[Federal Register Volume 59, Number 99 (Tuesday, May 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12572]


[[Page Unknown]]

[Federal Register: May 24, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20307; No. 812-8940]

 

Banner Life Insurance Company, et al.

May 17, 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: Banner Life Insurance Company (``Banner Life''), Banner 
Life Variable Annuity Account B (``Account B''), and Banner Financial 
Services Group, Inc. (``Financial'') (collectively, ``Applicants'').

RELEVANT 1940 ACT SECTIONS: Order requested under section 6(c) of the 
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 a mortality and expense risk 
charge in connection with the offer and sale of certain flexible 
premium variable annuity contracts (``Contracts'').

FILING DATE: The application was filed on April 15, 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 request should be received by the Commission by 5:30 p.m. 
on June 13, 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 Banner Life Insurance Company, 1701 Research Boulevard, 
Rockville, Maryland 20850.

FOR FURTHER INFORMATION CONTACT:
Yvonne Hunold, Senior Counsel, or Wendell M. Faria, Deputy Chief, at 
(202) 942-0670, 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. Banner Life (formerly, Government Employees Life Insurance 
Company) is a stock life insurance company and, since December 1, 1983, 
an indirect wholly-owned subsidiary of Legal & General America, Inc., a 
wholly-owned subsidiary of Legal & General International Limited, 
England. The ultimate controlling entity is Legal & General Group Plc., 
a United Kingdom company. Banner Life is principally engaged in 
offering life insurance and is licensed in the District of Columbia and 
all states except Maine and New York.
    2. Account B is a separate investment account established by Banner 
Life and registered with the Commission under the 1940 Act as a unit 
investment trust. Account B will have a number of subaccounts, each of 
which will invest solely in a specific corresponding portfolio of the 
Scudder Variable Life Investment Fund (``Scudder Fund''). The Scudder 
Fund is a registered, diversified, open-end management investment 
company with a number of series, or portfolios.
    3. The Contracts are individual flexible premium variable annuity 
policies that may be purchased on a non-tax qualified basis or 
purchased and used in connection with retirement plans or individual 
retirement accounts that qualify for favorable federal income tax 
treatment. A registration statement on Form N-4 to register the 
Contracts under the Securities Act of 1933 (``1933 Act'') has been 
filed with the Commission.
    4. Banner Financial will serve as the distributor and principal 
underwriter of the Contracts. Banner Financial 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. Premium payments may be allocated to one or more subaccounts of 
Account B (``Subaccounts'') and be credited with the investment 
experience of the selected Subaccount(s). Prior to the Maturity Date, a 
Contract Owner may surrender all or a portion of the Account Value, or 
transfer Account Value between Subaccounts. The Contracts will provide 
for a series of Annuity Payments and Annuity Payment Plans. The 
Contracts also will provide for the payment of a death benefit, which 
is equal to the greatest of: (a) Account Value for the Valuation Period 
during which the Death Benefit election is effective or is deemed to be 
effective; (b) total premiums made, less the sum of all partial 
withdrawals and loan values; or (c) the Account Value on the seventh 
year anniversary immediately preceding the date the death benefit 
election is effective or is deemed to become effective, adjusted for 
any subsequent premiums and partial withdrawals and charges and loan 
values made between such seventh year anniversary and the date the 
election is effective or is deemed to become effective.
    6. Various fees and expenses are deducted under the Contracts. An 
annual maintenance charge of $25 will be deducted from the Policy Value 
prior to the Maturity Date. This charge will be deducted on a pro-rata 
basis if the Contract is surrendered during a Policy Year. The 
maintenance charge is to compensate Banner Life for the administrative 
services and is guaranteed not to increase. Banner Life does not 
anticipate any profit from this charge. Additionally, a daily 
Administrative Expense Charge equal to an effective annual rate of .10% 
of the net assets of the variable account will be deducted. There 
currently is no charge for transfers, but Banner Life reserves the 
right to impose a fee for more than twelve transfers in more than one 
year. Shares of the various Scudder Fund portfolios will be sold to 
Account B at net asset value. Scudder Fund pays its investment adviser 
a fee for managing its investments and business affairs. Each portfolio 
is also responsible for all of its expenses.
    7. Banner Life will deduct the aggregate premium taxes paid on 
behalf of a particular Contract upon annuitization or surrender. No 
charges currently are made for federal, state or local taxes, other 
than premium taxes. Banner Life may, however, deduct charges for such 
taxes from Account B in the future.
    8. No sales charges are deducted from premium payments under the 
Contracts. A contingent deferred sales charge (``CDSC'') in the amount 
of up to 7% of total Premiums paid is imposed on certain full or 
partial withdrawals to cover expenses relating to the sales of the 
Contracts. No CDSC is assessed: (a) Upon withdrawal of up to 15% of 
Account Value if it is the first withdrawal in the current Policy Year; 
(b) if the Account Value is applied to an Annuity Payment Plan with 
payments over at least a five year period; and (c) to premiums paid 
more than seven years ago as well as the 15% of premiums within the 
prior seven years. In no event will the aggregate contingent deferred 
sales charge exceed 8.5% of aggregate premiums paid. Banner Life 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 Banner Life's 
general account assets, which may include amounts derived from the 
charge for mortality and expenses risks.
    9. A daily charge equal to an effective annual rate of 1.20% of the 
value of the net assets in Account B will be imposed to compensate 
Banner Life for bearing certain mortality and expense risks in 
connection with the Contracts. Of this amount, approximately one-third 
is attributable to mortality risks, and approximately two-thirds is 
attributable to expense risks. The rate may be increased in the future 
but is guaranteed never to exceed 1.25%. The charge may be a source of 
profit for Banner Life which will be added to its surplus and may be 
used for, among other things, the payment of distribution, sales and 
other expenses. Banner Life currently anticipates a profit from this 
charge.
    10. The mortality risk arises from Banner Life'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 monthly 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.
    11. The expense risk assumed by Banner Life 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 a maximum charge of 1.25% for 
the assumption of mortality and expense risks. Applicants believe that 
the requested exemptions 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.
    Applicants submit that Banner Life is entitled to reasonable 
compensation for its assumption of mortality and expense risks. 
Applicants represent that the 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 Banner Life for the 
risks that: (a) Annuitants under the Contract will live longer 
individually or as a group than has been anticipated in setting the 
annuity rates guaranteed in the Contracts; (b) the Account Value will 
be less than the Death Benefit; and (c) 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 Banner Life's analysis of 
publicly available information about similar industry products, taking 
into consideration such factors as current charge levels, the existence 
of charge level guarantees, and guaranteed annuity rates. Banner 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, 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. 
Banner Life has concluded that there is a reasonable likelihood that 
the proposed distribution financing arrangements will benefit Account B 
and the Contract Owners. The basis for that conclusion is set forth in 
a memorandum which will be maintained by Banner Life at its 
administrative offices and will be available to the Commission.
    6. Banner Life also represents that 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'' of the company, 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. 94-12572 Filed 5-23-94; 8:45 am]
BILLING CODE 8010-01-M