[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]
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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'').
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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