[Federal Register Volume 59, Number 103 (Tuesday, May 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13114]


[[Page Unknown]]

[Federal Register: May 31, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20310; File No. 812-8784]

 

First Xerox Life Insurance Company, et al.

May 23, 1994.
AGENCY: Securities and Exchange Commission (the ``Commission'' or the 
``SEC'').

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

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APPLICANTS: First Xerox Life Insurance Company (the ``Company''), First 
Xerox Variable Annuity Account One (the ``Variable Account'') and Xerox 
Life Sales Company.

RELEVANT 1940 ACT SECTIONS: Order requested under section 6(c) for 
exemptions from sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order to permit the 
deduction of a mortality and expense risk charge under certain variable 
annuity contracts from the assets of the Variable Account, or any other 
separate account established by the Company in the future to support 
materially similar variable annuity contracts.

FILING DATE: An application was filed on January 21, 1994, and amended 
on April 22, 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 should be received by the SEC by 5:30 p.m. on June 17, 
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 SEC's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street NW., Washington, DC 20549. The Company and the Variable Account, 
120 Broadway, New York, NY 10271; Xerox Life Sales Company, One Tower 
Lane, suite 3000, Oakbrook Terrace, Illinois 60181-4644.

FOR FURTHER INFORMATION CONTACT:
Wendy Finck Friedlander, Senior Attorney, at (202) 942-0682, 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. The Company, a stock life insurance company organized under the 
laws of New York, is a wholly-owned subsidiary of Xerox Financial 
Services Life Insurance Company, a Missouri insurance company.
    2. The Variable Account is a segregated investment account of the 
Company and is registered as a unit investment trust under the 1940 
Act. The Variable Account was established to act as the funding entity 
for certain variable annuity contracts (the ``Contracts'') to be issued 
by the Company. The Variable Account is divided into sub-accounts, each 
of which invests solely in the shares of one of the portfolios of Van 
Kampen Merritt Series Trust (the ``Trust'') or Lord Abbett Series Fund, 
Inc. (the ``Fund''). The Trust and the Fund are registered under the 
1940 Act as open-end management investment companies.
    3. The Contracts are individual flexible payment deferred variable 
and fixed annuity contracts. The Contracts are available in connection 
with retirement plans that qualify for Federal tax advantages and for 
plans that do not so qualify.
    4. Xerox Life Sales Company, a broker-dealer registered under the 
Securities Exchange Act of 1934, is the distributor of the Contracts.
    5. Premium taxes, or other taxes payable to a state or other 
government entity, are charged against Contract values. The Company 
currently intends to advance any premium taxes due at the time purchase 
payments are made and then deduct premium taxes from Contract value at 
the time annuity payments begin or upon surrender, but the Company 
reserves the right to deduct the premium taxes when incurred. Premium 
taxes generally range from 0% to 4%.
    6. Contract owners may transfer without charge all or a part of 
their interest in a sub-account to another sub-account at any time 
prior to the date upon which annuity payments begin, provided there 
have been no more than 12 transfers per Contract year. If there have 
been more than 12 transfers in the Contract year, the Company will 
charge, per transfer, the lesser of $25 or 2% of the amount 
transferred. After the date annuity payments begin, a Contract owner 
may make one transfer per Contract year.
    7. There is an annual $30 Contract Maintenance Charge. Applicants 
represent that this charge has not been set at a level greater than its 
cost and contains no element of profit.
    8. The Contracts do not provide for a front-end sales charge to be 
deducted from purchase payments. Instead, a total or partial withdrawal 
of a Contract prior to the annuity date is subject to a Withdrawal 
Charge. The Withdrawal Charge is imposed on a withdrawal of Contract 
value attributable to a purchase payment within seven years of receipt 
of the purchase payment. The Withdrawal Charge is equal to 7% of the 
purchase payment withdrawn within the first and second years following 
receipt, 5% of the purchase payment withdrawn during the third, fourth 
and fifth years following receipt and 3% of the purchase payments 
withdrawn during the sixth and seventh years following receipt. An 
owner may, not more frequently than once annually on a non-cumulative 
basis, make a withdrawal each Contract year of up to ten percent of the 
aggregate purchase payments free from Withdrawal Charges provided the 
Contract value prior to the withdrawal exceeds $5,000.
    9. The Company deducts an Administrative Expense Charge that is 
equal on an annual basis to .15% of the average daily net asset value 
of the Variable Account. This charge is designed to cover the shortfall 
in revenues from the Contract Maintenance Charge to reimburse the 
Company for expenses incurred in the maintenance of the Contracts and 
the Variable Account. Should this charge prove insufficient, the 
Company will not increase this charge and will incur the loss. The 
Company does not intend to profit from this charge. The Company 
represents that it will monitor the proceeds of the Administrative 
Expense Charge to ensure that the proceeds do not exceed expenses. 
Applicants rely on Rule 26a-1 with respect to the deduction of the 
Contract Maintenance Charge and the Administrative Expense Charge. 
Applicants represent that the Administrative Expense Charge will be 
reduced in the future to the extent that the amount of this charge is 
in excess of that necessary to reimburse the Company for its 
administrative expenses.
    10. The Company deducts a Mortality and Expense Risk Charge that is 
equal, on an annual basis, to 1.25% of the average daily net asset 
value of the Variable Account: approximately .90% for mortality risks 
and .35% for expense risks.
    The mortality risks assumed by the Company arise from its 
contractual obligation to make annuity payments after the Annuity Date 
for the life of the annuitant and to waive the Withdrawal Charge in the 
event of the death of the annuitant or Contract owner. The expense risk 
assumed by the Company is that all actual expenses involved in 
administering the Contracts, including Contract maintenance costs, 
administrative costs, mailing costs, data processing costs, legal fees, 
accounting fees, filing fees and the costs of other services may exceed 
the amount recovered from the Contract Maintenance Charge and the 
Administrative Expense Charge.

