[Federal Register Volume 59, Number 49 (Monday, March 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5838]
[[Page Unknown]]
[Federal Register: March 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20121; File No. 812-8748]
Century Life of America, et al.; Application
March 8, 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: Century Life of America (``Century Life''), Century
Variable Annuity Account (the ``Account'') and CUNA Brokerage Services,
Inc. (collectively, ``Applicants'').
RELEVANT 1940 ACT SECTIONS: Order requested under section 6(c) of the
1940 Act for exemptions from sections 26(a)(2) and 27(c)(2) of the 1940
Act.
SUMMARY OF APPLICATION: Applicants seek an order permitting them to
deduct a daily charge from the assets of the Account for mortality and
expense risks in connection with the offering of certain variable
annuity contracts.
FILING DATE: The application was filed on December 30, 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
Commission by 5:30 p.m. on April 4, 1994 and should be accompanied by
proof of service on Applicants in the form of an affidavit or, for
lawyers, by 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 the date of a hearing by
writing to the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants: Century Life of America, 2000 Heritage Way, Waverly, Iowa
50677.
FOR FURTHER INFORMATION CONTACT: Barbara J. Whisler, Senior Attorney,
or Wendell M. Faria, Deputy Chief, both at (202) 272-2060, Office of
Insurance Products, Division of Investment Management.
SUPPLEMENTARY INFORMATION: 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. Century Life, a mutual life insurance company organized under
the laws of Iowa, entered into a permanent affiliation with CUNA Mutual
Life Insurance Society (``CUNA Mutual'') on July 1, 1990. Applicants
state that the terms of the ``Agreement of Permanent Affiliation''
provide for the following: Financial sharing between Century Life and
CUNA Mutual of future individual life insurance business through
reinsurance arrangements; joint development of business plans and
systems for the distribution of individual insurance and other
financial service products within the credit union movement; and,
sharing of certain resources and facilities. All of the directors of
Century Life are also directors of CUNA Mutual and many of the senior
executive officers of Century Life hold similar positions with CUNA
Mutual. Applicants state that the affiliation is not a merger or a
consolidation and that both Century Life and CUNA Mutual remain
separately owned by their respective contract owners who retain voting
rights.
2. The Account, established by Century Life on December 14, 1993 as
a separate investment account under Iowa law, serves as a funding
medium for certain flexible premium individual deferred variable
annuity contracts (the ``Contracts''). Applicants state 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. 33-73738), for the Account.
3. The Account currently has five subaccounts, each of which
invests exclusively in the shares of a designated investment portfolio
of the Ultra Series Fund (the ``Fund''). The Fund, a Massachusetts
business trust, is registered under the 1940 Act as an open-end
diversified management investment company. The Fund currently has six
investment portfolios, five of which offer their shares to the Account.
4. The Contracts may be purchased on a nontax qualified basis (the
``Nonqualified Contracts'') or they may be purchased in connection with
retirement plans, including retirement programs described in sections
401(a) or 403(b) of the Internal Revenue Code of 1986, as amended (the
``Code''), or as individual retirement annuities that qualify for
favorable federal income tax treatment under section 409 of the Code
(together, the ``Qualified Contracts'').
5. CUNA Brokerage Services, Inc. (``CUNA Brokerage'') acts as the
principal underwriter, as defined in the 1940 Act, of the Contracts
pursuant to the terms of an underwriting agreement between Century Life
and CUNA Brokerage. The principal business address of CUNA Brokerage is
the same as that of CUNA Mutual.
6. An owner of a Contract may allocate purchase payments to one or
more subaccounts of the Account, and the purchase payments will be
credited with the investment experience of the chosen subaccount or
subaccounts. An owner of a Contract may also allocate purchase payments
to the guaranteed interest option, part of the general account of
Century Life, and such payments will be credited with interest as
provided for in the Contracts.
