[Federal Register Volume 61, Number 147 (Tuesday, July 30, 1996)]
[Notices]
[Pages 39679-39682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19248]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22090; No. 812-10120]


Great American Reserve Insurance Company, et al.

July 23, 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 American Reserve Insurance Company (the ``Company''),

[[Page 39680]]

Great American Reserve Variable Annuity Account G (the ``Separate 
Account''), and GARCO Equity Sales, Inc. (``GES'').

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 combined fixed and variable annuity contracts and certificates 
(``Existing Contracts''); (b) the Separate Account in connection with 
the offer and sale of variable annuity contracts and certificates that 
are 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 the Company (``Future Account'') in connection with the offer 
and sale of Contracts. Exemptive relief also is requested to the extent 
necessary to permit the offer and sale of Contracts for which broker-
dealers other than GES (``Future Underwriters'') serve as principal 
underwriters.

FILING DATE: The application was filed on May 2, 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 19, 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. Person 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 Lawrence W. 
Inlow, Great American Reserve Insurance Company, 11825 North 
Pennsylvania Street, Carmel, Indiana 46032-4572.

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

Applicant's Representations

    1. The Company, a stock life insurance company organized under the 
laws of Texas, is an indirect wholly-owned subsidiary of Conseco, Inc. 
The Company is authorized to do business in 47 states and the District 
of Columbia.
    2. The Separate Account, a segregated asset account of the Company, 
was established on January 18, 1996. The Separate Account is registered 
with the Commission pursuant to the 1940 Act as a unit investment 
trust.
    3. GES, an affiliate of the Company, will act as the principal 
underwriter in distributing the Existing Contracts. GES is registered 
as a broker-dealer pursuant to the Securities Exchange Act of 1934 and 
is a member of the National Association of Securities Dealers, Inc.
    4. The Contracts are available to individuals and groups in 
connection with retirement plans which may or may not qualify for 
federal tax advantages available under the Internal Revenue Code. 
Certificates will be issued to owners under group Contracts. The 
minimum initial purchase payment is $50,000 (except for Contracts that 
qualify for federal tax advantages, for which the minimum initial 
purchase payment is $10,000). The minimum subsequent purchase payment 
is $1,000, or, if the monthly automatic premium check option is 
elected, $250.
    5. Purchase payments made under the Contracts will be allocated to 
the Separate Account or a market value adjustment account (``MVA 
Account''). The Separate Account is divided into subaccounts 
(``Subaccounts''), each of which invests in the shares of a 
corresponding portfolio of an underlying fund.
    6. The Contracts provide for a series of annuity payments beginning 
on the annuity date. The owner of a Contract (``Owner'') may select 
from several annuity payout options. Contract owners may allocate 
purchase payments or reallocate accumulation values or annuity values 
by transfers among the Subaccounts, the MVA Account or, when and if 
available, a fixed account which will be part of the general account of 
the Company.
    7.The Contracts also provide for certain guaranteed death benefits 
during the accumulation period. Prior to the Owner attaining age 80, 
the death benefit will be the greater of: (a) the purchase payments, 
less any withdrawals; or (b) the Contract value determined as of the 
end of the valuation period during which the Company receives both due 
proof of death and an election for the payment method. If the death of 
the Owner occurs after age 80, the death benefit will be the Contract 
value determined as of the end of the valuation period during which the 
Company receives both due proof of death and an election for the 
payment method.
    8. A premium tax charge, ranging from 0 to 3.5 percent of purchase 
payments, may be deducted from the purchase payments or Contract value 
when incurred, if the Owner lives in a state or locality that levies 
premium taxes. Currently, the Company deducts the charge for premium 
taxes from Contract value at the time annuity payments begin or from 
amounts that are withdrawn.
    9. A fee (``Transfer Fee'') which is equal to the lesser of $25 or 
2 percent of the amount transferred is imposed when an Owner exceeds 
the frequency or number of free reallocation transfers permitted under 
the Contracts. Currently, there is no limit on the number of transfers 
permitted each Contract year during the accumulation period, but only 
one transfer in a 30-day period can be made free of the Transfer Fee. 
Four transfers are currently permitted each Contract year during the 
annuity period; none of these four transfers are subject to the 
Transfer Fee.
    10. A $30.00 charge is deducted on each Contract anniversary and on 
surrender of a Contract for expenses relating to the maintenance of the 
Contracts (``Contract Maintenance Charge''), which may be increased up 
to a maximum of $60.00 each Contract year. No Contract Maintenance 
Charge is deducted if the Contract value of the Contract anniversary is 
at least $25,000. No Contract Maintenance Charge is deducted during the 
annuity period. Applicants represent that the Contract Maintenance 
Charge is at cost with no anticipation of profit.
    11. The Company deducts a charge at a current annual rate of .15 
percent of the average daily net asset value of each Subaccount 
(``Administrative Charge''). The Company may increase this charge to a 
maximum of .25 percent of the average daily net asset value of each of 
the Subaccounts. The Company will give Owners 90 days notice before 
implementing any increase to this charge. This charge, together with 
the Contract Maintenance Charge, reimburses the Company for the 
expenses it incurs in the establishment and maintenance of the 
Contracts and the Separate Account. Applicants

