[Federal Register Volume 59, Number 18 (Thursday, January 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1714]


[[Page Unknown]]

[Federal Register: January 27, 1994]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20026; 812-8712]

 

United of Omaha Life Insurance Co., et al.; Application for 
Exemption

January 19, 1994.
AGENCY: Securities and Exchange Commission (the ``SEC'' or 
``Commission'').

ACTION: Notice of application for exemptions under the Investment 
Company Act of 1940 (the ``Act'').

-----------------------------------------------------------------------

APPLICANTS: United of Omaha Life Insurance Company (``United of 
Omaha''), United of Omaha Separate Account C (the ``Variable 
Account''), and Mutual of Omaha Investors Services, Inc. (``MOIS'').

RELEVANT ACT SECTIONS: Applicants seek an order under section 6(c) of 
the Act granting exemptions from sections 26(a)(2)(C) and 27(c)(2) of 
the Act.

SUMMARY OF APPLICATION: Applicants seek an order to permit them to 
deduct a mortality and expense risk charge from the assets of the 
Variable Account, which funds individual flexible payment variable 
deferred annuity contracts (the ``Policies'').

FILING DATE: The application was filed on December 3, 1993.

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 SEC's Secretary and 
serving Applicants with a copy of the request, personally or by mail. 
Hearing requests must be received by the SEC by 5:30 p.m. on February 
14, 1994, and should be accompanied by proof of service on the 
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 SEC's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549. Applicants, United of Omaha Life 
Insurance Company, Mutual of Omaha Plaza, Omaha, Nebraska 68175.

FOR FURTHER INFORMATION CONTACT: C. Christopher Sprague, Senior Staff 
Attorney, at (202) 504-2802, or Michael V. Wible, Special Counsel, at 
(202) 272-2060, Office of Insurance Products, Division of Investment 
Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application; the complete application is available for a fee from the 
SEC's Public Reference Branch.

Applicants' Representations

    1. United of Omaha is a stock life insurance company that was 
incorporated under the name of United Benefit Life Insurance Company 
under the Laws of Nebraska on August 9, 1926. In 1981, the company 
changed its name to United of Omaha Life Insurance Company. United of 
Omaha is engaged principally in the sale of life insurance, accident 
and health insurance, and annuity policies, and it is licensed in all 
states (including the District of Columbia) other than New York. United 
of Omaha is a wholly-owned subsidiary of Mutual of Omaha Insurance 
Company.
    2. The Variable Account was established as a separate investment 
account under the laws of Nebraska on December 1, 1993 pursuant to a 
resolution of United of Omaha's Board of Directors. Under Nebraska law, 
the assets of the Variable Account are owned by United of Omaha but are 
held separately from United of Omaha's other assets and are not 
chargeable with any liabilities arising out of any other separate 
investments account or any other business of United of Omaha that has 
no specific and determinable relation to or dependence upon the 
Variable Account. The income, gains, or losses, realized or unrealized, 
from assets allocated to the Variable Account are credited to or 
charged against the Variable Account without regard to other income, 
gains, or losses of United of Omaha.
    3. The Variable Account will invest in shares of one or more of the 
investment portfolios of the Variable Insurance Products Fund, the 
Variable Insurance Products Fund II, the Scudder Variable Life 
Investment Fund, and such other registered investment companies as 
United of Omaha may make available under the Policies from time to time 
(each, a ``Fund''). Each Fund will be a diversified, open-end 
management investment company, and may have a number of classes or 
series.
    4. MOIS will serve as the distributor and principal underwriter of 
certain of the Policies. MOIS is registered under the Securities 
Exchange Act of 1934 as a broker-dealer, and is a member of the 
National Association of Securities Dealers, Inc. Broker-dealers other 
than MOIS may also serve as distributors and principal underwriters of 
certain of the Policies, to the extent the Policies are sold through 
alternate distribution channels. Any such other broker-dealer will be 
registered under the Securities Exchange Act of 1934, and will be a 
member of the National Association of Securities Dealers, Inc. The 
requested order would apply to any such other broker-dealer.
    5. The Policies may be purchased with an initial purchase payment 
of $5000 on a non-tax qualified basis or in connection with retirement 
plans or individual retirement accounts that qualify for favorable 
federal income tax treatment. A Policy owner may make additional 
purchase payments of at least $500 each at any time prior to the 
annuity starting date. A Policy owner can allocate net purchase 
payments to United of Omaha's Fixed Account and to one or more 
subaccounts of the Variable Account. The minimum amount that may be 
allocated is $500. Several annuity payout options are available to 
Policy owners. In the event that the Policy owner dies prior to the 
annuity starting date, a death benefit is payable.
    6. United of Omaha will deduct a Policy fee of $30 each Policy 
year. This charge will be deducted at the end of each Policy year prior 
to the annuity starting date (and upon a complete surrender) to 
compensate United of Omaha for the administrative services provided to 
Policy owners. Currently, this fee is waived if the Policy's 
accumulation value exceeds $50,000. United of Omaha also deducts a 
daily administrative expense charge from the assets of each subaccount 
of the Variable Account. This charge is equal to an effective annual 
rate of .15% of the net assets of the subaccount. United of Omaha 
imposes no charge for the first twelve transfers in any Policy year, 
but may impose a $10 fee for the thirteenth and each subsequent 
transfer. A withdrawal processing fee equal to the lesser of $25 or 2% 
of the amount withdrawn will be imposed for the second and each 
subsequent partial withdrawal request during a single Policy year, 
including certain withdrawals that are applied to provide annuity 
payments. However, the withdrawal processing fee will not be deducted 
on the annuity starting date if the accumulation value is applied after 
the second Policy anniversary to provide lifetime annuity payments. 
United of Omaha does not anticipate making any profit from these four 
charges, none of which will be increased.
    7. In order to permit investment of the entire purchase payment 
(net of any applicable premium tax charge), United of Omaha does not 
deduct sales charges at the time of investment. However, a contingent 
deferred sales charge of up to 7% is imposed on certain full or partial 
Policy surrenders during the first seven years after a purchase payment 
is made to cover expenses relating to the sale of the Policies, 
including commissions to registered representatives and other 
promotional expenses. During the first year after a purchase payment, 
the withdrawal charge is 7% of the amount withdrawn. The charge 
declines 1% per year for older purchase payments withdrawn, and becomes 
0% in the eighth and subsequent years. Each year, the Policy owner can 
withdraw up to 10% of total purchase payments (less any previous 
withdrawals), without imposition of the withdrawal charge. In addition, 
the withdrawal charge is waived in certain cases. United of Omaha does 
not anticipate that the withdrawal charge will generate sufficient 
revenues to pay the cost of distributing the Policies. If this charge 
is insufficient to cover the distribution expenses, the deficiency will 
be met from the general account assets of United of Omaha, which may 
include amounts derived from the charge for mortality and expense 
risks.
    8. United of Omaha seeks to impose a daily charge to compensate it 
for bearing certain mortality and expense risks in connection with the 
Policies. This charge is equal to an effective annual rate of 1.25% of 
the value of the net assets in the Variable Account, and it will not 
increase. Of that amount, approximately three-fourths is attributable 
to mortality risks, and approximately one-fourth is attributable to 
expense risks. If the mortality and expense risk charge is insufficient 
to cover actual costs and assumed risks, the loss will fall on United 
of Omaha. Conversely, if the charge is more than sufficient to cover 
costs, any excess will be profit to United of Omaha.
    9. The mortality risk borne by United of Omaha arises from its 
obligation to make periodic annuity payments regardless of how long all 
annuitants may live and from its obligation to pay a death benefit that 
may be greater than the Policy's accumulation value. The expense risk 
assumed by United of Omaha is that its actual administrative costs will 
exceed the amount recovered through the administrative charges.

