[Federal Register Volume 59, Number 190 (Monday, October 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24314]
[[Page Unknown]]
[Federal Register: October 3, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20573; No. 812-9112]
Great-West Life & Annuity Insurance Company, et al.
September 26, 1994.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``1940 Act'').
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APPLICANTS: Great-West Life & Annuity Insurance Company (``Great-West
Life''), Maxim Series Account (``Separate Account''), and The Great
West Life Assurance Company (``Great West Assurance'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act granting exemptions from the provisions of Sections
26(a)(2)(C) and 27(c)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order permitting the
deduction of a mortality and expense risk charge from the assets of:
(a) The Separate Account in connection with the offer and sale of
certain flexible premium payment variable annuity contracts
(``Contracts''); (b) the Separate Account in connection with the
issuance of variable annuity contracts that are substantially similar
in all material respects to the Contracts (``Future Contracts''); and
(c) any other separate account established in the future by Great-West
Life in connection with the issuance of Future Contracts.
FILING DATE: The application was filed on July 15, 1994, and amended
and restated on September 20, 1994.
HEARING OR NOTIFICATION OF Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request at hearing by writing to the Commission's Secretary
and serving the Applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on October 21, 1994, and should be accompanied by proof of service
on Applicants in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons may request notification of a hearing by writing to
the Commission's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants, c/o Beverly A. Byrne, Esq., The Great-West Life
Assurance Company, 8515 East Orchard Road, Englewood, Colorado 80111.
FOR FURTHER INFORMATION CONTACT: Yvonne Hunold, Senior Counsel, at
(202) 942-0670, Office of Insurance Products (Division of Investment
Management).
SUPPLEMENTARY INFORMATION: Following is a summary of the application;
the complete application is available for a fee from the Commission's
Public Reference Branch.
Applicants' Representatives;
1. Great-West Life is a stock file insurance company and a wholly-
owned subsidiary of Great-West Assurance. Great-West Assurance is a
subsidiary of Great-West Lifeco, Inc. (``Great-West Lifeco''), an
insurance holding company and a subsidiary of Power Financial
Corporation of Canada, a financial services company. Great-West Life is
principally engaged in offering insurance and annuity contracts, and is
admitted to do business in the District of Columbia and in all states,
except New York.
2. The Separate Account is a separate investment account
established by Great-West Life for the purpose of investing purchase
payments received under the Contracts. The Separate Account is
registered under the 1940 Act as a unit investment trust and the
Contracts are registered as securities under the Securities Act of
1933.
The Separate Account currently has nine investment divisions
(``Divisions''). Seven Divisions invest solely in corresponding
portfolios of the Maxim Series Fund Inc. (``Maxim Fund''), and two
Divisions invest solely in corresponding Portfolios of TCI Portfolios
Inc. (``TCI Fund'') (collective, ``Funds''). Each Division is
subdivided into six subaccounts (``Subaccounts''), two of which are
used for allocations under the Contracts. The remaining four
Subaccounts are used for allocations under other variable annuity
contracts previously offer by Great-West life. Additional Divisions may
be established in the future to invest in other portfolios of Maxim
Fund or TCI Fund, or in other investments.
Great-West Life may, in the future, issue through the Separate
Account, and through other separate accounts that it may establish in
the future, other variable annuity contracts that are substantially
similar in all material respects to the Contracts (collectively,
``Future Contracts'').
3. Maxim Fund and TCI Fund are registered open-end, diversified
investment companies under the 1940 Act, each consisting of one or more
investment series or portfolios (collectively, ``Portfolios'') with
different investment objectives and policies. Great-West Life purchases
and redeems Portfolio shares for the corresponding Divisions at net
asset value. Shares of the Funds also are offered to other affiliated
or unaffiliated separate accounts of insurance companies offering
variable annuity or variable life insurance contracts.
4. Great-West Assurance will serve as the principal underwriter of
the Contracts. Great-West Assurance is a subsidiary of Great-West
Lifeco and is an affiliate of Great-West Life. Great-West Assurance is
registered under the Securities Exchange Act of 1934 as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc.
5. The Contracts are to be used in connection with retirement plans
that qualify for favorable federal income tax treatment under Section
401 or Section 408 of the Internal Revenue Code as an individual
retirement plan (``Qualified Plan'') or with plans purchased on a non-
tax qualified basis (``Non-Qualified Plan''). The Contracts may be used
for other purposes in the future, or offered only in connection with
Qualified or Non-Qualified Plans.
6. The Contracts provide for minimum initial purchase payments and
permit additional minimum purchase payments and periodic payments,
subject to certain limitations. The Contracts provide for the
accumulation of values on a variable basis determined by the investment
experience of the Divisions to which the Contract owner allocates
Purchase Payments. The Contracts also provide four Annuity Options for
the payment of annuity benefits on a fixed and/or variable basis.
