicable to either Fund. Total gross annual operating expenses for
Replaced and Replacement Funds are 1.55% and 1.00%, respectively. Under
the Contracts, the Separate Account fee is identical for both Funds.
Applicants represent that the Replacement Fund is an appropriate
substitute for the Replaced Fund because: (1) The investment objective
and policies of both Funds are nearly identical; and (2) the
Replacement Fund will be managed by the same portfolio manager (using
the same management style and strategy) as the Replaced Fund.
23. Substitution M: Applicants state that both Replaced and
Replacement Funds seek capital growth through investment in securities
of small U.S. companies. Applicants describe the capitalization range
for both Funds identically and represent that the Replaced and
Replacement Funds are managed by the same portfolio managers and have
similar investment strategies.
Charges for the Replaced Fund include Management Fees of 1.00%,
12b-1 Fees of 0.25%, and Other Expenses of 0.74%. Charges for the
Replacement Fund include Management Fees of 0.85%, Other Expenses of
0.15%, and no 12b-1 Fee. Respectively, the Replaced Funds' total gross
and net annual operating expenses are 1.99% and 1.40% (reflecting a
0.59% fee reduction arrangement). The Replacement Fund has no fee
reduction arrangement; its total gross and net annual operating
expenses are 1.00%. Under the Contracts, the Separate Account fee is
identical for both Funds. Applicants represent that the Replacement
Fund is an appropriate substitute for the Replaced Fund because: (1)
The investment objective and policies of both Funds are nearly
identical; and (2) the Replacement Fund will be managed by the same
portfolio manager (using the same management style and strategy) as the
Replaced Fund.
24. Substitution N: Applicants state that Replaced Fund seeks long-
term growth of capital in a manner consistent with the preservation of
capital by investing in common stocks of companies of any size located
throughout the world. Applicants state that the Replacement Fund seeks
capital appreciation by investing primarily in common stocks of mid-
sized and large companies worldwide. Applicants represent that the
Replacement Fund will invest mainly in developed countries but also may
invest in developing markets. Applicants state that both Funds may
invest in companies of any size.
Charges for the Replaced Fund include Management Fees of 0.60%,
12b-1 Fees of 0.25%, and Other Expenses of 0.31%. Charges for the
Replacement Fund include Management Fees of 0.79%, Other Expenses of
0.30%, and no 12b-1 Fee. Respectively, the Replaced Funds' total gross
and net annual operating expenses are 1.16% and 1.15% (reflecting a
0.01% fee reduction arrangement). The Replacement Fund has no fee
reduction arrangement; its total gross and net annual operating
expenses are 1.09%. Under the Contracts, the Separate Account fee is
identical for both Funds. Applicants represent that the Replacement
Fund is an appropriate substitute for the Replaced Fund because: (1)
The investment objective (capital appreciation by investing in common
stocks of companies worldwide) and policies of both Funds are
substantially similar; and (2) the Replaced and Replacement Funds have
similar risk profiles.
25. Substitution O: Applicants state that both Replaced and
Replacement Funds seek capital appreciation by investing principally in
common stocks of companies worldwide and employ a strategy of investing
primarily in mid-sized and large companies in developed countries.
Applicants state that each Fund may invest in companies of any size and
companies located in developing markets. Applicants represent that the
Funds have no significant risk disparities.
Charges for the Replaced Fund include Management Fees of 0.67%,
12b-1 Fees of 0.25%, and Other Expenses of 0.37%. Charges for the
Replacement Fund include Management Fees of 0.79%, Other Expenses of
0.30%, and no 12b-1 Fee. There is no fee reduction arrangement
applicable to either Fund. Total gross annual operating expenses for
Replaced and Replacement Funds are 1.29% and 1.00%, respectively. Under
the Contracts, the Separate Account fee is identical for both Funds.
Applicants represent that the Replacement Fund is an appropriate
substitute for the Replaced Fund because: (1) The investment objective
and policies of the Replacement Fund are nearly identical to those of
the Replaced Fund; and (2) the Replacement Fund will be managed by the
same portfolio manager (using the same management style and strategy)
as the Replaced Fund.
26. Substitution P: Applicants state that the Replaced Fund seeks
high total return by normally investing in equity securities of
companies of any country, debt securities of companies and governments
of any country, and money market instruments. Applicants state that the
Replacement Fund seeks high total return by investing in equity
[[Page 26127]]
securities of companies in any country, fixed income (debt) securities
of companies and governments of any country, and in money market
instruments. Applicants also represent that the Funds have no
significant risk disparities.