Applicants' Legal Analysis

    1. Applicants request that the Commission, pursuant to section 6(c) 
of the Act, grant exemptions from the provisions described below to the 
extent necessary to permit the assessment of the daily charge for 
mortality and expense risks. Applicants state that the requested 
exemptions are appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act. Applicants state further that the 
proposed mortality and expense risk charge is consistent with the 
protection of investors because it is a reasonable and proper insurance 
charge.
    2. Section 26(a)(2)(C) of the Act provides that no payment to the 
depositor of, or principal underwriter for, a registered unit 
investment trust shall be allowed the trustee or custodian as an 
expense except compensation, not exceeding such reasonable amount as 
the Commission may prescribe, for performing bookkeeping and other 
administrative duties normally performed by the trustee or custodian. 
Section 27(c)(2) prohibits a registered investment company or a 
depositor or underwriter for such company from selling periodic payment 
plan certificates unless the proceeds of all payments on such 
certificates, other than sales loads, are deposited with a trustee or 
custodian having the qualifications prescribed in section 26(a)(1), and 
are held by such trustee or custodian under an agreement containing 
substantially the provisions required by sections 26(a)(2) and 26(a)(3) 
of the Act. Applicants request an exemptive order because the proposed 
mortality and expense risk charge is not a bookkeeping or 
administrative charge allowed by sections 26(a)(2) and 27(c)(2).
    3. United of Omaha represents that the mortality and expense risk 
charge is a reasonable charge to compensate it for assuming the risk 
that annuitants under the Policies will live longer as a group than had 
been anticipated in setting the annuity rates guaranteed in the 
Policies; for the risk that the accumulation value will be less than 
the death benefit; and for the risk that administrative expenses will 
be greater than amounts derived from the administrative charges.
    4. United of Omaha represents that the charge of 1.25% for 
mortality and expense risks is within the range of industry practice 
with respect to comparable annuity products. This representation is 
based upon United of Omaha's analysis of publicly available information 
about similar industry products, taking into consideration such factors 
as current charge levels, the existence of charge level guarantees, and 
guaranteed annuity rates. United of Omaha 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. United of Omaha has concluded that there is a reasonable 
likelihood that the proposed distribution financing arrangements will 
benefit the Variable Account and the Policy owners. The basis for such 
conclusion is set forth in a memorandum which will be maintained by 
United of Omaha at its administrative offices and will be available to 
the Commission.
    6. United of Omaha also represents that the Variable Account will 
only invest in management investment companies which undertake, in the 
event such company adopts a plan under Rule 12b-1 to finance 
distribution expenses, to have a board of directors (or trustees), a 
majority of whom are not interested persons of the company, formulate 
and approve any such plan under Rule 12b-1.

Applicants' Conclusion

    Applicants request exemptions from sections 26(a)(2)(C) and 
27(c)(2) to the extent necessary to permit them to deduct on a daily 
basis a charge equal to 1.25% annually of the assets of the Variable 
Account for the assumption of mortality and expense risks described 
herein. For the reasons set forth above, Applicants believe 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 Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1714 Filed 1-26-94; 8:45 am]
BILLING CODE 8010-01-M