[Federal Register Volume 59, Number 44 (Monday, March 7, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-5070] [[Page Unknown]] [Federal Register: March 7, 1994] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Rel. No. IC-20100; File No. 812-8682] Lincoln Benefit Life Company, et al. February 28, 1994. AGENCY: Securities and Exchange Commission (the ``SEC'' or the ``Commission''). ACTION: Notice of application for exemption under the Investment Company Act of 1940 (the ``1940 Act''). ----------------------------------------------------------------------- APPLICANTS: Lincoln Benefit Life Company (``Lincoln Benefit''), Lincoln Benefit Life Variable Annuity Account (the ``Account'') and Lincoln Benefit Financial Services, Inc. (collectively, the ``Applicants''). RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 1940 Act for exemption from Section 22(d) of the 1940 Act. SUMMARY OF APPLICATION: Applicants seek an order to the extent necessary to allow Lincoln Benefit to waive, under certain circumstances, the contingent deferred sales charge that would otherwise be imposed on certain flexible premium individual deferred variable annuity contracts (the ``Contracts''). FILING DATE: The application was filed on November 17, 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 this application by writing to the Secretary of the SEC 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 March 25, 1994 and 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 interest, the reason for the request and the issues contested. Persons may request notification of a hearing by writing to the Secretary of the SEC. ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549. Applicants: Carol S. Watson, General Counsel, Lincoln Benefit Life Company, 134 South 13th Street, Lincoln, Nebraska 68508. FOR FURTHER INFORMATION CONTACT: Barbara J. Whisler, Senior Attorney, or Wendell M. Faria, Deputy Chief, on (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 Public Reference Branch of the SEC. Applicant's Representations 1. Lincoln Benefit, a stock life insurance company organized under the laws of Nebraska, is a wholly owned subsidiary of Allstate Life Insurance Company. Allstate Life Insurance Company is an Illinois corporation wholly owned indirectly by The Allstate Corporation. Approximately 80.1% of the common stock of The Allstate Corporation is indirectly owned by Sears, Roebuck & Co. 2. The Account, established by Lincoln Benefit on August 3, 1992 as a segregated asset account under Nebraska law, serves as a funding medium for the Contracts. The application states that the Account meets the definition of a ``separate account'' under the federal securities laws. The Account is registered with the Commission under the 1940 Act as a unit investment trust. The application incorporates by reference the registration statement, currently on file with the Commission (File No. 33-66786), for the Account. 3. Lincoln Financial, a wholly owned subsidiary of Lincoln Benefit, is the distributor of the Contracts. Lincoln Financial is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, and is a member of the National Association of Securities Dealers, Inc. 4. The Contracts are available for retirement plans which qualify for federal tax advantages under the Internal Revenue Code and for those plans which do not qualify for advantageous treatment. The Contracts require a minimum initial premium payment of $1,200. Additional premium payments must be in amounts of at least $100. 5. Purchase payments may be allocated, according to a Contract owner's instructions, to one or more of the subaccounts of the Account. Upon annuitization, Contract owners may select from a number of variable or fixed annuity options. If the owner of a Contract dies prior to the annuity date and the Contract is in force, a death benefit is payable under the Contract. 6. One transfer among subaccounts is permitted monthly without charge. For each transfer among subaccounts in excess of once monthly, a transfer fee of $25 is assessed. The transfer fee is deducted from Contract values which remain in the subaccount or subaccounts from which the transfer is made. Applicants represent that the transfer fee is designated to be at cost with no margin included for profit. Lincoln Benefit is currently waiving this fee. 7. Applicants impose an annual Contract maintenance charge of $25 per Contract year. Applicants guarantee that this charge will not increase and state that the charge reimburses Lincoln Benefit for expenses incurred in maintaining the Contracts. This charge will be deducted on each Contract anniversary prior to the annuity date, but is not imposed during the annuity period. If a Contract is surrendered, the charge is assessed as of the surrender date without proration. 8. Lincoln Benefit deducts an administrative expense charge equal to an annual effective rate of .15% of the net asset value of the subaccount. The application states that this charge will compensate Lincoln Benefit for administering the Contracts and the Account. This charge is assessed during both the accumulation and the annuity periods. Applicants state that the Contract maintenance charge and the administrative expense charge are designed, in the aggregate, to be at cost with no margin included for profit. 9. A contingent deferred sales charge (the ``Sales Charge'') of up to 7% of the amount withdrawn is imposed on certain surrenders or withdrawals of Contract value. No Sales Charge is applied on annuitization or on the payment of a death benefit unless the settlement option chosen is payment over a period certain of less than five years. The Sales Charge is deducted from the Contract value remaining after withdrawal so that the reduction in Contract value as a result of a withdrawal will be greater than the withdrawal amount requested. Amounts obtained from imposition of the Sales Charge will be used to pay sales commissions and other promotional or distribution expenses associated with the marketing of the Contracts. To the extent that the Sales Charge does not cover all sales commissions and other promotional or distribution expenses. Applicants state that Lincoln Benefit may use any of its corporate assets, including potential profit from the mortality and expense risk charge, to make up the shortfall. 