Applicants' Legal Analysis and Conditions

    1. Sections 26(a)(2) and 27(c)(2) of the 1940 Act prohibit a 
registered unit investment trust and any depositor or underwriter 
thereof from selling periodic payment plan certificates unless the 
proceeds of all payments are deposited with a qualified trustee or 
custodian and held under arrangements which prohibit any payment to the 
depositor or principal underwriter except a fee, not exceeding such 
reasonable amounts as the Commission may prescribe, for performing 
bookkeeping and other administrative services.
    2. Applicants request an order under section 6(c) exempting them 
from sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act to the extent 
necessary to permit the deduction of the Mortality and Expense Risk 
Charge from the assets of the Variable Account under the Contracts. 
Applicants request that the order also permit the deduction of the 
Mortality and Expense Risk Charge from the assets of any other separate 
account established by the Company in the future to support variable 
annuity contracts offered on a basis similar in all material respects 
to the basis on which the Contracts are offered.
    3. Applicants submit that their request for an order that applies 
to the Variable Account and to future separate accounts issuing 
contracts that are substantially similar to the Contracts is 
appropriate in the public interest. Such an order would promote 
competitiveness in the variable annuity contract market by eliminating 
the need for the Company to file redundant exemptive applications, 
thereby reducing its administrative expenses and maximizing the 
efficient use of its resources. Investors would not receive any benefit 
or additional protection by requiring the Company to repeatedly seek 
exemptive relief with respect to the same issues addressed in this 
Application.
    4. Applicants represent that the Mortality and Expense Risk Charge 
is within the range of industry practice with respect to comparable 
annuity products. Applicants base this representation on an analysis of 
the mortality risks, taking into consideration such factors as the 
guaranteed annuity purchase rates, the expense risks, taking into 
consideration the existence of charges against separate account assets 
for other than mortality and expense risks, and the estimated costs, 
now and in the future, for certain product features and industry 
practice with respect to comparable annuity products. The Company 
represents that it will maintain at its principal office a memorandum, 
available to the Commission, setting forth in detail this analysis.
    5. If the Mortality and Expense Risk Charge is insufficient to 
cover actual costs, the loss will be borne by the Company. Conversely, 
if the amount deducted proves more than sufficient, the excess will be 
a profit to the Company. The Company expects a profit from this charge. 
To the extent the Withdrawal Charge is insufficient to cover the actual 
cost of distribution, the Company may use any of its corporate assets, 
including potential profit that may arise from the Mortality and 
Expense Risk Charge, to make up the difference. Thus, all or a portion 
of such profit may be viewed as being offset by distribution expenses 
not reimbursed by the Withdrawal Charge. The Company represents that 
there is a reasonable likelihood that the proposed distribution 
financing arrangements will benefit the Variable Account and Contract 
owners. The basis for such conclusion will be set forth in a memorandum 
maintained by the Company at its principal office and available to the 
Commission upon request.
    6. The Company represents that the Variable Account will invest 
only in management investment companies that undertake, in the event 
the company adopts a plan to finance distribution expenses under Rule 
12b-1 under the 1940 Act, to have a board of directors, a majority of 
whom are not interested persons of the company within the meaning of 
Section 2(a)(19) of the 1940 Act, formulate and approve any such plan.

Conclusion

    Applicants assert that, for the reasons and upon the facts set 
forth above, the requested exemptions from sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to deduct the Mortality and Expense Risk 
Charge from the assets of the Variable Account under the Contracts, or 
from the assets of any other separate account established by the 
Company in the future to support materially similar variable annuity 
contracts, meet the standards in section 6(c) of the 1940 Act. 
Applicants assert 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 policies 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. 94-13114 Filed 5-27-94; 8:45 am]
BILLING CODE 8010-01-M