Charges for the Replaced Fund include Management Fees of 0.61% and
Other Expenses of 0.24%; it has no 12b-1 Fee. Charges for the
Replacement Fund include Management Fees of 0.50% and Other Expenses of
0.30%; it also has no 12b-1 Fee. Respectively, the Replaced Funds'
total gross and net annual operating expenses are 0.85% and 0.84%
(reflecting a 0.01% fee reduction arrangement). The Replacement Fund
has no fee reduction arrangement; its total gross and net annual
operating expenses are 0.80%. Under the Contracts, the Separate Account
fee is 1.25% for the Replace Fund and 1.00% for the Replacement Fund.
Applicants represent that the Replacement Fund is an appropriate
substitute for the Replaced Fund because: (1) The investment objective
and policies of the Replaced and Replacement Funds are nearly
identical; and (2) the Replacement Fund will be managed by the same
portfolio manager (using the same management style and strategy) as the
Replaced Fund.
27. Substitution Q: Applicants state that both the Replaced and
Replacement Funds seek long-term capital growth by investing mainly in
equity securities of companies located outside the U.S., including
emerging markets. Applicants further represent that both Funds may
invest in companies of any market capitalization, and they have no
significant risk disparities.
Charges for the Replaced Fund include Management Fees of 0.61%,
12b-1 Fees of 0.25%, and Other Expenses of 0.37%. Charges for the
Replacement Fund include Management Fees of 0.70% and Other Expenses of
0.30%; it has no 12b-1 Fee. There is no fee reduction arrangement
applicable to either Fund. Total gross annual operating expenses for
Replaced and Replacement Funds are 1.23% and 1.00%, respectively. Under
the Contracts, the Separate Account fee is identical for both Funds.
Applicants represent that the Replacement Fund is an appropriate
substitute for the Replaced Fund because: (1) The investment objective
and policies of the Replaced and Replacement Funds are nearly
identical; and (2) the Replacement Fund will be managed by the same
portfolio manager (using the same management style and strategy) as the
Replaced Fund.
28. Substitution R: Applicants state that the Replaced Fund seeks
as high a level of current income as is consistent with the
preservation of capital and invests in mortgage-related securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities to achieve this objective. Applicants represent that
the Replacement Fund seeks the highest possible total return consistent
with the preservation of capital through current income and capital
gains on investments in intermediate and long-term debt instruments and
other income producing securities. Applicants state that the Replaced
Fund invests more significantly in mortgage-related securities than the
Replacement Fund and that the Replacement Fund may invest a larger
portion of its assets in foreign securities such as U.S. dollar
denominated emerging market debt.
Charges for the Replaced Fund include Management Fees of 0.60% and
Other Expenses of 0.21%. Charges for the Replacement Fund include
Management Fees of 0.50% and Other Expenses of 0.20%. Neither Fund has
a 12b-1 Fee or a fee reduction arrangement. Total gross operating
annual expenses for Replaced and Replacement Funds are 0.81% and 0.70%,
respectively. Under the Contracts, the Separate Account fee is
identical for both Funds. Applicants represent that the Replacement
Fund is an appropriate substitute for the Replaced Fund because: (1)
The investment objective and policies of the Replacement Fund are
substantially similar to those of the Replaced Fund; (2) both Funds
invest in fixed-income securities with a focus on current income; (3)
the Replaced and Replacement Funds have similar risk profiles and
similar long-term performance; and (4) considering all of VALIC's
currently offered investment options, the Applicants believe that the
Replacement Fund is the most appropriate substitute for the Replaced
Fund because of its similarities in terms of its investment objectives,
policies, media and risk.
29. Applicants represent that the Substitution will take place at
the Funds' relative net asset values determined on the date of the
Substitution in accordance with Section 22 of the Act and Rule 22c-1
thereunder with no change in the amount of any Contract Owner's account
value or death benefit or in the dollar value of his or her investment
in any of the Divisions. Applicants represent that there will be no
financial impact on any Contract Owner. Applicants assert that the
Substitution will generally be effected by having each of the Divisions
that invests in the Replaced Funds redeem its shares at the net asset
value calculated on the date of the Substitution and purchase shares of
the respective Replacement Funds at the net asset value calculated on
the same date.
