[Federal Register Volume 59, Number 69 (Monday, April 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8514]
[[Page Unknown]]
[Federal Register: April 11, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20190; 812-8828]
The Life Insurance Company of Virginia, et al.
April 4, 1994.
AGENCY: Securities and Exchange Commission (the ``SEC'' or
``Commission'').
ACTION: Notice of application for exemptions under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: The Life Insurance Company of Virginia (the ``Company''),
Life of Virginia Separate Account 4 (the ``Account''), and Forth
Financial Securities Corporation (``Forth Financial'').
RELEVANT 1940 ACT SECTIONS: Exemptions requested under section 6(c)
from sections 2(a)(32), 22(c), 26(a)(2), 27(c)(1), and 27(c)(2) of the
1940 Act and Rule 22c-1 under the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order to allow them to
assess a 1.25% mortality and expense risk charge and a maximum enhanced
death benefit charge equal to .35% of the Average Guaranteed Minimum
Death Benefit.
FILING DATES: The application was filed on February 11, 1994 and
amended on March 28, 1994 and March 31, 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 SEC's Secretary and
serving Applicants with a copy of the request, personally or by mail.
Hearing requests must be received by the SEC by April 29, 1994, and
must be accompanied by proof of service on the Applicants in the form
of an affidavit or, for lawyers, a certificate of service. Hearing
requests must 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 SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants, The Life Insurance Company of Virginia, 6610 W. Broad
Street, Richmond, Virginia 23230.
FOR FURTHER INFORMATION CONTACT: C. Christopher Sprague, Senior Staff
Attorney, at (202) 504-2802, or Michael V. Wible, Special Counsel, at
(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
SEC's Public Reference Branch.
Applicants' Representations
1. The Company is a stock life insurance company originally
chartered under the laws of the Commonwealth of Virginia on March 21,
1871, and is principally engaged in the offering of life insurance
policies and annuity contracts. The Company is admitted to do business
in 49 states and the District of Columbia and, as of December 31, 1993,
has assets of approximately $6.9 billion. The Company is a wholly-owned
subsidiary of Aon Corporation, a holding company principally engaged
through subsidiaries in the insurance and the insurance brokerage
business.
2. The Account was established by the Company as a separate account
under the laws of the Commonwealth of Virginia on August 19, 1987. The
Account is registered with the Commission under the 1940 Act as a unit
investment trust, and currently has twenty-two subaccounts (the
``Subaccounts''). The Company will establish new Subaccounts for each
investment option offered in connection with the flexible premium
variable deferred annuity contracts (the ``Contracts'') to be funded by
the Account. Each Subaccount will invest exclusively in the shares of a
specific corresponding portfolio of the Variable Insurance Products
Fund, the Variable Insurance Products Fund II, the Neuberger & Berman
Advisers Management Trust, the Life of Virginia Series Fund, Inc., the
Oppenheimer Variable Account Fund, or the Janus Aspen Series
(collectively, the ``Funds''). The Funds are registered under the 1940
Act as open-end management investment companies. Income and both
realized gains and losses from the assets of each Subaccount will be
credited to or charged against that Subaccount without regard to
income, gains, or losses of any other Subaccount, or income, gains, or
losses arising out of any other business that the Company may conduct.
3. Forth Financial, an affiliate of the Company, will serve as the
principal underwriter of the Contracts. Forth Financial is registered
with the Commission 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. The Contracts will be offered on a continuous
basis and will be sold by registered representatives of Forth
Financial. The Contracts also may be sold by individuals who were
registered representatives of broker-dealers who have entered into
written sales agreements with Forth Financial.
4. The Company intends to offer two classes of Contracts, each of
which will be an individual flexible premium variable deferred annuity
contract. Each class of Contract, although based on the same core
design, is designed for use in a different market, and therefore will
differ from the other class with respect to certain charges deducted,
the death benefit provisions, and compensation schedules payable in
connection with the sale of the Contracts. The two classes of Contracts
are referred to herein as the ``Class One Contracts'' and the ``Class
Two Contracts.'' Each of the two classes of Contracts will provide for
the accumulation of values on a variable basis, a fixed basis, or both,
and for the payment of periodic annuity benefits on a variable basis or
a fixed basis. The Contracts may be used in connection with a
retirement plan qualified under sections 401, 403(a), 403(b), 408, or
457 of the Internal Revenue Code or in connection with plans that are
not so qualified. No front-end sales charge will be deducted from
either the initial purchase payment or from any subsequent purchase
payment.
