[Federal Register Volume 61, Number 3 (Thursday, January 4, 1996)]
[Notices]
[Pages 362-365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-132]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21626; File No. 812-9580-01]


Great-West Life & Annuity Insurance Company et al.

December 27, 1995.
AGENCY: Securities and Exchange Commission (the ``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: Great-West Life & Annuity Insurance Company (``GWL&A''), 
Maxim Series Account (the ``Separate Account''), and The Great-West 
Life Assurance Company (``Great-West'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act for exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 
1940 Act.

SUMMARY OF THE APPLICATION: Applicants seek an order permitting the 
deduction of mortality and expense risk charges from: (i) the assets of 
the Separate Account in connection with the offer and sale of certain 
flexible premium variable annuity contracts (the ``Contracts'') issued 
with a guaranteed death benefit, and of variable annuity contracts 
established in the future (the ``Future Contracts'') which are 
substantially similar in all material respects to the Contracts 
(``Future Contracts''); and (ii) the assets of separate accounts 
(``Future Accounts'') established in the future by GWL&A--which are 
substantially similar to the Separate Account--in connection with the 
offer and sale of Contracts and Future Contracts.

FILING DATE: The application was filed on April 25, 1995. An amended 
and restated application was filed on October 16, 1995.

HEARING OF NOTIFICATION OF THE HEARING: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing on this application 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 January 22, 1996 and should 
be accompanied by proof of service on Applicants in the form of an 
affidavit or, for lawyers, by certificate of service. Hearing requests 
should state the nature of the interest, the reason for the request, 
and the issues contested. Persons may request notification of the date 
of the hearing by writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W. Washington, D.C. 
20549. Applicants: Beverly A. Byrne, Esq., The Great-West Life 
Assurance Company, 8515 East Orchard Road, Englewood, CO 80111.

FOR FURTHER INFORMATION CONTACT: Patrice M. Pitts, Special Counsel, 
Office of Insurance Products, Division of Investment Management, at 
(202) 942-0670.

SUPPLEMENTARY INFORMATION: The 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. GWL&A, a stock life insurance company, originally was organized 
under Kansas law as the National Interment Association. In 1963, the 
company's name was changed to Ranger Life Insurance Company, and later 
was changed to Insuramerica Corporation; in February 1982, the company 
assumed its current name. In September 1990, GWL&A redomesticated and 
now is organized under the laws of Colorado. GWL&A is wholly-owned by 
Great West, which is a subsidiary of Great-West Lifeco Inc., an 
insurance holding company which, in turn, is a subsidiary of Power 
Financial Corporation, a financial services company.
    2. The Separate Account was established by GWL&A under the laws of 
Kansas on June 24, 1981, and now exists under the laws of Colorado as a 
result of the redomestication of GWL&A in 1990. The Separate Account is 
a unit investment trust registered under the 1940 Act. The Separate 
Account acts as a funding vehicle for flexible premium variable annuity 
contracts--including the Contracts--which have a guaranteed death 
benefit, as well as for other flexible premium annuity contracts 
without a guaranteed death benefit (``Standard Death Benefit 
Contracts'').
    3. The Separate Account currently has fourteen investment 
divisions, twelve of which invest solely in corresponding investment 
portfolios of Maxim Series Fund, Inc. (``Maxim''), and two of which 
invest solely in corresponding investment portfolios of TCI Portfolios, 
Inc. (``TCI''). (Maxim and TCI shall be referred to herein collectively 
as the ``Funds.'') Each investment division is subdivided into six 
subaccounts, two of which are used for allocation under the Standard 
Death Benefit Contracts and the Contracts in connection with retirement 
plans (``qualified plans'') that qualify for favorable federal income 
tax treatment under Sections 401 and 408 of the Internal Revenue Code 
as well as retirement plans not receiving such favorable tax treatment 
(``non-qualified plans''). The remaining four subaccounts are used for 
allocations under other contracts previously offered by GWL&A--through 
the Separate Account--in connection with qualified and non-qualified 
plans. In the future, GWL&A may establish additional divisions within 
the Separate Account to invest in other portfolios of the Funds or in 
other investments, and may issue other contracts--including Future 
Contracts--which may be funded by the Separate Account or by Future 
Separate Accounts.
    4. Each of the Funds is a registered open-end, diversified 
investment company under the 1940 Act; each consists of one or more 
investment series or portfolios which pursue different investment 
objectives and policies and have distinct investment advisers. GWL&A 
purchases and redeems portfolio shares for the corresponding investment 
divisions of the Separate account at net asset value. Shares of the 
Funds also are offered to other affiliated or unaffiliated separate 
accounts of insurance companies offering variable annuity contracts or 
variable life insurance policies.
    5. The principal underwriter of the Contracts, Great-West, is 
registered with the Commission under the Securities and Exchange Act of 
1934 as a broker-dealer, and is a member of the National Association of 
Securities Dealers, Inc.
    6. The minimum initial purchase payment for a Contract used in 
connection with a non-qualified plan is $5,000; the minimum initial 
purchase payment for a Contract used in connection with a qualified 
plan is $2,000. Additional purchase payments 