[[Page 39681]]

represent that the Administrative Charge is at cost with no 
anticipation of profit.
    12. The Company assumes certain mortality risks under the Contracts 
because of its contractual obligations to make annuity payments after 
the annuity date regardless of how long all annuitants live. Further, 
the Company bears a mortality risk in that it guarantees the annuity 
purchase rates for the annuity options under the Contracts. Also, the 
Company bears a mortality risk with respect to the death benefit.
    13. The Company assumes an expense risk because the actual expenses 
it incurs in administering the Contracts may exceed the amounts it 
recovers from assessing the Contract Maintenance Charge and the 
Administrative Charge.
    14. The Company requests exemptive relief to allow the deduction of 
a charge at a maximum annual rate of 1.25 percent of the average daily 
net asset value of the Subaccounts (``Mortality and Expense Risk 
Charge'') as compensation for assuming the mortality and expense risks 
under the Contracts. Approximately .75 percent of this 1.25 percent 
charge will be allocable to mortality risks and .50 percents to expense 
risks. The Company intends to initially assess a Mortality and Expense 
Risk Charge at an annual rate of 1.15 percent of the average daily net 
asset value of the Subaccounts, of which .65 percent will be allocable 
to mortality risks and .50 percent to expense risks. If the Company 
increases the Mortality and Expense Risk Charge to its guaranteed 
maximum annual rate of 1.25 percent, the Company will provide Owners 
with 90 days notice of this increase.
    15. The Company will bear the loss if the Mortality and Expense 
Risk Charge is insufficient to cover the actual costs associated with 
its mortality and expense risks. Conversely, if the amounts derived 
from the Mortality and Expense Risk Charge are more than sufficient, 
the excess will be a profit that is added to the surplus of the Company 
and which can be used for any lawful purpose, including the payment of 
distribution expenses. The Company expects to profit from the Mortality 
and Expense Risk Charge.

Applicants' Legal Analysis

    1. Section 6(c) of the 1940 Act authorizes the Commission to 
conditionally or unconditionally exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from the provisions of the 1940 Act and the rules 
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, in relevant 
part, prohibit a registered unit investment trust and its depositor or 
principal underwriter from selling periodic payment plan certificates 
unless the proceeds of all payments plan certificates unless the 
proceeds of all payments (other than sales loads) 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 reasonable fee as the Commission may prescribe, for performing 
bookkeeping and other administrative duties normally performed by the 
bank itself.
    3. Applicants request an exemption from Sections 26(a)(2(C) and 
27(c)(2) to the extent necessary to allow the Company to deduct the 
Mortality and Expense Risk Charge from the assets of the Separate 
Account and from any Future Accounts in connection with the issuance of 
the Contracts and any Future Contracts. Exemptive relief also is 
required to the extent necessary to permit the offer and sale of 
Contracts for which Future Underwriters serve as the principal 
underwriter.
    4. Applicants assert that a Mortality and Expense Risk Charge of 
1.25 percent is reasonable in relation to the risks assumed by the 
Company under the Contracts and within the range of industry practice 
with respect to comparable annuity products. Applicants state that 
these determinations are based upon an analysis of publicly available 
information about comparable products, and by talking into 
consideration such factors as guaranteed annuity purchase rates, death 
benefits current charge levels and the existence of charge level 
guarantees. The Company will maintain at its principal office, 
available to the Commission upon request, a memorandum setting forth in 
detail the products analyzed in the course of, and the methodology and 
results of this comparative analysis.
    5. Applicants represent that, before relying on any exemptive 
relief in connection with Future Contracts funded by the Separate 
Account or any Future Account, Applicants will determine that any 
mortality and expense risk charges under such Future Contracts will be 
reasonable in relation to the risks assumed by the Company and 
reasonable in amount as determined by industry practice with respect to 
comparable annuity products. Applicants represent that the Company will 
maintain at its principal office, and make available to the Commission 
upon request, a memorandum setting forth in detail the methodology used 
in making these determinations.
    6. The Company may recover distribution costs from the assets of 
its general account, which may include that portion of the Mortality 
and Expense Charge which is profit to the Company. The Company has 
concluded that there is a reasonable likelihood that the proposed 
distribution financing arrangements will benefit the Separate Account 
and the Owners. The basis for that conclusion is set forth in a 
memorandum which will be maintained by the Company at its principal 
office available to the Commission upon request.
    7. Applicants represent that, prior to relying on any exemptive 
relief in connection with Future Contracts, Applicants will determine 
that there is a reasonable likelihood that the distribution financing 
arrangement will benefit the Separate Account and its investors or the 
Future Account and its investors. The Company represents that it will 
maintain and make available to the Commission upon request a memorandum 
setting forth the basis of such determination.
    8. The Company further represents that the Separate Account and any 
Future Account will invest only in management investment companies 
which undertake, in the event they should adopt any plan pursuant to 
Rule 12b-1 under the 1940 Act to finance distribution expenses, to have 
such plan formulated and approved by the members of their board of 
directors, a majority of whom shall not be ``interested persons'' of 
such companies within the meaning of Section 2(a)(19) of the 1940 Act.
    9. Applicants submit that their request for exemptive relief that 
applies to Future Contracts, Future Accounts and Future Underwriters is 
appropriate in the public interest because such relief will promote 
competitiveness in the variable annuity contract market by eliminating 
their administrative expenses and maximizing the efficient use of their 
resources. Applicants assert that the delay and expense involved in 
having repeatedly to seek exemptive relief would impair their ability 
to effectively take advantage of business opportunities as such 
opportunities arise. Applicants also assert that if they were required 
repeatedly to seek exemptive relief with respect to the

[[Page 39682]]

same issues, 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. 96-19248 Filed 7-29-96; 8:45 am]
BILLING CODE 8010-01-M