30. Applicants represent that, in the alternative, should a
Replaced Fund determine that a cash redemption would adversely affect
its shareholders, it may redeem the interest ``in-kind.'' Applicants
represent that in such a case, the Substitution will be effected by the
Division contributing all the securities it receives from the Replaced
Fund for an amount of Replacement Fund shares equal to the fair market
value of the securities contributed. Applicants assert that all in-kind
redemptions from a Replaced Fund of which any of the Applicants is an
affiliated person will be effected in accordance with the conditions
set forth in the Commission's no-action letter issued to Signature
Financial Group, Inc. (available December 28, 1999).
31. Applicants state that the Substitution was described in a
supplement to the prospectuses for the Contracts (``Supplements'')
dated and filed with the Commission on March 1, 2006 and mailed to
Contract Owners. Applicants represent that the Supplements provided
Contract Owners with notice of the Substitution and described the
reasons for engaging in the Substitution. Applicants further represent
that the Supplements informed Contract Owners with assets allocated to
a Division investing in the Replaced Funds that the Replaced Funds will
not be an available investment option after the date of the
Substitution and that Contract Owners will have the opportunity to
reallocate account value:
Prior to the Substitution, from the Divisions investing in
the Replaced Funds, and
For 30 days after the Substitution, from the Divisions
investing in the Replacement Funds to Divisions investing in other
Funds available under the respective Contracts,
without diminishing the number of free transfers that may be made in a
given contract year and without the imposition of any transfer charge
or limitation, other than any applicable limitations in place to deter
potentially harmful excessive trading.
32. Applicants represent that the prospectuses for the Contracts
will contain the substance of the information contained in the
Supplements concerning the Substitution. Applicants represent that each
Contract Owner will
[[Page 26128]]
be provided with a prospectus for the Replacement Funds before the
Substitution and that within five days after the Substitution, VALIC
will send affected Contract Owners written confirmation that the
Substitution has occurred and notice that Contract Owners will have the
opportunity to reallocate account value for 30 days after the
Substitution, from the Divisions investing in the Replacement Funds to
Divisions investing in other Funds available under the respective
Contracts, without diminishing the number of free transfers that may be
made in a given contract year and without the imposition of any
transfer charge or limitation, other than any applicable limitations in
place to deter potentially harmful excessive trading.
33. Applicants state that VALIC will pay all direct and indirect
expenses and transaction costs of the Substitution, including all
legal, accounting and brokerage expenses relating to the Substitution,
and no costs will be borne by Contract Owners. Further, Applicants
represent that affected Contract Owners will not incur any fees or
charges as a result of the Substitution, nor will their rights or the
obligations of the Applicants under the Contracts be altered in any
way. Applicants represent that (1) the Substitution will not cause the
fees and charges under the Contracts currently being paid by Contract
Owners, including Separate Account Fees, to be greater after the
Substitution than before the Substitution; (2) the Substitution will
have no adverse tax consequences to Contract Owners; and (3) the
Substitution will in no way alter the tax benefits to Contract Owners.
34. Applicants believe that their request satisfies the standards
for relief pursuant to Section 26(c) of the Act, as set forth below,
because the affected Contract Owners will have:
(1) Account values allocated to a Division invested in a
Replacement Fund with an investment objective and policies
substantially similar to the investment objective and policies of the
Replaced Fund; and
(2) Replacement Funds whose current total annual expenses are equal
to or lower than those of the Replaced Funds for their 2005 fiscal
years. In addition, VALIC has agreed that, for a period of 24 months
following the Substitution, it will reimburse affected Contract Owners
to the extent the expenses of a Replacement Fund exceed those of the
Replaced Fund for the 2005 fiscal years.
Applicants' Section 26(c) Legal Analysis
1. Section 26(c) of the Act makes it 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 approves the substitution. The Commission may approve
such a 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 the Act.
2. Applicants assert that the purposes, terms and conditions of the
Substitution are consistent with the principles and purposes of Section
26(c) and do not entail any of the abuses that Section 26(c) is
designed to prevent. Applicants have reserved the right to make such a
substitution under the Contracts and represent that this reserved right
is disclosed in the prospectus for the Contracts.
3. Applicants represent that for all 18 Substitutions, the
investment objectives and policies of the Replacement Funds are
sufficiently similar to those of the corresponding Replaced Funds that
Contract Owners will have reasonable continuity in investment
expectations. Accordingly, Applicants believe the Replacement Funds are
appropriate investment vehicles for those Contract Owners who have
account values allocated to the Replaced Funds.
