[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