5. Contract owners may choose from either standard or enhanced
death benefit options. Under the Contracts, the death benefit will be
payable, and the amount of the death benefit will be determined, on the
business day coincident with or next following the day on which the
Company has received due proof of death and an election by the
beneficiary as to how the death benefits should be paid. For Class One
Contracts, the amount of the standard death benefit will depend upon
whether or not the Contract has been in effect for seven years. Up to
the seventh anniversary of a Class One Contract, the death benefit will
be equal to the greater of (a) purchase payments paid less partial
surrenders, plus their applicable surrender charges or (b) the Account
Value on the date the Company receives proof of death. After a Class
One Contract's seventh anniversary, the death benefit will be equal to
the greater of (a) the death benefit on the last day of the previous
seven year period, plus purchase payments paid since then, reduced by
any partial surrenders, plus their applicable surrender charges or (b)
the Account Value on the date the Company receives proof of death. For
Class Two Contracts, the amount of the standard death benefit will
depend upon whether or not the Contract has been in effect for six
years. Up to the sixth anniversary of a Class Two Contract, the death
benefit will be equal to the greater of (a) purchase payments paid
reduced by any applicable premium tax and any partial surrenders, plus
their surrender charges or (b) the Account Value on the date the
Company received proof of the Annuitant's death. After a Class Two
Contract's sixth anniversary, the death benefit will be equal to the
greater of (a) the death benefit on the last day of the previous six
year period, plus any purchase payment paid since then, reduced by any
applicable premium tax and any partial surrenders, plus their surrender
charges or (b) the Account Value on the date the Company receives proof
of the Annuitant's death.
6. Under both Class One and Class Two Contracts, eligible Contract
owners may elect, through a rider to the applicable Contract, a death
benefit option that pays out an enhanced death benefit. If the Contract
owner elects the rider to the Contract, the death benefit will equal
the greater of the standard death benefit or the enhanced death
benefit. The enhanced death benefit equals the greater of (a) the
Guaranteed Minimum Death Benefit, or (b) the Account Value on the date
the Company receives proof of the Annuitant's death. On the Contract
date, the Guaranteed Minimum Death Benefit equals the premiums paid. At
the end of each valuation period after the Contract date, the
Guaranteed Minimum Death Benefit equals the lesser of: (a) The total of
all purchase payments, multiplied by two, less partial surrenders, plus
surrender charges, made prior to or during the valuation period or (b)
the Guaranteed Minimum Death Benefit at the end of the preceding
valuation period, increased as specified below, plus any additional
purchase payments during the current valuation period less any partial
surrenders, plus surrender charges, made during the current valuation
period. Until the anniversary on which the Annuitant attains age 80,
the Company credits the Guaranteed Minimum Death Benefit at the end of
the preceding valuation period with a 6% annual rate of interest. For
amounts allocated to Subaccounts investing in money market portfolios,
however, the interest accumulation is the lesser of (a) the net
investment factor for that Subaccount for the valuation period, minus
one or (b) a 6% annual rate of interest. For amounts allocated to the
fixed account, the Company will increase the Guaranteed Minimum Death
Benefit by the lesser of (a) the current rate of interest credited
under that allocation option or (b) a 6% annual rate of interest. After
the anniversary on which the Annuitant attains age 80, the Company will
no longer credit interest to the Guaranteed Minimum Death Benefit.
7. If a beneficiary under a Class One Contract surrenders more than
60 days from the date the Company receives due proof of an Annuitant's
death or more than one year after the date of death, the Surrender
Value will be payable instead of the standard or enhanced death
benefit. If a beneficiary under a Class Two Contract surrenders more
than 90 days after the Annuitant's death, and/or if the deceased
Annuitant was age 81 or older on the policy date, the Surrender Value
will be payable instead of the standard or enhanced death benefit.