7. The Contracts also provide for the payment of a death benefit.
If the Annuitant dies prior to the date on which annuity payments are
to begin (``Retirement Date'') and before age 75, the death benefit
will be equal to the greater of either; (a) Contract Value less premium
taxes, if any; or (b) total purchase payments made, less any partial
surrenders of Contract Value, surrender charges, periodic payments, and
premium taxes, if any. If the Annuitant dies prior to Retirement Date
and after age 75, the Contract Value, less premium taxes, if any, will
be paid to the beneficiary.
8. Various fees and expenses are deducted under the Contracts. An
annual maintenance charge of $27 will be deducted from the Contract
Value prior to the Retirement Date to compensate Great-West Life for
administrative services. This charge is guaranteed not to exceed the
cost of services to be provided over the life of the Contract, in
accordance with the provisions of Rule 26a-1 under the 1940 Act. Great-
West Life does not anticipate any profit from this charge.
9. Any premium or other taxes assessed by any governmental entity
will be paid by Great-West Life. If the Contract Value is used to
purchase an annuity under the Annuity Options, the dollar amount of any
premium tax previously paid or payable upon annuitization by Great-West
Life will be charged against Contract Value. The applicable premium tax
rates currently range from 0% to 2.50%. The Separate Account and the
Divisions will bear their own operating expenses and charges for
federal income taxes, should such taxes be incurred by Great-West Life
in connection with the operation of the Separate Account. No charge is
made by Great-West Life for transfers of Contract Value among the
Divisions. The Contracts also are not subject to any Contract policy
fee.
10. No sales charges are deducted from premium payments under the
Contracts. A contingent deferred sales charge (``CDSC'') is deducted on
any total or partial surrender of Contract Value prior to the
Retirement Date that are attributable to Purchase Payments which have
been credited to a Contract for less than seven years. Up to 10% of
Contract Value as of December 31 of a calendar year prior to the year
in which the amount is being surrendered can be withdrawn once per year
without incurring the CDSC. Additional withdrawals are subject to a
surrender charge equal to a percentage of the amount distributed
according to the following schedule:
------------------------------------------------------------------------
Maximum
Year completed surrender
charge percent
------------------------------------------------------------------------
1....................................................... 7
2....................................................... 6
3....................................................... 5
4....................................................... 4
5....................................................... 3
6....................................................... 2
7+...................................................... 0
------------------------------------------------------------------------
Total surrender charges will not exceed 7% of Purchase Payments
under the Contracts. No CDSC is assessed on or after the seventh year
of the Contracts. Applicants are relying on Rule 6c-8 under the 1940
Act to deduct the CDSC.
Great-West Life does not anticipate that the CDSC will generate
sufficient revenues to pay the cost of distributing the Contracts. If
this charge is insufficient to cover the expenses, the deficiency will
be met from Great-West Life's general account assets, which may include
amounts derived from the charge for mortality and expenses risks,
discussed below.
11. A daily charge equal to an effective annual rate of 1.25% of
the net asset value of the Separate Account will be imposed to
compensate Great-West Life for bearing certain mortality and expense
risks in connection with the Contracts and in connection with Future
Contracts. Of this amount, 0.85% is allocable to mortality risks and
0.40% is allocable to expense risks. No deduction will be made for
mortality and expense risks after the Retirement Date under Contracts
electing certain Annuity Options that do not vary with the investment
performance of the Divisions. The mortality and expense risk charge is
guaranteed never to exceed 1.25%. This charge may be a source of profit
for Great-West Life which will be added to its surplus and may be used
for, among other things, the payment of distribution expenses.
12. The mortality risk arises from Great-West Life's contractual
obligations to make Annuity Payments where one of the Life Annuity
Options is selected (determined in accordance with the Annuity Tables
and other provisions contained in the Contracts) regardless of how long
an Annuitant may live. The mortality risk under the Contracts is the
risk that, upon selection of an Annuity Option with a life contingency,
Annuitants will live longer than Great-West Life's actuarial
projections indicate, thereby resulting in higher than expected Annuity
Payments. Great-West Life also assumes a mortality risk if the
Annuitant should die prior to the Contract anniversary nearest the 75th
birthday. In that event, Great-West Life is at risk to the extent that
the amount of the Purchase Payments made exceed the Contract Value,
less partial surrenders and surrender charges as of the date notice of
death is received.
13. The expense risk borne by Great-West Life is the risk that the
charges for administrative expenses, which are guaranteed not to
increase for the life of the Contracts, may be insufficient to cover
the actual costs of issuing and administering the Contracts in excess
of the Contract Maintenance Charge.
