[Federal Register Volume 59, Number 58 (Friday, March 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7079]


[[Page Unknown]]

[Federal Register: March 25, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20148; No. 812-8812]

 

United of Omaha Life Insurance Company, et al.

March 18, 1994.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'')

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (the ``1940 Act'').

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APPLICANTS: United of Omaha Life Insurance Company (``United of 
Omaha''), United of Omaha Separate Account B (``Account B''), and 
Mutual of Omaha Investor Services, Inc. (``MOIS'') (collectively, 
``Applicants'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
Investment Company Act of 1940 (``1940 Act'') granting exemptions from 
the provisions of Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order permitting the 
deduction from the assets of Account B of mortality and expense risk 
charges in connection with the offer and sale of certain group flexible 
payment variable deferred annuity contracts (``Contracts'').

FILING DATE: The application was filed on February 4, 1994.

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 Commission's Secretary 
and serving the Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on April 12, 1994, and should be accompanied by proof of service 
on 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 Commission's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549. 
Applicants, c/o United of Omaha Life Insurance company, Mutual of Omaha 
Plaza, Omaha, Nebraska 68175.

FOR FURTHER INFORMATION CONTACT: Yvonne Hunold, Senior Counsel (202) 
272-2676, or Michael Wible, Special Counsel (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 Commission's 
Public Reference Branch.

