[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