[Federal Register Volume 59, Number 25 (Monday, February 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2646]


[[Page Unknown]]

[Federal Register: February 7, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20043; File No. 812-8582]

 

SAFECOLifeInsuranceCompany,etal.

January 28, 1994.
AGENCY: Securities and Exchange Commission (``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: SAFECO Life Insurance Company (the ``Company''), SAFECO 
Separate Account C (the ``Separate Account'') and PNMR Securities, Inc. 
(``PNMR''), collectively, the ``Applicants.''

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) thereof.

SUMMARY OF THE APPLICATION: Applicants seek an order permitting the 
deduction of a mortality and expense risk charge from the assets of the 
Separate Account which serves as a funding medium for certain 
individual flexible premium and individual single premium deferred 
variable annuity contracts (the ``Contracts'') offered by the Company.

FILING DATE: The application was filed on September 28, 1993, and an 
amendment thereto was filed on December 28, 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 on the application by writing to the 
Secretary of the SEC and serving Applicants with a copy of the request, 
either personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on February 22, 1994, and should be accompanied 
by proof of service on Applicants in the form of an affidavit or, for 
lawyers, by certificate. 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 a hearing by writing to 
the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, c/o Elna A. Thomson, Esq., SAFECO Life Insurance Company, 
SAFECO Plaza, Seattle, WA 98185.

FOR FURTHER INFORMATION CONTACT:
Patrice M. Pitts, Attorney, or Michael V. Wible, Special Counsel, 
Office of Insurance Products, Division of Investment Management, at 
(202) 272-2060.

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

Applicants' Representations

    1. The Company is a stock life insurance company organized under 
the laws of the State of Washington on January 23, 1957.
    2. Concurrent with the filing of the amendment to this application, 
the Separate Account filed an amended Form N-4 with the Commission, to 
register as a unit investment trust under the 1940 Act. The Separate 
Account currently will be divided into subaccounts which will invest in 
shares of the portfolios of SAFECO Resource Series Trust or Scudder 
Variable Life Insurance Fund.
    3. The Contracts will be distributed through PNMR, an affiliate of 
the Company, that is a broker-dealer registered under the Securities 
Exchange Act of 1934 and a member of the National Association of 
Securities Dealers, Inc.
    4. The Contracts will be individual flexible premium and individual 
single premium deferred variable annuity contracts. The Contracts 
provide for accumulation of Contracts values and payment of monthly 
annuity payments on a fixed and variable basis. Certain of the 
Contracts will qualify for federal tax advantages available under the 
Internal Revenue Code (``Qualified Contracts'') and certain of the 
Contracts will not (``Non-Qualified Contracts'').
    5. The minimum initial and subsequent purchase payment for the 
flexible premium Qualified Contracts is $50. The minimum initial 
purchase payment for the flexible premium Non-Qualified Contracts is 
$2,000, with a minimum subsequent purchase payment of $250. The minimum 
initial purchase payment for the single premium Non-Qualified Contract 
is $25,000; the minimum subsequent purchase payment is $2,500, with 
additional purchase payments allowed within a six-month period 
following the remitting of the initial purchase payment.
    6. Contract owners may transfer all or a portion of their interests 
in a subaccount to another subaccount of the Separate Account. Such 
transfers may be made without charge, at any time prior to the date 
upon which annuity payments begin, provided that there have been no 
more than twelve transfers made in a Contract year. If more than twelve 
transfers are made in a single Contract year, the Company reserves the 
right to deduct a transfer charge from the amount which is transferred 
which will equal the lesser of $10 or 2% of the amount transferred.
    7. The minimum partial transfer amount is the lesser of $500 or the 
Contract owner's entire interest in the subaccount, unless the Contract 
owner is participating in the automatic transfer program which provides 
for pre-establish automatic transfers of at least $250 from a 
subaccount. No partial transfer will be made if the Contract owner's 
remaining Contract value in the subaccount would be less than $500 
after the transfer (unless the Contract owner is participating in the 
automatic transfer program).
    8. When the Contract value is less than $50,000, the Company will 
deduct an annual administration maintenance charge of $30 from the 
Contract value on the last day of each Contract year and in the event 
of a full withdrawal. This charge is designed to reimburse the Company 
for general administrative expenses which it incurs in the 
establishment and maintenance of the Contracts and the Separate 
Account. Prior to the annuity date, this charge is not guaranteed, and 
may be changed for future years; in no event may it exceed $35 per 
Contract year. Applicants represent that the charge has not been set a 
level greater than its cost, and contains no element of profit.
    9. In addition, relying on Rule 26a-1 of the 1940 Act, the Company 
deducts an asset-related administration charge on each valuation date, 
at an annual rate of 0.15% of the average daily net asset value of the 
Separate Account. This charge is designed to cover the shortfall in 
revenues from the annual administration maintenance charge, and will 
not increase. The Company does not intent to profit from this charge.
    10. For each withdrawal (whether partial or full) after the first 
in any Contract year, the Company deducts a withdrawal charge that 
equals the lesser of $25 or 2% of the amount withdrawn. The withdrawal 
charge is an administrative charge, not a sales charge, and is used to 
pay for administrative expenses incurred by the Company in connection 
with withdrawals after the first in any Contract year. No withdrawal 
charge is deducted when the Contract owner is participating in the 
systematic withdrawal program or is exercising a settlement option.
    11. The Contracts do not provide for a front-end sales charge. 
Instead, a full or partial withdrawal of a Contract prior to the 
annuity date is subject to a contingent deferred sales charge 
(``CDCS''). The CDSC is a declining charge which is graded down 1% per 
year from 8% to 0% over eight years.
    12. The Company assumes mortality and expense risks under the 
Contracts. The mortality risks arise from the contractual obligation to 
make annuity payments for the life of the Annuitant, and to waive the 
CDSC in the event of the death of the Contract owner. The expense risk 
assumed by the Company is that the actual expenses involved in 
administering the Contracts may exceed the amount recovered from the 
annual administration maintenance charge and the asset-related 
administration charge. To compensate it for assuming these risks, the 
Company deducts a mortality and expense risk charge on each valuation 
date, at an annual rate of 1.25% of the average daily net asset value 
of the Separate Account. Approximately 0.90% of the 1.25% charge 
represents mortality risks and 0.35% represents expense risks.
    13. Applicants state that if the mortality and expense risk charge 
is insufficient to cover the actual costs, the loss will be borne by 
the Company. Conversely, if the amount deducted proves more than 
sufficient, the excess will be a profit to the Company. The mortality 
and expense risk charge is guaranteed by the Company not to increase.