8. On each Contract anniversary through the maturity date, the
Company will deduct an Annual Contract Charge of $25 from the Account
Value of both Class One and Class Two Contracts as partial compensation
for its cost of processing applications, establishing Contract records,
premium collection, recordkeeping, processing death benefit claims,
surrenders, partial surrenders, transfers, and reporting and overhead
costs. If the Contract is surrendered other than on a Contract
anniversary, a full $25 fee in the case of both Class One and Class Two
Contracts will be deducted. Even if its Contract maintenance expenses
increase, the Company guarantees that it will not increase the amount
of the Annual Contract Charge. The Company will waive the Annual
Contract Charge for Contract owners whose Account Value exceeds
$75,000. The Annual Contract Charge for each class of Contracts will
not be greater than the Company's average expected cost, without
profit, of administering that class of Contracts. Applicants intend to
rely on Rules 26a-1 and 6c-8(c) under the 1940 Act for the necessary
exemptive relief to permit imposition of the Annual Contract Charge.
9. The Company will impose a daily Administrative Charge against
the Account under each class of Contracts to compensate it for
administrative expenses it will bear in connection with the Contracts
and the Account. Administrative expenses will include, among other
things, the Company's expenses with respect to (a) processing
applications, Contract changes, tax reporting, surrenders, partial
surrenders, death claims, and initial and subsequent purchase payments;
(b) preparing and mailing annual and semiannual reports to Contract
owners and making regulatory compliance reports; and (c) paying
overhead costs. For incurring these administrative expenses in
connection with the Contracts and the Account, the Company will deduct
a daily Administrative Charge at an annual rate of .15% of the value of
net assets in each Subaccount from all classes of Contracts. This rate
will be guaranteed not to increase for the duration of the Contract.
The Administrative Charge will not be greater than the Company's
average expected cost without profit, of the administrative services to
be provided for the life of the Contracts. The Administrative Charge is
designed only to reimburse the Company for its administrative expenses
on a cumulative basis. Applicants intend to rely on Rule 26a-1 under
the 1940 Act for the necessary exemptive relief to permit imposition of
the Administrative Charge.
10. No deductions for sales expenses will be made from purchase
payments with respect to any class of Contracts. However, under the
Contracts, a Contingent Deferred Sales Charge may be assessed against
the amount surrendered. The amount surrendered subject to the charge
will be the lesser of (a) the amount surrendered and (b) total purchase
payments, less the total of all surrender amounts previously deemed to
reduce those purchase payments. Under the Contracts, the length of time
from the Company's receipt of a purchase payment to the time of the
Contract owner's surrender or partial surrender will determine whether
the Contingent Deferred Sales Charge will be deducted. Under Class One
Contracts, the surrender charge percentage will be as follows:
------------------------------------------------------------------------
Number of years
Charge from receipt of
purchase payment
------------------------------------------------------------------------
6%................................................. 1
5%................................................. 2-4
4%................................................. 5
2%................................................. 6
0%................................................. 7 and over.
------------------------------------------------------------------------
Under Class Two Contracts, the surrender charge percentage will be
as follows:
------------------------------------------------------------------------
Number of years
Charge from receipt of
purchase payment
------------------------------------------------------------------------
6%................................................. 0-3
4%................................................. 4
2%................................................. 5
0%................................................. 6 and over.
------------------------------------------------------------------------
Under both Class One and Class Two Contracts, for the first partial
surrender during each Contract year, the Company will waive the
Contingent Deferred Sales Charge with respect to the first 10% of the
Account Value that is subject to the charge. With respect to full
surrenders, the Company will waive the first 10% of Account Value
subject to the Contingent Deferred Sales Charge if there have been no
prior partial surrenders during that Contract year. In determining
which amounts are being withdrawn for purposes of computing the
Contingent Deferred Sales Charge, partial surrenders and surrenders
will be deemed made from purchase payments on a first-in, first-out
basis. Applicants intend to rely on Rule 6c-8(b) under the 1940 Act for
the necessary exemptive relief to permit imposition of the Contingent
Deferred Sales Charge on partial surrenders and surrenders from
Contracts.
11. The Contingent Deferred Sales Charge will be imposed on Class
One and Class Two Contracts to permit the Company to recover certain
sales expenses that it advances, including compensation paid for
selling the Contracts, the cost of printing prospectuses and sales
literature, as well as any advertising costs. The proceeds of this
charge may not be sufficient to cover these expenses. To the extent
they are not, the Company will cover the shortfall from its general
account assets, which may include profits from the charges for
mortality and expense risks described below.