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for both non-qualified plan and qualified plan Contracts must be at 
least $500, except for payments made through an automatic contribution 
plan, which are subject to a $50 minimum. The Contracts also permit 
periodic payments and partial surrenders.
    7. Prior to issuance of a Contract, the Contract owner selects a 
``Retirement Date'' on which annuity payments are to begin. All or part 
of the Contract value may be placed under one or more of the annuity 
payout options available under the Contract, or the Contract owner may 
elect to receive the Contract value in a lump sum of the Retirement 
Date.
    8. The Contracts provide for the payment of a death benefit. If the 
Annuitant dies before the Retirement Date, a death benefit will be paid 
to the designated beneficiary in an amount which is the greater of 
either: (a) the Contract value as of the date of death, less premium 
taxes, if any; or (b) the guaranteed death benefit, less premium taxes, 
if any. The guaranteed death benefit equals the initial purchase 
payment on the date the Contract is issued, and thereafter is adjusted 
upon each purchase payment, partial surrender, or periodic payment. The 
guaranteed death benefit is recalculated at the end of each calendar 
year by adding interest at an annual effective rate of 5%. At any date 
(other than the end of a calendar year) the guaranteed death benefit 
equals the lesser of: (a) The guaranteed death benefit as of the end of 
the last calendar year, plus any subsequent purchase payments, and less 
any partial surrenders and periodic payments; or (b) the result of the 
following calculation--Contract value after the last partial surrender 
or periodic payment made during the calendar year, multiplied by the 
guaranteed death benefit prior to such partial surrender or periodic 
payment, divided by the Contract value prior to such partial surrender 
or periodic payment.
    9. Various fees and expenses are deducted under the Contracts. 
Prior to the Retirement Date, an annual maintenance charge of $27 will 
be deducted from the Contract value to compensate GWL&A for 
administrative services. The charge will not 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. GWL&A does not 
anticipate any profit from this charge.
    10. Any premium or other taxes levied by any government entity with 
respect to the Contracts or the Separate Account will be paid by GWL&A. 
If the Contract value is used to purchase an annuity under the annuity 
payout options, the dollar amount of any premium tax previously paid or 
payable upon annuitization by GWL&A will be charged against Contract 
value. The applicable premium tax rates currently range from 0% to 
2.50%.
    11. The Separate Account and its investment divisions will bear 
their own operating expenses and charges for federal income tax, should 
such taxes be incurred by GWL&A in connection with the operation of the 
Separate Account. No charge is made by GWL&A for transfers of Contract 
value among Separate Account investment divisions.
    12. No front-end sales load will be deducted from premium payments 
under the Contracts. Rather, upon any total or partial surrender of 
Contract Value prior to the Retirement Date, a contingent deferred 
sales charge will be deducted from purchase payments which have been 
credited to a Contract for fewer than seven years. Once per year, 
however, up to 10% of the Contract value as of December 31 of the 
calendar year prior to the year in which the amount is being 
surrendered may be withdrawn without incurring a contingent deferred 
sales charge. Total surrender charges will not exceed 7% of the 
purchase payment under the Contract.
    13. A daily charge equal to an effective annual rate of 1.45% of 
the net asset value of the Separate Account attributable to the 
Contracts will be imposed to compensate GWL&A for bearing certain 
mortality and expense risks in connection with the Contracts. Of this 
amount, 0.85% is allocable to the mortality risk apart from that 
associated with the guaranteed death benefit, 0.20% is allocable to the 
mortality risk associated with the guaranteed death benefit, and 0.40% 
is allocable to the expense risk. The mortality and expense risk charge 
is guaranteed by GWL&A and cannot be increased.
    14. The annual mortality and expense risk charge assessed under 
Future Contracts will be the same as that mentioned above. In addition, 
there will be no front-end sales charge for Future Contracts, and the 
maximum contingent deferred sales charge will not exceed 7% of the 
amount distributed.
    15. The mortality risk under the Contract is that, upon selection 
of an annuity payout option with a life contingency, annuitants will 
live longer than GWL&A's actuarial projections indicate, thereby 
resulting in higher than expected annuity payments. GWL&A also assumes 
a mortality risk under the Contract if the death of an annuitant 
results in a death benefit being payable under the Contract. GWL&A is 
at risk to the extent that the amount of the guaranteed death benefit 
exceeds the Contract value as of the date of death.
    16. The expense risk borne by GWL&A under the Contracts is that the 
charges for administrative expenses, which charges are guaranteed for 
the life of the Contracts, may be insufficient to cover the actual 
costs of issuing and administering the Contracts.