7. The minimum initial purchase payment for Nonqualified Contracts
is $5,000 and for Qualified Contracts, other than those sold in
connection with tax sheltered annuity arrangements (``TSAs''), the
amount is $2,000. Subsequent purchase payments must be at least $1,000
and may be made any time before the annuity date and during the
annuitant's lifetime. Initial and subsequent purchase payments for TSAs
must be at least $25, and such payments in each Contract year must
total $300 and be paid pursuant to a schedule.
8. The Contract provides for a series of annuity payments beginning
on the annuity date. The Contract owner may select from four annuity
payment options, two of which are available only as a fixed annuity and
two of which are available as either a variable or a fixed annuity.
9. If the owner of a Contract dies prior to the annuity date and
the Contract is in force, Century Life will, upon receipt of due proof
of death, pay a death benefit. If the annuitant is age 75 or younger,
the death benefit is equal to the greatest of:
(a) Aggregate purchase payments made under the Contract less
partial withdrawals as of the date that Century Life receives due
proof of death; or
(b) Contract value as of the date that Century Life receives due
proof of death; or
(c) The death benefit floor amount as of the date of death plus
any net purchase payments and minus any partial withdrawals made
since the most recent death benefit floor computation anniversary;
less premium taxes not previously deducted and any outstanding loan
amount on the date the death benefit is paid. The death benefit floor
amount is the Contract value on the most recent death benefit floor
computation anniversary. Death benefit floor computation anniversaries
occur on the seventh Contract anniversary and each seventh Contract
anniversary thereafter prior to the annuitant's 76th birthday. After
the annuitant's 76th birthday, the death benefit will equal the
Contract value less any outstanding loan amount and any applicable
premium taxes not previously deducted as of the date that Century Life
receives due proof of the annuitant's death.
10. On each Contract anniversary prior to the annuity date, Century
Life deducts from the variable Contract value an annual fee of $30.
Applicants guarantee that this charge will not increase and state that
the charge reimburses Century Life for administrative expenses relating
to the Contract. The fee will be deducted from each subaccount based on
the proportion that the value in each such subaccount bears to the
total Contract value. After the annuity date, the annual Contract fee
is deducted from variable annuity payments. Applicants represent that
this charge will be deducted in reliance upon Rule 26a-1 under the 1940
Act and that the charge represents reimbursement only for
administrative costs expected to be incurred over the life of the
Contract. Applicants further represent that Century Life does not
anticipate a profit from this charge.
11. Century Life deducts a daily administrative charge equal to an
annual effective rate of .15% of the assets of the Account. The
application states that this charge will compensate Century Life for
certain expenses incurred in administering the Contracts. Applicants
represent that this charge will be deducted in reliance upon Rule 26a-1
under the 1940 Act and that the charge represents reimbursement only
for administrative costs expected to be incurred over the life of the
Contract. Applicants further represent that Century Life does not
expect to make a profit from this charge.
12. Although no fee is currently charged for transfers, Century
Life reserves the right to charge $10 for the 13th and each subsequent
transfer during a Contract year. The transfer fee will be deducted from
the subaccount or guarantee amount from which the transfer is made.
Applicants represent that where the fee is imposed, Applicants will
rely upon Rule 26a-1 under the 1940 Act for the deduction. Applicants
state that the transfer fee will represent reimbursement only for
administrative costs expected to be incurred over the life of the
Contract. Applicants further represent that Century Life does not
anticipate a profit from this charge.
13. Applicants note that various governmental entities levy a
premium tax, currently ranging up to 3.5%, on annuity contracts, such
as the Contracts, issued by insurance companies. The timing of the tax
levies varies among taxing authorities. The application states that if
applicable to a Contract, premium taxes will be deducted either: (a)
From purchase payments as received; (b) from Contract value upon
withdrawal or surrender; (c) from adjusted Contract value upon
application to an annuity payment option; or (d) upon payment of a
death benefit. Applicants note that Century Life reserves the right to
deduct premium taxes at the time such taxes are incurred.
