[Federal Register Volume 60, Number 170 (Friday, September 1, 1995)]
[Notices]
[Pages 45761-45763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21755]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21322; File No. 812-9420]
Great-West Life & Annuity Insurance Company, et al.
August 28, 1995.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for amendment to order granting
exemptions pursuant to the Investment Company Act of 1940 (the ``1940
Act'').
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APPLICANTS: Great-West Life & Annuity Insurance Company (the
``Company''), The Great-West Life Assurance Company (``Great-West
Life'') and FutureFunds Series Account (the ``Separate Account'').
RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 6(c) of
the 1940 Act to amend order granting exemptions from the provisions of
Sections 26(a) and 27(c)(2) thereof.
SUMMARY OF APPLICATION: Applicants seek an amendment to an order that
permits deduction of mortality and expense risk charges from the assets
of the Separate Account in connection with the issuance and sale of
certain group variable annuity contracts (``Existing Contracts'').\1\
The amendment will permit the deduction of mortality and expense risk
charges from the assets of any other separate account established in
the future by the Company (``Future Accounts,'' together with the
Separate Account, ``Accounts''), in connection with the issuance of
certain group variable annuity contracts that are substantially similar
in all material respects to the Existing Contracts (``Future
Contracts,'' together with Existing Contracts, ``Contracts'').
\1\ See Great-West Life & Annuity Insurance Company, et al.,
Inv. Co. Act Rel. No. 13998 (June 19, 1984) (notice) and Inv. Co.
Act. Rel. No. 14038 (July 17, 1984) (order); file no. 812-5818.
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FILING DATE: The application was filed on January 9, 1995.
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
[[Page 45762]]
p.m. on September 18, 1995, 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 Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th
Street, NW., Washington, DC 20549. Applicants, c/o Beverly A. Byrne,
Assistant Counsel, Great-West Life & Annuity Insurance Company, Great-
West Life Center, 8515 East Orchard Road, Englewood, Colorado 80111.
FOR FURTHER INFORMATION CONTACT:
Kevin M. Kirchoff, Senior Counsel, or Brenda D. Sneed, Chief, 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.
Applicant's Representations
1. The Company 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, the Company redomesticated
and is now organized under the laws of the State of Colorado. The
Company, a wholly-owned subsidiary of Great-West Life, is licensed to
sell insurance and annuities, and is qualified to do business in 49
states and the District of Columbia.
2. The Separate Account was established by the Company under the
laws of the State of Kansas on November 15, 1983. As a result of the
Company's redomestication to Colorado, the Separate Account now exists
pursuant to Colorado law.
3. Great-West Life, a life insurance company organized under the
laws of Canada, is the principal underwriter of the Existing Contracts.
Great-West Life is registered with the Commission as a broker-dealer
pursuant to the Securities Exchange Act of 1934 (the ``1934 Act'') and
is a member of the National Association of Securities Dealers, Inc. The
Existing Contracts are offered through licensed insurance agents of the
Company who are registered representatives of either Great-West Life of
a broker-dealer registered pursuant to the 1934 Act with which Great-
West Life has entered into a dealer agreement.
4. The Separate Account is an investment account of the Company
which acts as a funding vehicle for the Existing Contracts. The assets
of the Separate Account are owned by the Company, but segregated from
the other assets of the Company, and the obligations under the Existing
Contracts are obligations of the Company. The income, gains and losses
incurred on the assets in the Separate Account, whether or not
realized, are credited to or charged against the Separate Account
without regard to other income, gains or losses of the Company.
5. The Separate Account currently has seventeen investment
divisions (``Investment Divisions'') available for the purpose of
investing contributions (``Contributions'') by, or on behalf of,
participants in the group (``Participants'') received under the
Existing Contracts. Each Investment Division invests solely in a
corresponding portfolio of Maxim Series Fund, Inc., TCI Portfolios,
Inc. or Fidelity Variable Insurance Products Fund, each of which has a
different investment objective.
6. The Existing Contracts provide that, prior to the annuity
commencement date, Contributions can accumulate on a variable basis,
fixed basis, or a combination of both. Participants of Existing
Contracts allocate Contributions to the Investment Divisions of their
choice. The value under an Existing Contract varies with the investment
performance of the applicable Investment Divisions of the Separate
Account. Therefore, the owner of an Existing Contract, rather than the
Company, assumes the risk of investment gain or loss on investments.
7. Participants of Existing Contracts may specify the date on which
they desire annuity payments to begin, and may later change the date
through a written request. The Existing Contracts offer several annuity
options payable on a variable basis, a fixed basis, or a combination of
both.
8. The Existing Contracts provide that the Company may deduct an
annual contract maintenance charge of not more than sixty dollars from
each Participant's account.
9. The Company currently intends to itself pay any premium tax
relating to the Existing Contracts that is levied by any governmental
entity, but has reserved the right to deduct any such tax from account
values after giving notice to all Participants.
10. No sales charge is deducted from purchase payments, however, a
contingent deferred sales charge (``CDSC'') is deducted upon total or
partial surrender of an Existing Contract, other than at death or
annuitization. In some circumstances an amount against which a CDSC is
not assessed (``Free Amount'') applies. The Free Amount applicable to a
given Existing Contract will not exceed ten percent of the
Participant's annuity account value on December 31 of the prior year.