Applicants' Legal Analysis

    1. Applicants request an order of the Commission under Section 6(c) 
for exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act 
to the extent necessary to permit the deduction of a maximum charge of 
1.45% for the assumption of mortality and expense risks from the assets 
of: (a) The Separate Account in connection with the issuance of the 
Contracts or Future Contracts; and (b) any Future Separate Accounts in 
connection with the issuance of Contracts or Future Contracts. 
Applicants submit that the requested exemption is 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. Section 6(c) of the 1940 Act authorizes the Commission to 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 promulgated thereunder, if and 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.
    3. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, as herein 
pertinent, prohibit a registered unit investment trust and any 
depositor or underwriter thereof from selling periodic payment plan 
certificates unless the proceeds of all payments are deposited with a 
qualified trustee or custodian and are held under arrangements which 
prohibit any payment to the depositor or principal underwriter. 
Exception is made for fees, not exceeding any such reasonable amounts 
as the Commission may prescribe, for performing bookkeeping and other 
administrative services.
    4. Applicants submit that their request would promote 
competitiveness in the variable annuity contract market by eliminating 
the need for GWL&A to file redundant exemptive applications, thereby 
reducing GWL&A's administrative expenses and maximizing the efficient 
use of 

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GWL&A's resources. Applicants further submit that the delay and 
expenses involved in having to seek exemptive relief repeatedly would 
impair GWL&A's ability effectively to take advantage of business 
opportunities as they arise. Further, if GWL&A were required to seek 
exemptive relief repeatedly with respect to the issues addressed in 
this application, investors would not receive any benefit or additional 
protection thereby. Thus, Applicants believe that the requested 
exemption is 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.
    5. Applicants represent that the mortality and expense risk charge 
of 1.25% (which includes all risk charges imposed under the Contracts 
except the 0.20% mortality risk charge for the guaranteed death 
benefit) is within the range of industry practice for variable annuity 
contracts which, while not offering a guaranteed death benefit feature, 
are otherwise comparable to the Contracts. This representation is based 
upon Applicants' analysis of publicly available information regarding 
the aggregate level of the mortality and expense risk charges under 
such comparable variable annuity 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. Applicants represent that GWL&A 
will maintain at the administrative offices at its headquarters, and 
make available to the Commission, a memorandum detailing the variable 
annuity products analyzed in the course of, and the methodology and 
results of, its comparative survey.
    6. Applicants represent that before relying on exemptive relief 
resulting from this application in connection with any Future Contracts 
funded through the Separate Account or Future Separate Accounts, they 
will determine that the mortality and expense risk charge of 1.25% 
imposed under such Future Contracts (which includes all risk charges 
imposed under the Future Contracts except the 0.20% mortality risk 
charge for the guaranteed death benefit) will be within the range of 
industry practice for variable annuity contracts which, while not 
offering a guaranteed death benefit feature, are otherwise comparable 
to the Future Contracts. GWL&A will maintain at the administrative 
offices at its headquarters, and make available to the Commission, a 
memorandum detailing the variable annuity products analyzed in the 
course of, and the methodology and results of, its comparative survey.
    7. Applicants also hereby represent that the mortality risk charge 
of 0.20% for the guaranteed death benefit is reasonable in relation to 