14. A contingent deferred sales charge (the ``Sales Charge'') of up
to 7% is imposed on the partial withdrawal or surrender of purchase
payments within seven years of such payments having been made. 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
cover expenses relating to the sale of the Contracts, including payment
of commissions to registered representatives and other promotional
expenses. Applicants state that Century Life does not anticipate that
the Sales Charge will generate sufficient revenues to pay the cost of
distributing the Contracts. If the Sales Charge is insufficient to
cover the cost of distribution, the deficiency will be met from the
general account assets of Century Life and these assets may include
amounts derived from the charge for mortality and expense risks.
15. Century Life 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 Century Life for bearing certain mortality and expense
risks in connection with the Contracts. Approximately .85% of the 1.25%
charge is attributable to mortality risk, and approximately .40% is
attributable to expense risk. Century Life guarantees that this charge
will never exceed 1.25%. If the mortality and expense risk charge is
insufficient to cover actual costs and assumed risks under the
Contracts, Century Life will bear the loss. Conversely, if the charge
exceeds costs, the excess will be profit to Century Life. Applicants
state that Century Life currently anticipates a profit from this
charge.
16. Applicants state that the mortality risk borne by Century Life
arises from its contractual obligation to make annuity payments (as
determined in accordance with the Contracts) regardless of how long all
annuitants or any individual annuitant may live. Applicants state that
this undertaking assures that neither annuitant's own longevity nor an
improvement in general life expectancy will adversely affect the
periodic annuity payments that a payee will receive under the Contract.
Applicants state that Century Life also incurs a risk in connection
with the death benefit guarantee and that there is no charge for this
guarantee.
17. Applicants state that the expense risk assumed by Century Life
is the risk that administration costs will exceed amounts received by
Century Life through imposition of the administration charge, the
transfer fee (where imposed) and the annual Contract fee.
Applicants' Legal Analysis and Conditions
1. Applicants request that the Commission, pursuant to section 6(c)
of the 1940 Act, grant exemptions from sections 26(a)(2) and 27(c)(2)
of the 1940 Act in connection with Applicants' assessment of the daily
charge for mortality and expense risks. Sections 26(a)(2)(C) and 27
(c)(2) of the 1940 Act, in pertinent part, 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 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 amount as the Commission may prescribe, for
performing bookkeeping and other administrative services of a character
normally performed by the bank itself.
2. Applicants assert that the charge for mortality and expense
risks is reasonable in relation to the risks assumed by Century Life
under the Contracts. Applicants state that the charge is a reasonable
charge to compensate Century Life for the risks that: the annuitants
under the Contracts will live longer than has been anticipated in
setting the annuity rates guaranteed in the Contracts; the Contract
value will be less than the death benefit; and administrative expenses
will be greater than amounts derived from the asset-based
administration charge, the transfer fee and the Contract fee.
3. Applicants represent that the charge of 1.25% for the mortality
and expense risks assumed by Century Life is within the range of
industry practice with respect to comparable annuity products.
Applicants state that this representation is based upon Century Life's
analysis of publicly available information about similar industry
practices, taking into consideration such factors as: current charge
levels; charge level guarantees; and guaranteed annuity rates.
Applicants represent that Century Life 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, the comparative survey.
4. Applicants represent that Century Life has concluded that there
is a reasonable likelihood that the proposed distribution financing
arrangement will benefit the Account and the Contract owners. The basis
for such conclusion is set forth in a memorandum which will be
maintained by Century Life and will be made available to the
Commission.
5. Century Life also represents that the Account will invest only
in management investment companies which undertake, in the event such
company adopts a plan under Rule 12b-1 of the 1940 Act to finance
distribution expenses, to have such plan formulated and approved by the
company's board of directors, a majority of whom are not interested
persons of such company within the meaning 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) and 27(c)(2) of
the 1940 Act 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. 94-5838 Filed 3-11-94; 8:45 am]
BILLING CODE 8010-01-M