12. A Contract owner will have the flexibility to transfer assets
among the different Subaccounts and to the fixed account at any time
prior to the Contract's maturity date. No charge will be imposed for
the first such transfer made during any calendar month. However, the
Company may deduct a Transfer Charge of $10 for each subsequent
transfer made during a calendar month. The Transfer Charge will not be
greater than the Company's average expected cost, without profit, of
the transfer administrative services to be provided for the life of the
Contracts.
13. For Class One and Class Two Contracts, the Company will deduct
a daily Mortality and Expense Risk Charge from the Account at an annual
rate of 1.25% of the value of the average daily net assets in each
Subaccount attributable to those classes of Contracts. The Company will
assume two mortality risks under each Class of Contracts: (a) That the
annuity rates under the Contracts cannot be changed to the detriment of
Contract owners even if Annuitants live longer than projected; and (b)
that the Company may be obligated to pay a claim for a standard death
benefit in excess of a Contract owner's Account Value. The Company also
will assume an expense risk through its guarantee not to increase the
charges for issuing the Contracts and administering the Contracts and
the Account, regardless of its actual expenses, including Contract
maintenance costs, administrative costs, mailing costs, data processing
costs, and costs of other services.
14. If a Class One or Class Two Contract owner selects the enhanced
death benefit option, the Company will deduct, through the cancellation
of accumulation units, a charge at each Contract anniversary or upon
surrender to compensate it for the increased risks associated with
providing the enhanced death benefit. The enhanced death benefit charge
is assessed at the beginning of each Contract year after the first, and
at the time of full surrender. The maximum enhanced death benefit
charge equals .35% of the Average Guaranteed Minimum Death Benefit. The
Average Guaranteed Minimum Death Benefit is the mean of the beginning
and ending Contract year values for the Guaranteed Minimum Death
Benefit. Upon surrender, the Average Guaranteed Minimum Death Benefit
equals the mean of the beginning Contract year value for the Guaranteed
Minimum Death Benefit and the Guaranteed Minimum Death Benefit value at
the time of surrender. Upon surrender, the Company prorates the
enhanced death benefit charge to reflect that portion of the Contract
year completed. By using the mean of Guaranteed Minimum Death Benefit
values to calculate the enhanced death benefit charge, Applicants state
that the Company can provide an enhanced death benefit at a lower cost
to Contract owners than if some other standard, such as Account Value,
were used to calculate the enhanced death benefit charge. For example,
if a Contract owner's Account Value appreciates by 6% or more in a
Contract year and the enhanced death benefit charge were taken as a
percentage of Account Value, the enhanced death benefit charge would
fully reflect the appreciation in Account Value. However, under the
Contracts, since the enhanced death benefit charge reflects the mean of
Guaranteed Minimum Death Benefit values and the Guaranteed Minimum
Death Benefit cannot increase more than 6% in any given Contract year,
the enhanced death benefit charge will never reflect an increase of
more than 6% from the prior year's Average Minimum Guaranteed Death
Benefit.
15. If the charges for mortality and expense risks, including the
enhanced death benefit charge, are insufficient to cover actual costs,
the loss will be borne by the Company; conversely, if the amounts
deducted prove more than sufficient, the excess will be a profit to the
Company. The charges for mortality and expense risks will not be
assessed against the fixed account value or to monies that have been
applied to purchase a fixed annuity option under a Contract.
16. Certain states and other governmental entities may impose a
premium tax, ranging up to 3.5% of purchase payments. If applicable,
the tax will be deducted, either from a purchase payment when received,
from amounts surrendered or withdrawn, from death benefit proceeds, or
from the amount applied to effect an annuity at the time annuity
payments commence.
Applicants' Legal Analysis
1. Section 6(c) of the 1940 Act authorizes the Commission to exempt
any person, security, or transaction, or any class or classes or
persons, securities, or transactions from the provisions of the 1940
Act and the rules promulgated 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. Applicants
respectfully request that the Commission, pursuant to Section 6(c) of
the 1940 Act, grant the exemptions set forth below in connection with
Applicants' assessment of charges for mortality and expense risks,
including the charge for providing an enhanced death benefit option,
under the Contracts.
