[Federal Register Volume 59, Number 162 (Tuesday, August 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20564]
[[Page Unknown]]
[Federal Register: August 23, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20485; File No. 812-8996]
GNA Variable Investment Account, et al.
August 16, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: GNA Variable Investment Account (``Variable Account''),
Great Northern Insured Annuity Corporation (``GNA''), and GNA
Distributors, Inc. (``Distributor'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for
exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order to the extent
necessary to permit the deduction from the assets of the Variable
Account of a mortality and expense risk charge imposed under certain
group allocated variable annuity contracts (``Contracts'').
FILING DATE: The application was filed on May 19, 1994 and amended on
August 4, 1994.
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 SEC
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 September 12, 1994 and should be accompanied by proof of service on
the Applicants in the form of an affidavit or, for lawyers, by
certificate. Hearing requests should state the nature of the writers
interest, the reason for the request and the issues contested. Persons
may request notification of the date of a hearing by writing to the
Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants: J. Neil McMurdie, Esq., Associate Counsel, Great Northern
Insured Annuity Corporation, Two Union Square, Ste. 5600, Seattle,
Washington 98111-0490.
FOR FURTHER INFORMATION CONTACT:
Joyce M. Pickholz, Senior Counsel, or Michael V. Wible, Special
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 SEC's Public
Reference Branch.
Applicants' Representations
1. GNA is a stock life insurance company organized under the laws
of the State of Washington in 1980. It is a wholly owned subsidiary of
GNA Corporation, which is a wholly owned subsidiary of General Electric
Capital Corporation. GNA is the depositor of the Variable Account. The
Variable Account is registered under the Act as a unit investment
trust. It was established in 1981, under Washington law, as a separate
account of GNA for the purpose of funding certain variable annuity
contracts. The assets of the Variable Account will be invested through
subaccounts of the Variable Account in shares of corresponding
portfolios of investment companies registered under the Act as open-end
management investment companies.
2. The Distributor, a wholly owned subsidiary of GNA Corporation,
will be the principal underwriter of the Contracts and the certificates
issued thereunder (``Certificates''). The Distributor is a broker-
dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc.
3. The Contract is a group allocated contract pursuant to which
specific accounts are maintained for each Participant. The Contract
provides for the accumulation of values on a fixed or variable basis
and the payment of annuity benefits on a fixed or, in certain cases, a
variable basis. The Contract is designed for use in connection with
retirement plans which may or may not qualify for special income tax
treatment under the Internal Revenue Code of 1986, as amended.
4. Each year GNA will deduct from the value of each Certificate a
certificate maintenance charge of $40 as partial compensation for the
cost of providing all administrative services attributable to the
Contracts and Certificates and the operations of the Variable Account
and GNA in connection with the Contracts and Certificates. GNA will
waive the charge if at the time of the assessment the Certificate Value
is $40,000 or greater. Prior to the commencement of annuity payments
(``Annuity Date''), the certificate maintenance charge is deducted on
December 31 of each year, except for the first certificate year when a
pro-rata portion of the charge will be deducted on December 31. If a
full withdrawal of the Certificate's withdrawal value is made on a day
other than December 31, the $40 certificate maintenance charge will be
deducted from the amount paid. If the Annuity Date is not December 31,
a pro-rata portion of the charge is deducted on the Annuity Date.
5. In addition, GNA will deduct from each sub-account each
valuation period an administration charge at an annual rate of 0.15% of
the average daily value of such sub-account to reimburse GNA for
administrative expenses. GNA does not expect to recover from the
administration charges any amount in excess of its accumulated
administrative expenses. Even though administrative expenses may
increase, GNA guarantees that it will not increase the amount of the
administration fees as to outstanding Certificates. Applicants will
rely on Rule 26a-1 under the Act for the necessary exemptive relief to
make such charges.