4. For each of the 18 Substitutions, Applicants represent that the
Replacement Funds' current annual expenses are lower than the annual
expenses of the corresponding Replaced Funds for their 2005 fiscal
years. Applicants represent that for the 24 month period following the
date of the Substitution, VALIC agrees that if, on the last day of each
fiscal quarter during the 24 month period, the total operating expenses
of a Replacement Fund (taking into account any expense waiver or
reimbursement) exceed on an annualized basis the net expense level of
the corresponding Replaced Fund for the 2005 fiscal year, it will, for
each Contract outstanding on the date of the Substitution, make a
corresponding reimbursement of Separate Account expenses as of the last
day of such fiscal quarter, such that the amount of the Replacement
Fund's net expenses, together with those of the corresponding Separate
Account will, on an annualized basis, be no greater than the sum of the
net expenses of the corresponding Replaced Fund and the expenses of the
Separate Account for the 2005 fiscal year. Applicants also represent
that VALIC agrees that, notwithstanding any higher maximum permitted
Separate Account Fee disclosed in a prospectus and set forth in a
variable annuity contract, the net Separate Account Fee charged in the
future to a Contract Owner on a Division that invests in a Replacement
Fund will be no higher than the net Separate Account Fee charged in the
most recent fiscal year to that Contract Owner on the Division that
invests in the corresponding Replaced Fund. In addition, Applicants
represent that for 24 months following the Substitution, VALIC will not
increase contractual asset-based fees or charges for Contracts
outstanding on the day of the Substitution.
5. VALIC represents that the Substitution and the selection of the
Replacement Funds were not motivated by any financial consideration
paid or to be paid by the Replacement Funds, their advisors or
underwriters, or their respective affiliates.
6. Applicants represent that the Substitution will not result in
the type of costly forced redemption that Section 26(c) was intended to
guard against and represent that the Substitution is consistent with
the protection of investors and the purposes fairly intended by the Act
because:
(1) Each of the Replacement Funds is an appropriate fund to which
to move Contract Owners with account values allocated to the Replaced
Funds because the new funds have substantially similar investment
objectives and policies.
(2) The direct and indirect costs of the Substitution, including
any brokerage costs, will be borne by VALIC and will not be borne by
Contract Owners. No charges will be assessed to effect the
Substitution.
(3) The Substitution will be at the net asset values of the
respective shares without the imposition of any transfer or similar
charge and with no change in the amount of any Contract Owner's account
value.
(4) The Substitution will not cause the fees and charges under the
Contracts currently being paid by Contract Owners, including Separate
Account Fees, to be greater after the Substitution than before the
Substitution and will result in Contract Owners' account values being
moved to a Fund with the same or lower current total annual expenses.
(5) All Contract Owners will be given notice of the Substitution
prior to the Substitution and will have an opportunity beginning after
such notice and until 30 days after the Substitution to reallocate
account value among other available Divisions without the reallocation
being counted as one of the Contract Owner's free transfers in a
contract year and without the imposition of any transfer charge or
limitation, other than any applicable
[[Page 26129]]
limitations in place to deter potentially harmful excessive trading.
(6) Within five days after the Substitution, VALIC will send to its
affected Contract Owners written confirmation that the Substitution has
occurred.
(7) The Substitution will in no way alter the insurance benefits to
Contract Owners or the contractual obligations of VALIC.
(8) The Substitution will have no adverse tax consequences to
Contract Owners and will in no way alter the tax benefits to Contract
Owners.
(9) No Replacement Fund will rely on the previously granted
``manager of managers'' exemptive relief unless such action is approved
by a majority of the Replacement Fund's shareholders at a meeting whose
record date is after the Substitution has been effected.
Section 17 Applicants' Legal Analysis
1. Section 17(a)(1) of the Act, in relevant part, prohibits any
affiliated person of a registered investment company, or any affiliated
person of such person, acting as principal, from knowingly selling any
security or other property to that company. Section 17(a)(2) of the Act
generally prohibits the persons described above, acting as principal,
from knowingly purchasing any security or other property from the
registered company.
2. Because shares held by Separate Account A are legally owned by
VALIC, VALIC will own of record substantially all of the shares of the
Replacement Funds. In addition, as investment adviser to each
Replacement Fund, VALIC could be deemed to control each Replacement
Fund. Therefore, each Replacement Fund could be deemed to be an
affiliate of VALIC and, to the extent Separate Account A uses assets
received in-kind to purchase shares of a Replacement Fund, the
Substitution may be deemed to involve one or more purchases or sales of
securities or property between persons who are affiliates of
affiliates. Accordingly, the Section 17 Applicants are seeking relief
to the extent necessary from Section 17(a) for the in-kind purchases
and sales of Replacement Fund Shares.