Applicants' Representations

    1. United of Omaha (formerly, United Benefit Life Insurance 
Company), is a stock life insurance company and a wholly-owned 
subsidiary of Mutual of Omaha Insurance Company.
    2. Account B was established as a separate investment account by 
United of Omaha. A registration statement on Form N-4 to register 
Account B as a unit investment trust under the 1940 Act, and to 
register the contracts under the Securities Act of 1933 (``1933 Act'') 
has been filed with the Commission.
    Account B will have a number of subaccounts, each of which will 
invest solely in a specific corresponding portfolio of the American 
Odyssey Funds, Inc., or of such other registered investment companies 
as United of Omaha may make available under the Contracts from time-to-
time (each, a ``Fund'') or any combination thereof. Each Fund will be a 
diversified, open-end management investment company, and may have a 
number of classes or series, in accordance with Rule 18f-2 of the 1940 
Act.
    3. The Contacts are group flexible payment variable deferred 
annuity policies and individual certificates of participation 
(``Certificates'') thereunder. A Group Master Policy is issued to and 
owned by an employer or retirement plan administrator or trustee. A 
Certificate under the Group Master Policy is issued for each individual 
participant under the Contract (``Participant'').
    4. MOIS, an affiliate of United of Omaha, will serve as the 
distributor and principal underwriter of the Contracts. 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.
    5. Net Purchase Payments can be allocated: (a) the Fixed Account 
and receive a fixed rate of interest as specified from time-to-time by 
United of Omaha, and (b) one or more subaccounts of Account B 
(``Subaccounts'') and be credited with the investment experience of the 
selected Subaccount(s). Prior to annuitization, all or a portion of a 
Certificate's Cash Surrender Value may be transferred between 
Subaccounts. The Contracts will provide for a series of Annuity 
Payments and Payout Options. The Contracts also will provide for the 
payment of a death benefit, which is equal to the greatest of: (a) 
Account Value (without deduction of the withdrawal charge), less any 
charge for applicable premium taxes and any outstanding loans and loan 
interest; (b) Net Purchase Payments, less any partial withdrawals and 
any outstanding loans and loan interest; or (c) the Account Value as of 
the most recent 9-year Participant Anniversary prior to age 66, less 
any amounts subsequently withdrawn, any charge for applicable premium 
taxes, and any outstanding loans and loan interest.
    6. Various fees and expenses are deducted under the Contracts. A 
$30 annual Policy Fee will be deducted in arrears from the Account 
Value on the last Valuation Date of the Policy Year and upon a complete 
surrender. If applicable, a pro-rate portion of the charge is also 
deducted on the first Policy Anniversary after a Participant's 
Effective Date. A daily Administrative Expense Charge equal to an 
effective annual rate of .15% of the net assets of the subaccount is 
deducted from the assets of each subaccount. There currently is no 
charge for transfers, but United of Omaha reserves the right to impose 
a $10 fee for the thirteenth and each subsequent request to transfer 
Account Value from a Subaccount made during a single Participant Year. 
A withdrawal Processing fee equal to the lesser of $15 or 2% of the 
amount withdrawn will be imposed for the second and each subsequent 
partial withdrawal request during a single Participant Year.
    United of Omaha does not anticipate any profit from these 
administrative charges, none of which will be increased. United of 
Omaha will deduct the above charges in reliance upon and in compliance 
with Rule 26a-1 under the 1940 Act.
    7. A one-time set-up fee of $30 and a quarterly asset charge equal 
to an annual rate of 1.50% will be deducted from Account Value with 
respect to Certificates for which an optional asset allocation program 
has been elected.
    8. United of Omaha will deduct a charge of up to 3.5% for the 
aggregate premium taxes paid on behalf of a particular Contract or from 
the Account Value upon a complete surrender, death of the Participant, 
or at annuitization, depending upon when it is required to be paid. No 
charges currently are made for federal, state or local taxes, other 
than premium taxes. United of Omaha may, however, deduct charges for 
such taxes, or the economic burden thereof, from Account B in the 
future.
    9. No sales charges are deducted from premium payments under the 
Contracts. A contingent deferred sales charge (``CDSC'') in the amount 
of up to 6% is imposed on certain full or partial surrenders during the 
first nine years after a Certificate's Effective Date to cover expenses 
relating to the sales of the Contracts. No CDSC is assessed upon: (a) 
Participant's death, (b)a corrective distribution, (c) a hardship 
distribution, if the Participant suffers a permanent disability or is 
diagnosed as having a terminal illness, (d) the Participant's 
separation from service of his or her employer, or (e) the application 
of a Contract's proceeds to any Payout Option, with certain exceptions, 
for a period of at least 36 months. United of Omaha will not increase 
the CDSC.
    United of Omaha does not anticipate that the CDSC will generate 
sufficient revenues to pay the cost of distributing the Contracts. If 
this charge is insufficient to cover the 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 expenses 
risks.
    10. A daily charge equal to an effective annual rate of 1.25% of 
the value of the net assets in Account B will be imposed to compensate 
United of Omaha for bearing certain mortality and expense risks in 
connection with the Contracts. The 1.25% charge will not increase. Of 
this amount, approximately three-fourths is attributable to mortality 
risks, and approximately one-fourth is attributable to expense risks. 
The charge may be a source of profit for United of Omaha which will be 
added to its surplus and may be used for, among other things, the 
payment of distribution, sales and other expenses. United of Omaha 
currently anticipates a profit from this charge.
    11. The mortality risk arises from United of Omaha's contractual 
obligation to make Annuity Payments (determined in accordance with the 
annuity tables and other provisions contained in the Contracts) 
regardless of how long all Annuitants or any individual Annuitant may 
live. This undertaking assures that neither an Annuitant's own 
longevity, nor an improvement in general life expectancy, will 
adversely affect the periodic Annuity Payments that the Annuitant will 
receive under a Contract. A mortality risk also is assumed in 
connection with the Death Benefit guarantee because it could exceed the 
Account Value. There is no extra charge for the enhanced Death Benefit.
    12. 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. Section 6(c) of the 1940 Act authorizes the Commission, by order 
upon application, to conditionally or unconditionally grant an 
exemption from any provision, rule or regulation of the 1940 Act to the 
extent that the 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.
    2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant 
part, prohibit a registered unit investment trust, its depositor or 
principal underwriter, from selling periodic payment plan certificates 
unless the proceeds of all payments, other than sales loads, are 
deposited with a qualified bank and held under arrangements which 
prohibit any payment to the depositor or principal underwriter except a 
reasonable fee, as the Commission may prescribe, for performing 
bookkeeping and other administrative duties normally performed by the 
bank itself.
    3. Applicants request exemptions from Sections 26(a)(2) and 
27(c)(2) of the 1940 Act to the extent necessary to permit the 
deduction from the assets of Account B of the 1.25% charge for the 
assumption of mortality and expense risks. Applicants believe 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 1940 Act.
    Applicants submit that United of Omaha is entitled to reasonable 
compensation for its assumption of mortality and expense risks. 
Applicants represent that the 1.25% mortality and expense risk charge 
under the Contracts is consistent with the protection of investors 
because it is a reasonable and proper insurance charge. The mortality 
and expense risk charge is a reasonable charge to compensate United of 
Omaha for the risks that: Annuitants under the Contract will live 
longer as a group than has been anticipated in setting the annuity 
rates guaranteed in the Contracts; the Account Value will be less than 
the Death Benefit; and administrative expenses will be greater than 
amounts derived from the administrative charges.
    4. Applicants represent that the 1.25% mortality and expense risk 
charge is within the range of industry practice for comparable annuity 
contracts. This representation is based upon an analysis of publicly 
available information about similar industry products, taking into 
consideration such factors as current charge levels, the existence of 
charge level guarantees, death benefit 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 review.
    5. Applicants acknowledge that, if a profit is realized from the 
mortality and expense risk charge, all or a portion of such profit may 
be available to pay distribution expenses not reimbursed by the CDSC. 
United of Omaha has concluded that there is a reasonable likelihood 
that the proposed distribution financing arrangements will benefit 
Account B, Contractowners and Participants. The basis for that 
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. Account B will only invest in management investment companies 
which undertake, in the event they should adopt 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,'' formulate 
and approve any such plan.

Conclusion

    For the reasons set forth above, Applicants represent 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 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-7079 Filed 3-24-94; 8:45 am]
BILLING CODE 8010-01-M