Applicants' Legal Analysis
1. Applicants request an order of the Commission under Section 6(c)
for exemptions from Section 26(a)(2) and 27(c)(2) of the 1940 Act to
the extent necessary to permit the dedication of a maximum charge of
1.25% for the assumption of mortality and expense risks from the assets
of: (a) The Separate Account in connection with the issuance of the
Contracts; (b) the Separate Account in connection with the issuance of
any Future Contracts; and (c) any other separate account established in
the future by Great-West Life in connection with the issuance of Future
Contracts. Applicants believe that the requested exemptions are
necessary and appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the 1940 Act.
2. Applicants submit that their request for exemptive relief for
deduction of the 1.25% mortality and expense risk charge from the
assets of the Separate Account, or any other separate account
established by Great-West Life in the future, in connection with the
issuance of Future Contracts, would promote competitiveness in the
variable annuity contract market by eliminating the need for Great-West
Life the file redundant exemptive applications, thereby reducing Great-
West Life's administrative expenses and maximizing the efficient use of
its resources. Applicants further submit that the delay and expense
involved in having repeatedly to seek exemptive relief would impair
Great-West Life's ability effectively to take advantage of business
opportunities as they arise. Further, if Great-West Life were required
repeatedly to seek exemptive relief with respect to the same issues
addressed in this Application, investors would not receive any benefit
or additional protection thereby. Thus, Applicants believe that the
requested exemptions are appropriate in the public interest and
consistent with the protection of investors and purposes fairly
intended by the policy and provisions of the 1940 Act.
3. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally grant an
exemption from any provision, rule or regulation of the 1940 Act to the
extent that the exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act.
4. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant
part, prohibit a registered unit investment trust, its depositor or
principal underwriter, from selling periodic payment plan certificates
unless the proceeds of all payments, other than sales loads, are
deposited with a qualified bank and held under arrangements which
prohibit any payment to the depositor or principal underwriter except a
reasonable fee, as the Commission may prescribe, for performing
bookkeeping and other administrative duties normally performed by the
bank itself.
5. Applicants represent that the 1.25% mortality and expense risk
charge under the Contracts is within the range of industry practice for
comparable annuity contracts. This representation is based on
Applicants' analysis of publicly available information about similar
industry products, taking into consideration such factors as current
charge levels, the manner in which charges are imposed, the existence
of charge level or annuity-rate guarantees, and the markets in which
the Contracts are offered. Applicants represent that Great-West Life
will maintain at its administrative offices, available to the
Commission, a memorandum setting forth in detail the products analyzed
in the course of, and the methodology and results of, its comparative
survey.
Similarly, prior to making available any Future Contracts through
the Separate Account, or through other separate accounts established in
the future by Great-West Life, Applicants will represent that the
mortality and expense risk charge under any such Future Contracts will
be within the range of industry practice for comparable contracts.
Applicants represent that Great-West Life will maintain at its
administrative offices, available to the Commission, a memorandum
setting forth in detail the products analyzed in the course of, and the
methodology, and results of, its comparative survey.
6. Applicants acknowledge that, if a profit is realized from the
mortality and expense risk charge under the Contracts, all or a portion
of such profit may be available to pay distribution expenses not
reimbursed by the CDSC. Great-West Life has concluded that there is a
reasonable likelihood that the proposed distribution financing
arrangements will benefit the Separate Account and the Contract owners.
The basis for that conclusion is set forth in a memorandum which will
be maintained by Great-West Life at its administrative offices and will
be made available to the Commission.
Additionally, Applicants acknowledge that, if a profit is realized
from the mortality and expense risk charge under Future Contracts, all
or a portion of such profit may be available to pay distribution
expenses not reimbursed by the CDSC. Great-West Life also will maintain
and make available to the Commission a memorandum setting forth the
basis for the same representation with respect to Future Contracts
offered by the Separate Account and by any other separate account
established in the future by Great-West Life.
7. Applicants also represents that the Separate Account, and
separate accounts established by Great-West Life in the future, will
invest only in underlying funds which undertake, in the event they
should adopt a plan under Rule 12b-1 to finance distribution expenses,
to have a board of directors or trustees, majority of whom are not
``interested persons'' of the company, formulate and approve any such
plan.
Condition
Applicants undertake that such Future Contracts funded by the
Separate Account, or by separate accounts established in the future by
Great-West, which seek to rely on the order issued pursuant to this
Application will be substantially similar in all material respects to
the Contracts.
Conclusion
For the reasons set forth above, Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24314 Filed 9-30-94; 8:45 am]
BILLING CODE 8010-01-M