3. Section 17(b) of the Act provides that the Commission may, upon
application, grant an order exempting any transaction from the
prohibitions of Section 17(a) if the evidence establishes that: The
terms of the proposed transaction, including the consideration to be
paid or received, are reasonable and fair and do not involve
overreaching on the part of any person concerned; the proposed
transaction is consistent with the policy of each registered investment
company concerned, as recited in its registration statement and records
filed under the Act; and the proposed transaction is consistent with
the general purposes of the Act.
4. The Section 17 Applicants represent that the terms of the
proposed in-kind purchases of shares of the Replacement Funds by
Separate Account A, including the consideration to be paid and received
by each Fund involved are reasonable, fair and do not involve
overreaching on the part of any person concerned. The Section 17
Applicants also represent that the proposed in-kind purchases by
Separate Account A are consistent with the policies of VALIC I and the
individual Replacement Funds. Finally, the Section 17 Applicants submit
that the proposed substitutions are consistent with the general
purposes of the Act.
5. To the extent that Separate Account A's in-kind purchases of
Replacement Fund shares are deemed to involve principal transactions
between entities which are affiliates of affiliates, Applicants assert
that the procedures described herein should be sufficient to assure
that the terms of the proposed transactions are reasonable and fair to
all participants because (1) the proposed transactions will take place
at relative net asset value in conformity with the requirements of
Section 22(c) of the Act and Rule 22c-1 thereunder with no change in
the amount of any Contract Owner's account value or death benefit or in
the dollar value of his or her investment in any Division; (2) Contract
Owners will not suffer any adverse tax consequences as a result of the
substitutions; and (3) the fees and charges under the Contracts will
not increase because of the substitutions.
6. Even though they may not rely on Rule 17a-7, the Section 17
Applicants represent that they will carry out the proposed in-kind
purchases in conformity with all of the conditions of Rule 17a-7 and
each Fund's procedures thereunder, except that: (1) The consideration
paid for the securities being purchased or sold may not be entirely
cash, and (2) the Board of Directors of VALIC I will not separately
review each portfolio security purchased by the Replacement Funds.
Section 17 Applicants assert that the circumstances surrounding the
proposed substitutions will offer the same degree of protection to each
Replacement Fund from overreaching that Rule 17a-7 provides to them
generally in connection with their purchase and sale of securities
under that Rule in the ordinary course of their business. In
particular, Section 17 Applicants assert that VALIC (or any of its
affiliates) cannot effect the proposed transactions at a price that is
disadvantageous to any of the Replacement Funds. Section 17 Applicants
represent that although the transactions may not be entirely for cash,
each will be effected based upon (1) the independent market price of
the portfolio securities valued as specified in paragraph (b) of Rule
17a-7, and (2) the net asset value per share of each Fund involved
valued in accordance with the procedures disclosed in its registration
statement and as required by Rule 22c-1 under the Act. Further, Section
17 Applicants represent that no brokerage commission, fee (except for
customary transfer fees), or other remuneration will be paid to any
party in connection with the proposed transactions.
7. The Section 17 Applicants assert that the sale of shares of
Replacement Funds for investment securities, as contemplated by the
proposed in-kind transactions, is consistent with the investment policy
and restrictions of the Replacement Funds because (1) the shares are
sold at their net asset value, and (2) the portfolio securities are of
the type and quality that the Replacement Funds would each have
acquired with the proceeds from share sales had the shares been sold
for cash. To assure that the second of these conditions is met, Section
17 Applicants represent that each sub-adviser will examine the
portfolio securities being offered to each Replacement Fund and accept
only those securities as consideration for shares that it would have
acquired for each such fund in a cash transaction.
8. Section 17 Applicants assert that the proposed in-kind
transactions (1) are consistent with the general purposes of the Act as
stated in the Findings and Declaration of Policy in Section I of the
Act; (2) do not present any of the conditions or abuses that the Act
was designed to prevent; and (3) the abuses described in Sections
l(b)(2) and (3) of the Act will not occur in connection with the
proposed in-kind purchases.
Conclusions
1. Applicants submit that for the reasons and upon the facts set
forth in their application, the requested order meets the standards set
forth in Section 26(c) and should, therefore, be granted.
2. Section 17 Applicants represent that the proposed in-kind
transactions meet all of the requirements of Section 17(b) of the Act
and that an exemption should be granted, to the extent necessary, from
the provisions of Section 17(a).
[[Page 26130]]
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-6660 Filed 5-2-06; 8:45 am]
BILLING CODE 8010-01-P