6. No sales charge will be deducted from purchase payments as they
are made. Instead, if a withdrawal is made from a Certificate before
the Annuity Date, a withdrawal charge (contingent deferred sales charge
) may be assessed against amounts withdrawn attributable to purchase
payments that have been in the Certificate less than five complete
years. The withdrawal charge is a percentage of the purchase payment
being liquidated which percentage declines 5-5-4-3-2% over the first
five years since the purchase payment was made. There is no withdrawal
charge with respect to earnings accumulated under the Certificate,
certain free withdrawal amounts or purchase payments that were made
five years or more prior to the withdrawal. In no event may that total
withdrawal charges exceed 5% of total purchase payments.
7. Each withdrawal from a Certificate is allocated, first, to the
free withdrawal amount, second, to remaining purchase payments which
have not been withdrawn previously on a first-in first-out basis, and,
third, to any remaining Certificate Value. On the first withdrawal in
any certificate year, the Participant may withdraw free of any
withdrawal charge an amount equal to 10% of the Certificate Value at
the time of the withdrawal. The withdrawal charge is intended to
reimburse GNA for compensation paid to cover selling concessions to
broker-dealers, preparation of sales literature and other expenses
relating to sales activity. Applicants will rely on Rule 6c-8 under the
Act for the necessary exemptive relief to permit imposition of the
withdrawal charge.
8. GNA assumes a mortality risk and an expense risk under the
Contracts and Certificates. The mortality risk is the risk that
Annuitants may live for a longer period of time than estimated. GNA
assumes this mortality risk by virtue of annuity rates incorporated
into the Contract which cannot be changed as to outstanding
Certificates. This assures each Annuitant that his longevity will not
have an adverse effect on the amount of annuity payments. Also, GNA
guarantees that if the Annuitant dies before the Annuity Date, it will
pay a death benefit. The expense risk assumed by GNA is the risk that
the administration charges or withdrawal charge may be insufficient to
cover actual expenses. To compensate it for assuming these risks, GNA
will deduct from each sub-account each valuation period a charge at an
annual rate of 1.25% of the average daily value of such subaccount,
consisting of .75% for the mortality risk and .50% for the expense
risk. The rate of the mortality and expense risk charge cannot be
increased. If the charge is insufficient to cover the actual cost of
the mortality and expense risks undertaken, GNA will bear the loss.
Conversely, if the charge proves more than sufficient, the excess will
be profit to GNA and will be available for any proper corporate purpose
including, among other things, payment of distribution expenses.
Applicants' Legal Analysis
1. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act require that
all payments received under a periodic payment plan certificate be held
by a qualified trustee or a custodian and held under arrangements which
prohibit any payment to the depositor or principal underwriter except
for the payment of a fee, not exceeding such reasonable amount as the
Commission may prescribe, for bookkeeping and other administrative
services.
2. Applicants represent that the 1.25% mortality and expense risk
charge is within the range of industry practice for comparable annuity
products. Applicants state that this representation is based upon an
analysis of publicly available information about selected similar
industry products, taking into consideration such factors as the method
used in charging sales loads, any contractual right to increase charges
above current levels and the existence of charges against separate
account assets for other than mortality and expense risks. GNA will
maintain at its principal office, available to the Commission, a
memorandum setting forth in detail the products analyzed in the course
of, and the methodology and results of, the comparative survey made.
3. Applicants acknowledge that the withdrawal charge will be
insufficient to cover all costs relating to the distribution of the
Contracts and Certificates and that, if a profit is realized from the
mortality and expense risk charge, all or a portion of such profit may
be offset by distribution expenses not reimbursed by the withdrawal
charge. Notwithstanding the foregoing, GNA has concluded that there is
a reasonable likelihood that the proposed distribution financing
arrangements made with respect to the Contracts and Certificates will
benefit the Variable Account and the Certificate owners. The basis for
such conclusion is set forth in a memorandum which will be maintained
by GNA at its principal office and will be available to the Commission.
Moreover, GNA represents that the Variable Account will invest only in
an underlying mutual fund which undertakes, in the event it should
adopt any plan under Rule 12b-1 to finance distribution expenses, to
have such plan formulated and approved by a board of directors, a
majority of the members of which are not ``interested persons'' of such
fund within the meaning of Section 2(a)(19) of the Act.
Conclusion
Applicants conclude that for the reasons and upon the facts set
forth in the application, 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 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20564 Filed 8-22-94; 8:45 am]
BILLING CODE 8010-01-M
