[Federal Register Volume 61, Number 139 (Thursday, July 18, 1996)]
[Notices]
[Pages 37502-37504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18174]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22067; No. 812-10036]


Great-West Life & Annuity Insurance Company, et al.

July 11, 1996.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an Order pursuant to the Investment 
Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: Great-West Life & Annuity Insurance Company (``Great-
West''), Variable Annuity-1 Series Account (the ``Separate Account''), 
and Charles Schwab & Company, Inc. (``Schwab'').

RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 6(c) of 
the 1940 Act granting exemptions from the provisions of Section 
26(a)(2)(C) and 27(c)(2) thereof.

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 variable annuity contracts (``Existing Contracts''); (b) the 
Separate Account in connection with the issuance of variable annuity 
contracts that are substantially similar in all material respects to 
the Existing Contracts (``Future Contracts,'' together with Existing 
Contracts, the ``Contracts''); and (c) any other separate account 
established in the future by Great-West in connection with the issuance 
of Contracts (``Future Account'').

FILING DATE: The application was filed on March 6, 1996.

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 August 5, 1996, and must 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 Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, N.W., Washington, D.C. 20549. Applicants, c/o Jorden Burt 
Berenson & Johnson LLP, 1025 Thomas Jefferson Street, N.W., Suite 400 
East, Washington, D.C. 20007-0805, Attention: Josephine Cicchetti, Esq.


[[Page 37503]]


FOR FURTHER INFORMATION CONTACT: Kevin M. Kirchoff, Senior Counsel, or 
Wendy Friedlander, Deputy Chief, Office of Insurance Products (Division 
of Investment Management), at (202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application; 
the complete application is available for a fee from the Public 
Reference Branch of the Commission.

Applicants' Representations

    1. Great-West is a stock life insurance company originally 
organized under the laws of the State of Kansas as the National 
Interment Association. In September of 1990, Great-West redomesticated 
and now is organized under the laws of the State of Colorado.
    2. Great-West is wholly-owned by The Great-West Life Assurance 
Company, which is a subsidiary of Great-West Lifeco Inc., an insurance 
holding company which, in turn, is a subsidiary of Power Financial 
Corporation of Canada, a financial services company. Power Corporation 
of Canada, a holding and management company, has voting control of 
Power Financial Corporation of Canada. Great-West is principally 
engaged in offering life insurance, annuity contracts, and accident and 
health insurance and is admitted to do business in the District of 
Columbia, Puerto Rico and in all states of the United States, except 
New York.
    3. Schwab, the principal underwriter and distributor of the 
Contracts, is registered with the Commission as a broker-dealer under 
the Securities Exchange Act of 1934, and is a member of the National 
Association of Securities Dealers, Inc.
    4. The Separate Account currently has nineteen investment divisions 
(``Investment Divisions''). The Investment Divisions invest solely in 
corresponding open-end management investment companies, or portfolios 
thereof, which are registered under the 1940 Act (``Funds''). Each Fund 
has a different investment objective and policies as described in its 
prospectus.
    5. The Contracts provide for the accumulation of values on a 
variable basis determined by the investment experience of the 
Investment Divisions of the Separate Account to which the owner of the 
Contract (``Owner'') allocates his or her contributions and/or on a 
fixed basis pursuant to a stated rate of interest made available for 
certain time periods (the ``Fixed Option''). The Contracts are intended 
to be used either in connection with retirement plans with qualify for 
federal tax benefits under Section 408 of the Internal Revenue Code as 
an individual retirement annuity or in connection with retirement plans 
which do not so qualify. The Contracts may be used for other purposes 
in the future.
    6. The Contracts provide a choice of annuity options. Annuity 
payments will be on a variable or fixed basis. An Owner directs the 
allocation of contributions and value of the annuity account (``Annuity 
Account Value'') among the Investment Divisions of the Separate Account 
or the available Fixed Options.
    7. The Contracts provide for a death benefit. If the Owner or 
annuitant, as applicable, dies prior to the date annuity payments 
commence, the death benefit, if any, will be equal to the greater of: 
(a) the Annuity Account Value as of the date request for payment is 
received, less any premium taxes; or (b) the sum of contributions paid 
less partial withdrawals and/or periodic withdrawals, less charges 
under the Contract, less premium taxes, if any.
    8. The Contracts have no front-end sales load and no contingent 
deferred sales charges. A charge for any premium or other taxes levied 
by any government entity with respect to the Contracts or the Accounts 
will be deducted when incurred under a particular Contract. Currently 
such taxes range up to 3.5%.
    9. Prior to the date annuity payments commence, a contract 
maintenance charge equal to $25 annually will be deducted from the 
Annuity Account Value.
    10. An Owner may make up to 10 transfers per year of all or a 
portion of the Annuity Account Value allocated to an Investment 
Division of the Separate Account or the Fixed Option, to another 
Investment Division of the Separate Account or available Fixed Option, 
at no charge. After the 10 free transfers Great-West may charge $10 for 
each additional transfer. This charge is intended to reimburse Great-
West's ongoing administrative expenses and Great-West does not expect 
to profit from it. The amount of this charge will not exceed the cost 
of services provided over the life of the Contract, defined in 
accordance with the applicable standards in Rule 26a-1 under the 1940 
Act.
    11. Great-West bears a mortality risk under the Contracts of its 
obligation to make annuity payments determined in accordance with the 
annuity tables and other provisions of the Contracts. Great-West 
assumes the risk that the Annuitant may live longer than the annuity 
tables predict. The mortality risk under the Contract is the risk that, 
upon selection of an annuity option with a life contingency, Annuitants 
will live longer than Great-West's actuarial projections indicate, 
thereby resulting in higher than expected annuity payments. Great-West 
also assumes a mortality risk because it bears the risk of unfavorable 
experience of the Investment Divisions if it pays a death benefit 
before annuity payments commence.
    12. Great-West bears an expense risk under the Contracts because 
the charges for administrative expenses, which charges are guaranteed 
for the life of the Contract, may be insufficient to cover the actual 
costs of issuing and administering the Contract.
    13. Great-West imposes a charge as compensation for bearing the 
mortality and expense risks. The Contracts provide for this mortality 
and expense risk charge, and the rate imposed for the mortality and 
expense risk charge is stated in the Contract. The annual mortality and 
expense risk charge will not exceed 0.85% of the net asset value of the 
Separate Account, of which 0.68% is allocable to the mortality risk and 
0.17% to the expense risk.
    14. If the mortality and expense risk charge is insufficient to 
cover the actual costs, the loss will be borne by Great-West. 
Conversely, if the amount deducted proves more than sufficient, then 
the excess will be a profit to Great-West. The mortality and expense 
risk charge is guaranteed by Great-West and cannot be increased.