All distributions in excess of an applicable Free Amount during a
calendar year, are subject to a CDSC.
11. The amount of CDSC, which in no event will exceed 8.5%, is as
follows:
(1) the CDSC equals 6% of the amount distributed in excess of the
Free Amount (though the cumulative total of all such charges will not
exceed 6% of all Contributions made within 72 months prior to the date
of the particular distribution), for: (i) Section 401(k) retirement
plans where the employer does not also maintain a Section 403(b) or
Section 457 group contract with the Company; (ii) Section 401(a) plans
where the employer also maintains a Section 403(b) group contract; and
(iii) Section 403(b) retirement plans, other than employer-sponsored
plans issued after May 1, 1992;
(2) For: (i) group contracts issued in exchange for group tax-
sheltered annuity or group deferred compensation annuity contracts of
Great-West Life, and (ii) Section 457 group contracts issued prior to
May 1988 and not amended; the total of all CDSCs will not exceed (a) 6%
of an amount equal to all Contributions made within 72 months prior to
the date of the particular distribution, plus (b) an amount which is
the result of multiplying the amount initially applied to a Participant
annuity account from the exchanged contract by an appropriate
percentage, or an amount equal to a percentage of the amount
distributed in excess of the Free Amount, as chosen from the following
chart:
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No. of years of coverage of the participant Percentage
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Less than 5............................................... 6.
At least 5 but less than 10............................... 5.
At least 10............................................... 4;
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and.
(3) For: (i) Section 403(b) employer-sponsored plans issued after
April 30, 1992; (ii) Section 457 group contracts issued after April 30,
1988; (iii) Section 457 group contracts issued prior to May 1988 but
amended to incorporate this provision; and (iv) Section 401(a) plans
where the employer also maintains a Section 457 group contract; the
CDSC on amounts distributed in excess of the Free Amount will vary
based on the following table:
[[Page 45763]]
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No. of years of participation in the separate account Percentage
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0-4....................................................... 5
5-9....................................................... 4
10-14..................................................... 3
15 or more................................................ 0
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12. The Company assumes mortality and expense risks under the
Existing Contracts because of its contractual obligation to make
annuity payments, in the case of a life annuity, regardless of how long
an annuitant may live. The mortality risk is the risk that, upon
selection of a life annuity which has a life contingency, annuitants
will live longer than the Company's actuarial projections indicate,
resulting in higher than expected annuity payments. The expense risk is
the risk that actual administrative expenses involved in administering
the Existing Contracts may exceed the anticipated administrative
expenses.
13. As compensation for assuming these mortality and expense risks,
the Company assesses a daily charge at an annual effective rate of
1.25% of the net asset value of the Separate Account (``Mortality and
Expense Risk Charge'').
14. When the accounts derived from the Mortality and Expense Risk
Charge are insufficient to cover the actual costs resulting from the
mortality and expense risk, the Company bears the costs and realizes a
loss. When the amounts derived from the Mortality and Expense Risk
Charge are more than sufficient, the excess is a profit that is added
to the Company's surplus and used for any lawful purpose, including the
costs of distributing the Existing Contracts.
Applicants' Legal Analysis and Conditions
1. Pursuant to Section 6(c) of the 1940 Act the Commission may, by
order upon application, conditionally or unconditionally 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, in pertinent
part, prohibit a registered unit investment trust and any depositor
thereof or underwriter thereof 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 of a character normally performed by the
bank itself.
3. Applicants previously received exemptive relief (``Previous
Exemption'') pursuant to Section 6(c) of the 1940 Act exempting them
from Sections 26(a) and 27(c)(2) of the 1940 Act to the extent
necessary to permit the deduction of the Mortality and Expense Risk
Charge from the assets of the Separate Account.\2\ Applicants now
request an amendment to the Previous Exemption to permit the deduction
of the Mortality and Expense Risk Charge from the assets of any other
separate account established in the future by the Company, in
connection with the issuance of certain variable annuity group
contracts that are substantially similar in all material respects to
the Existing Contracts. Without the requested exemptive relief,
Applicants would have to request and obtain such relief for each Future
Account the Company establishes to fund Future Contracts. Applicants
assert that such additional requests for exemptive relief would present
no issues under the 1940 Act that have not been addressed by either the
Previous Exemption or the application that is the subject of this
notice.
\2\ Great West Life & Annuity Insurance Company, et al., Inv.
Co. Act Rel. No. 13998 (June 19, 1984) (notice) and Inv. Co. Act.
Rel. No. 14038 (July 17, 1984) (order).
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4. Applicants assert that the Mortality and Expense Risk Charge of
1.25% is within the range of industry practice for comparable annuity
products. Applicants state that this determination is based upon an
analysis of publicly available information about similar industry
products, taking into consideration such factors as current charge
levels, the existence of charge guarantees, guaranteed annuity rates
and the markets in which the Contracts or offered. Applicants undertake
to maintain a memorandum, available to the Commission upon request,
outlining the methodology underlying this representation.
5. Applicants represent that Future Contracts will provide for
equal or lower Mortality and Expense Risk Charge than the Existing
Contracts. The amount of the Mortality and Expense Risk Charges will be
stated in each Future Contract, and will be guaranteed not to increase.
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. 95-21755 Filed 8-31-95; 8:45 am]
BILLING CODE 8010-01-M