[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