Applicants' Legal Analysis and Conditions

    1. Pursuant to Section 6(c) of the 1940 Act, the Commission may 
exempt any person, security, or transaction, or any class or classes of 
persons, securities or transactions, from any provision or provisions 
of the 1940 Act or from any rule or regulation thereunder, if and to 
the extent that such 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.
    2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act prohibit a 
registered unit investment trust and any depositor thereof or 
underwriter therefor from selling periodic payment plan certificates 
unless the proceeds of all payments (other than sales load) are 
deposited with a qualified bank as trustee or custodian and held under 
arrangements which prohibit any payment to the depositor or principal 
underwriter except a fee, not exceeding such reasonable amount as the 
Commission may prescribe, for performing bookkeeping and other 
administrative services normally performed by the bank itself.

[[Page 37504]]

    3. Applicants request an order pursuant to Section 6(c) of the 1940 
Act exempting them from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 
Act to the extent necessary to permit the deduction of the expense risk 
charge from the assets of the Separate Account and any Future Accounts 
in connection with the Contracts.
    4. Applicants represent that they have reviewed publicly available 
information regarding the aggregate level of the mortality and expense 
risk charge under variable annuity contracts comparable to the 
Contracts currently being offered in the insurance industry, taking 
into consideration such factors as current charge levels, the manner in 
which charges are imposed, the presence of charge-level or annuity-rate 
guarantees, and the markets in which the Contracts will be offered. 
Based upon this review, Applicants further represent that the mortality 
and expense risk charge under the Contracts is within the range of 
industry practice for comparable contracts. Great-West 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.
    5. Applicants represent that, prior to offering any Future 
Contracts through the Separate Account or Future Accounts, Applicants 
will represent that the mortality and expense risk charges under any 
such Contracts will be within the range of industry practice for 
comparable contracts. Great-West 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 will cover the costs of distributing the Contracts 
from the assets of the general account, since no front-end or 
contingent deferred sales charges are imposed under the Contracts. This 
distribution expense paid from the assets of the general account of 
Great-West will include amounts derived from the mortality and expense 
risk charge. Great-West has concluded that there is a reasonable 
likelihood that the distribution financing arrangement being used in 
connection with the Contracts will benefit the Separate Account and the 
Owners. Great-West will maintain at its administrative offices, 
available to the Commission, a memorandum setting forth the basis for 
this representation.
    7. Applicants recognize that any additional cost for distributing 
Future Contracts will be derived from the general account of Great-
West, which will include amounts derived from the mortality and expense 
risk charge imposed under such Future Contracts. Great-West will 
maintain at its administrative offices, available to the Commission, a 
memorandum setting forth the basis for a representation that the 
distribution financing arrangement for such Future Contracts will 
benefit the Separate Account, or Future Account, and the Owners.
    8. Applicants represent that the Separate Account will invest only 
in underlying funds which have undertaken to have a board of directors/
trustees, a majority of whom are not interested persons of any such 
funds, and who would oversee the formulation and approval of any plan 
under Rule 12b-1 under the 1940 Act to finance distribution expenses.
    9. Applicants submit that their request for exemptive relief would 
promote competitiveness in the variable annuity contract market by 
eliminating the need for redundant exemptive applications, thereby 
reducing Applicants' administrative expenses and maximizing the 
efficient use of their resources. Applicants further submit that the 
delay and expense involved in having repeatedly to seek exemptive 
relief would impair their ability effectively to take advantage of 
business opportunities as they arise. Further, if Applicants 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.

Conclusion

    For the reasons summarized 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. 96-18174 Filed 7-17-96; 8:45 am]
BILLING CODE 8010-01-M