2. Section 26(a)(2)(C) of the 1940 Act provides that no payment to
the depositor of, or principal underwriter for, a registered unit
investment trust shall be allowed the trustee or custodian as an
expense except compensation, not exceeding such reasonable amount as
the Commission may prescribe, for performing bookkeeping and other
administrative duties normally performed by the trustee or custodian.
Section 27(c)(2) of the 1940 Act prohibits a registered investment
company or a depositor or underwriter for such company from selling
periodic payment plan certificates unless the proceeds of all payments,
other than sales loads, on such certificates are deposited with a
trustee or custodian having the qualifications prescribed in section
26(a)(1) of the 1940 Act, and are held by such trustee or custodian
under an agreement containing substantially the provisions required by
sections 26(a)(2) and 26(a)(3) of the 1940 Act.
3. Applicants submit that the Company is entitled to reasonable
compensation for its assumption of mortality and expense risks.
Applicants represent that the charges for mortality and expense risks
under the Contracts with the enhanced death benefit will never exceed
an amount equal to the sum of 1.25% of the value of the net assets in
the Account plus .35% of the Average Guaranteed Minimum Death Benefit
on an annual basis. Of the 1.25% deducted from the net assets in the
Account, approximately .35% is attributable to expense risks and
approximately .90% is attributable to mortality risks. Applicants also
represent that the charge for the enhanced death benefit will never
exceed an annual rate of .35% of the Average Guaranteed Minimum Death
Benefit.
4. Applicants submit that each of these charges is consistent with
the protection of investors because each such charge is a reasonable
and proper insurance charge. As described above, in return for these
amounts, the Company will assume certain risks under the Contracts. In
each case, the charges for mortality and expense risks are reasonable
charges to compensate the Company for the risk that (a) Annuitants
under each Class of Contracts will live longer as a group than has been
anticipated in setting the annuity rates guaranteed in that Class of
Contracts, (b) the Company may be obligated to pay a death benefit
claim in excess of a Contract owner's Account Value, and (c)
administrative expenses of each Class of Contracts will be greater than
the amounts derived from the Administration Fee and the Annual Contract
Charge assessed under that Class of Contracts.
5. The Company also represents that the Mortality and Expense Risk
Charge of 1.25% per annum assumed by the Company is within the range of
industry practice for comparable annuity products. This representation
is based upon the Company's analysis of publicly available information
about similar industry products, taking into consideration such factors
as the current charge levels, existence of charge level guarantees, and
guaranteed annuity rates. The Company will maintain and make 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 survey.
6. Applicants also submit that the charge equal to .35% of the
Average Guaranteed Minimum Death Benefit is reasonable in relation to
the risks assumed by the Company in connection with the enhanced death
benefit. In arriving at this determination, the Company ran a large
number of computer generated trials at various issue ages to determine
the expected cost of the enhanced death benefit. First, hypothetical
asset returns were projected using generally accepted actuarial
simulation methods. For each asset return pattern thus generated,
hypothetical account values were calculated by applying the projected
asset returns to the initial value in a hypothetical account. Each
account value so calculated was then compared to the amount of the
enhanced death benefit payable in the event of the hypothetical
Contract owner's or participant's death during the year in question. By
analyzing the results of several thousand such simulations, the Company
was able to determine actuarially the level cost of providing the
enhanced death benefit. Based on this analysis, the Company determined
that a charge equal to .35% of the Average Guaranteed Minimum Death
Benefit was a reasonable charge for the enhanced death benefit. The
Company undertakes to maintain at its home office a memorandum,
available to the Commission upon request, setting forth in detail the
methodology used in determining that the risk charge equal to .35% of
the Average Guaranteed Minimum Death Benefit for the enhanced death
benefit is reasonable in relation to the risks assumed by the Company
under the Contracts.