the additional mortality risks assumed by GWL&A in offering a 
guaranteed death benefit under the Contracts. This representation is 
based upon GWL&A's examination of a large number of trials at different 
issue ages to determine the expected additional cost of offering a 
guaranteed death benefit. GWL&A fist projected hypothetical asset 
returns using generally accepted actuarial simulation methods. GWL&A 
then calculated hypothetical accumulated values by applying the 
projected asset returns to the initial value in a hypothetical account 
for each asset return pattern generated. GWL&A compared each 
accumulated value so calculated to the amount of the guaranteed death 
benefit payable in the event of the hypothetical annuitant's death 
during the year in question. GWL&A also studies recent published 
actuarial statistics regarding the costs associated with similar 
enhanced or guaranteed death benefits, and sought reinsurance bids in 
relation to the guaranteed death benefit. GWL&A will maintain at the 
administrative offices at its headquarters, and make available to the 
Commission, a memorandum detailing the methodology used in determining 
that an additional level cost of 0.20% for the guaranteed death benefit 
is reasonable in relation to the additional risks assumed by GWL&A in 
offering such a death benefit under the Contracts.
    8. Before relying on exemptive relief resulting from this 
application in connection with any Future Contracts funded through the 
Separate Account or any Future Separate Accounts, GWL&A will prepare 
and maintain at the administrative office at its headquarters, and make 
available to the Commission, a memorandum detailing the methodology 
used in determining that an additional level cost of 0.20% for a 
guaranteed death benefit is reasonable in relation to the additional 
risks assumed by GWL&A in offering such a death benefit under the 
Future Contracts.
    9. GWL&A does not believe that the contingent deferred sales 
charges imposed under the Contracts will necessarily cover the expected 
costs of distributing the Contracts. Any ``shortfall'' will be made up 
from the assets of the general account of GWL&A, which will include 
amounts derived from the mortality and expense risk charges. GWL&A 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 Contract owners. The basis for 
this conclusion is set forth in a memorandum which will be maintained 
by GWL&A at the administrative offices at its headquarters, and will be 
made available to the Commission.
    10. Applicants recognize that the contingent deferred sales charges 
that may be imposed under Future Contracts may not necessarily be 
sufficient to cover the expected costs of distributing such contracts. 
Any ``shortfall'' will be made up from the assets of the general 
account, which will include amounts derived from the mortality and 
expense risk charges imposed under Future Contracts. Applicants 
represent that before relying on exemptive relief resulting from this 
application in connection with the Future Contracts funded through the 
Separate Account or any Future Separate Accounts, GWL&A will determine 
that there is a reasonable likelihood that the distribution financing 
arrangements being used in connection with the Future Contracts will 
benefit the Separate Account or any Future Separate Accounts and their 
respective Future Contract owners. GWL&A will maintain at the 
administrative offices at its headquarters, and make available to the 
Commission, a memorandum setting forth the basis for this conclusion.
    11. Applicants also represent that the Separate Account and any 
Future Separate Accounts will invest only in underlying funds which 
have undertaken, in the event they should adopt a plan for financing 
distribution expenses pursuant to Rule 12b-1 of the 1940 Act, to have 
such a plan formulated and approved by their board of directors/
trustees, a majority of whom are not interested persons of any such 
funds.

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 purposes 
fairly intended by the policy and provisions of the 1940 Act.


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    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-132 Filed 1-3-96; 8:45 am]
BILLING CODE 8010-01-M