[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