7. Applicants acknowledge that to the extent the Company's
mortality experience and unreimbursed expenses are less than
anticipated, the charges for mortality and expense risks, including the
enhanced death benefit charge, may be a source of profit, which would
increase the general assets of the Company available to pay
distribution expenses that the Company must bear. Under such
circumstances, the charges for mortality and expense risk might be
viewed by the Commission as providing for some or all of the costs
related to the distribution of the Contracts. The Company cannot with
certainty predict the amount of profit that may result from these
charges. In fact, such a profit may not occur, in which case the
Company would still be required to pay all of the expenses relating to
the distribution of the Contracts. The fact that the Company will not
deduct a sales charge from purchase payments invested in the Contracts
does not alter this fact. Thus, the Company has concluded that there is
a reasonable likelihood that the proposed distribution financing
arrangements will benefit the Account and Owners of each Class of
Contracts. The basis for this conclusion is set forth in a memorandum
which will be maintained by the Company and which will be available to
the Commission.
8. The Company also represents that the Account will invest only in
management investment companies which undertake, in the event any such
company adopts a plan under Rule 12b-1 to finance distribution
expenses, to have a board of directors, a majority of whom are not
interested persons of the investment company, formulate and approve any
plan under Rule 12b-1 to finance distribution expenses.
9. Applicants also respectfully request that the Commission,
pursuant to section 6(c) of the 1940 Act, grant the exemptions set
forth below to permit the Applicants to assess the enhanced death
benefit charge upon surrender where the Contract owner has elected the
enhanced death benefit.
10. Section 2(a)(32) of the 1940 Act defines ``redeemable
security'' as any security under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent thereof. Applicants submit that the imposition of a prorated
enhanced death benefit charge upon surrender does not violate section
2(a)(32) of the 1940 Act. As described, the Company assesses the
enhanced death benefit charge to compensate it for the increased risk
it bears if a Contract owner elects the enhanced death benefit option.
The enhanced death benefit represents an optional insurance benefit
that the Company may provide through the life of the Contract and for
which it is entitled to receive compensation. By deducting a prorated
enhanced death benefit charge upon a Contract owner's surrender, the
Contract owner merely compensates the Company for the additional risk
the Company bears during the period between the last Contract
anniversary and the date of surrender. Accordingly, the deduction of a
prorated enhanced death benefit charge upon surrender is a legitimate
charge for an optional insurance benefit, and therefore, does not
reduce the amount of the Account's current net assets a Contract owner
would otherwise be entitled to receive.
11. Rule 22c-1 promulgated under section 22(c) of the 1940 Act, in
pertinent part, prohibits a registered investment company issuing a
redeemable security from selling, redeeming, or repurchasing any such
security except at a price based on the current net asset value of such
security. Applicants submit that the assessment of the enhanced death
benefit charge upon surrender does not alter a Contract owner's current
net asset value. As previously described, the Company deducts the
enhanced death benefit charge through the cancellation of a Contract
owner's accumulation units. Accordingly, the assessment of the enhanced
death benefit charge upon surrender, or at any other time during the
life of a Contract, will not alter the Contracts' current net asset
value.
12. Section 27(c)(1) of the 1940 Act, in pertinent part, makes it
unlawful for any registered investment company issuing periodic payment
plan certificates, or for any depositor or underwriter of such company,
to sell any such certificate unless such certificate is a redeemable
security. Applicants submit that the assessment of a prorated enhanced
death benefit charge upon a Contract owner's surrender, which is fully
disclosed in the prospectus, should not be construed as a restriction
on redemption. Applicants maintain that the Contracts are redeemable
securities and that the imposition of the prorated enhanced death
benefit charge upon surrender represents nothing more than the
proportionate deduction of an insurance charge that is deducted through
the life of the Contract. Moreover, as Applicants previously stated,
the charge is only assessed if the Contract owner has elected the
enhanced death benefit option.
Applicants' Conclusion
Applicants request exemptions from sections 2(a)(32), 22(c),
26(a)(2), 27(c)(1) and 27(c)(2) of the 1940 Act and Rule 22c-1
thereunder, to the extent necessary to permit the daily deduction from
the assets of the Account of a Mortality and Expense Risk Charge at an
annual rate of 1.25% and the deduction of an enhanced death benefit
charge equal to .35% of the Average Guaranteed Minimum Death Benefit as
described herein. For the reasons set forth above, Applicants believe
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. 94-8514 Filed 4-8-94; 8:45 am]
BILLING CODE 8010-01-M