10. Lincoln Benefit will impose a daily charge equal to an annual effective rate of 1.25% of the value of the net assets of the Account to compensate Lincoln Benefit for bearing certain mortality and expense risks in connection with the Contracts. Approximately .85% of the 1.25 charge is attributable to mortality risks, and approximately .40% is attributable to expense risk. Applicants represent that the charge for mortality and expense risks will not increase. If the mortality and expense risks charge is insufficient to cover actual costs and assumed risks, Lincoln Benefit will bear the loss. Conversely, if the charge exceeds costs, this excess will be profit to Lincoln Benefit. If Lincoln Benefit realizes a gain from the charge for mortality and expense risks, the amount of such gain may be used in the discretion of Lincoln Benefit. 11. Applicants state that the mortality risks borne by Lincoln Benefit consist of: (a) Bearing the risk that the life expectancy of an annuitant will be greater than that assumed in the guaranteed annuity purchase rates; (b) waiving the Sales Charge upon the death of a Contract owner; and (c) providing a death benefit prior to the annuity date. Applicants state that the expense risk assumed by Lincoln Benefit is the risk that the costs of administering the Contracts and the Account will exceed amounts received by Lincoln Benefit through imposition of the Contract maintenance charge and the administrative expense charge. 12. Where available under applicable state law, Applicants offer a Confinement Waiver benefit. The Confinement Waiver benefit provides that any applicable Sales Charge will be waived where the following conditions are satisfied: a. The Annuitant must be confined to a Long Term Care Facility or a Hospital for at least 60 consecutive days. Confinement must begin after the Issue Date; b. The Contract owner must request the withdrawal no later than 90 days following the date that confinement has ceased. Written proof of confinement must accompany the withdrawal request; and c. For confinements in a Long Term Care Facility, confinement must be prescribed by a Physician and be Medically Necessary.\1\ --------------------------------------------------------------------------- \1\Capitalized terms used but not defined in this paragraph twelve, shall have the meanings assigned such terms in the application. --------------------------------------------------------------------------- Applicants' Legal Analysis 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. Pursuant to section 6(c), Applicants request that the Commission issue an order to provide exemptive relief set forth below. 2. Section 22(d) of the 1940 Act prohibits a registered investment company, its principal underwriter or a dealer in its securities from selling any redeemable security issued by such registered investment company to any person except at a public offering price described in the prospectus. Rule 6c-8 adopted under the 1940 Act permits variable annuity separate accounts to impose a deferred sales charge. Although Rule 6c-8, unlike proposed Rule 6c-10, does not impose any conditions on the ability of the investment company involved to provide for variations in the deferred sales charges, Rule 6c-8 (again unlike proposed Rule 6c-10) does not provide an exemption from section 22(d). Applicants recognize that the proposed waiver of the Sales Charge in connection with the Confinement Waiver benefit could be viewed as causing the Contracts to be sold at other than a uniform offering price. Rule 22d-1 is not directly applicable to Applicants' proposed waiver of the Sales Charge because that Rule has been interpreted as granting relief only for scheduled variations in front-end loads, not deferred sales load such as the Sales Charge. 3. Rule 22d-2 under the 1940 Act exempts registered variable annuity accounts, their principal underwriters, dealers and their sponsoring insurance companies from section 22(d) to the extent necessary to permit variations in the sales load or in any administrative charge or other deductions from the purchase payments, provided that such variations reflect differences in costs or services, are not unfairly discriminatory and are adequately described in the prospectus. Applicants, however, do not represent that the Confinement Waiver benefit reflects differences in sales costs or services, and, for that reason, Applicants do not rely on Rule 22d-2 for the requested relief, even assuming that Rule 22d-2 does apply to deferred sales load. 4. Nonetheless, Applicants submit that the proposed waiver is consistent with the policies of section 22(d) and the rules promulgated thereunder. One of the purposes of section 22(d) is to prevent an investment company from discriminating among investors by charging different prices to different investors. Applicants represent that, in jurisdictions where the Confinement Waiver benefit is permitted by state law, the benefit will be available to any Contract owner if the annuitant under the Contract becomes confined to a hospital or long term care facility for 60 days or more, and, therefore, the benefit will not unfairly discriminate among Contract owners. Moreover, Applicants argue that the benefit is advantageous to Contract owners by permitting any such owner, upon a triggering of the Confinement Waiver benefit, to surrender the Contract without imposition of the Sales Charge. Applicants further state that the Confinement Waiver benefit will not result in dilution of the interests of any other Contract owner. Finally, Applicants argue that waiving the Sales Charge under such circumstances will not result in the occurrence of any of the abuses that section 22(d) is designed to prevent. 5. Applicants represent that the Confinement Waiver benefit meets the substantive requirements of Rule 22d-1 in that Applicants specifically represent that: (a) The Confinement Waiver will be uniformly available to all eligible (as described in paragraph four above) Contract owners except where prohibited by state law; and (b) that the Confinement Waiver benefit will be adequately described in the Account's prospectus for the Contracts. Applicants also note that there are no existing Contract owners since the public offering of Contracts has not yet commenced. Conclusion For the reasons stated above, Applicants believe that the requested exemptions, in accordance with the standards of section 6(c), 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 1940 Act. For the Commission, by the Division of Investment Management, under delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-5070 Filed 3-4-94; 8:45 am] BILLING CODE 8010-01-M