Applicants' Legal Analysis and Conditions

    1. Applicants request an exemption from Sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to the extent relief is necessary to permit 
the deduction from the Separate Account of a mortality and expense risk 
charge under the Contracts.
    2. Sections 26(a)(2)(C) and 27(c)(2) of the Act, as herein 
pertinent, prohibit a registered unit investment trust and any 
depositor thereof or underwriter therefor from selling periodic payment 
plan certificates unless the proceeds of all payments (other than the 
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 
amounts as the Commission may prescribe, for performing bookkeeping and 
other administrative services.
    3. Applicants submit that the Company is entitled to reasonable 
compensation for its assumption of mortality and expense risks, and 
represent that the charge is within the range of industry practice for 
comparable variable annuity contracts. Applicants state that these 
representations are based upon an analysis of the mortality risks, 
taking into consideration such factors as: the guaranteed annuity 
purchase rates; the expense risks, taking into account the existence of 
charges against Separate Account assets for other than mortality and 
expense risks; the estimated costs, now and in the future, for certain 
product features; and industry practice with respect to comparable 
variable annuity contracts. The Company will maintain at its principal 
office, and make available to the Commission, a memorandum setting 
forth in detail the products analyzed and the methodology and results 
of this analysis.
    4. Applicants acknowledge that the CDSC may be insufficient to 
cover all costs relating to the distribution of the Contracts, and that 
if a profit is realized from the mortality and expense risk charge, all 
or a portion of such profit may be offset by distribution expenses not 
reimbursed by the CDSC. In such circumstances a portion of the 
mortality and expense risk charge might be viewed as providing for a 
portion of the costs relating to distribution of the Contracts. 
Notwithstanding the foregoing, the Company has concluded that there is 
a reasonable likelihood that the proposed distribution financing 
arrangements made with respect the Contracts will benefit the Separate 
Account and the Contract owners. The basis for such conclusion is set 
forth in a memorandum which will be maintained by the Company at its 
principal office and will be available to the Commission.
    5. Applicants represent that the Separate Account will invest only 
in underlying mutual funds that undertake, in the event they adopt any 
plan under Rule 12b-1 under the 1940 Act to finance distribution 
expenses, to have such plan formulated and approved by a board of 
directors or board of trustees, a majority of the members of which are 
not ``interested persons'' of such funds within the meaning of Section 
2(a)(19) of the 1940 Act.

Conclusion

    Applicants assert that for the reasons and upon the facts set forth 
above, the requested exemptions from Sections 26(a)(2)(C) and 27(c)(2) 
of the 1940 Act to deduct the mortality and expense risk charge under 
the Contracts meet the standards in Section 6(c) of the 1940 Act. In 
this regard, Applicants assert that the exemptions are necessary and 
appropriate in the public interest and consistent with the protection 
of investors and the policies and purposes of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2646 Filed 2-4-94; 8:45 am]
BILLING CODE 8010-01-M