[Federal Register Volume 59, Number 118 (Tuesday, June 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14984]


[[Page Unknown]]

[Federal Register: June 21, 1994]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20357; File No. 812-9042]

 

National Home Life Assurance Company, et al.

June 14, 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'').

-----------------------------------------------------------------------

APPLICANTS: National Home Life Assurance Company (``National Home''), 
National Home Life Assurance Company Separate Account V (the ``Separate 
Account'') and Capital Values Securities Corporation.

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 permitting the 
deduction of a mortality and expense risk charge from the assets of the 
Separate Account under certain flexible premium variable annuity 
contracts (the ``Contracts'') and any materially similar contracts 
offered in the future by the Separate Account.

FILING DATE: The application was filed on June 9, 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 July 11, 
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. Applicants, c/o National Home Life 
Assurance Company, 20 Moores Road, Frazer, PA 19355.

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. National Home, a stock life insurance company organized under 
the laws of Missouri, is wholly-owned by Providian Corporation, a 
publicly held insurance holding company. National Home is principally 
engaged in offering life insurance, annuity contracts; and accident and 
health insurance and is admitted to do business in 40 states, the 
District of Columbia and Puerto Rico.
    2. The Separate Account was established by National Home as a 
separate account under Missouri law to fund the Contracts. The Separate 
Account is registered as a unit investment trust under the 1940 Act. 
The Separate Account has eighteen subaccounts, each of which invests 
solely in a corresponding portfolio (``Portfolio'') of one of seven 
open-end management investment companies (``Funds''). The Funds are 
registered under the 1940 Act.
    3. Shares of each Portfolio are purchased by National Home for the 
corresponding subaccount of the Separate Account at net asset value. 
Shares of each Portfolio are also offered to other affiliated or 
unaffiliated separate accounts of insurance companies offering variable 
annuity contracts or variable life insurance policies.
    4. The Contract is a flexible premium payment contract that is 
intended to be used either in connection with a retirement plan 
qualified under Section 401(a), 403(b), 408, and 457 of the Internal 
Revenue Code (``Qualified Contract'') or by other purchasers (``Non-
Qualified contract''). A Contract owner may allocate purchase payments 
and/or the accumulation value to the general account of National Home 
and/or the subaccounts of the Separate Account. The Contract owner may 
select among annuity payment options that include variable or fixed 
annuity options. Capital Values Securities Corporation, a wholly-owned 
subsidiary of Providian Corporation, is the principal underwriter of 
the Contracts.
    5. The minimum initial purchase payment for a Non-Qualified 
Contract is $5,000. A Qualified Contract may be purchased with a 
minimum initial purchase payment of $2,000 or with $50 monthly 
investments pursuant to a systematic payment plan.
    6. The Contract is available in two forms, A Unit Contracts and B 
Units Contracts.
    A Unit Contracts have a maximum front-end sales load of 5.75% 
deducted from each purchase payment. There are no withdrawal or 
surrender charges for A Unit Contracts. For contracts offered in the 
future that are substantially similar in all material respects to A 
Unit Contracts, the front-end sales load will not exceed 5.75% and 
there will be no surrender charges.\1\
---------------------------------------------------------------------------

    \1\Applications represent that, during the Notice Period, the 
application will be amended to reflect this representation.
---------------------------------------------------------------------------

    B Unit Contracts have no front-end sales load deducted from 
purchase payments. Up to 10% of the Contract's accumulated value as of 
the Contract date or, if more recent, the last Contract anniversary, 
can be withdrawn once per year without a surrender charge. Additional 
withdrawals are subject to a contingent deferred sales load of 6%. The 
applicable contingent deferred sales load decreases by 1% per year 
until after the sixth Contract year there is no contingent deferred 
sales load. For contracts offered in the future that are substantially 
similar in all material respects to B Unit Contracts, there will be no 
front-end sales load and the maximum surrender charge will be 6% of the 
amount surrendered.\2\
---------------------------------------------------------------------------

    \2\Applicants represent that, during the Notice Period, the 
application will be amended to reflect this representation.
---------------------------------------------------------------------------

    7. The total contingent deferred sales loads assessed for current 
and future Contracts will not exceed 8.5% of the purchase payments 
under the Contract. Applicants are relying on Rule 6c-8 under the 1940 
Act to deduct the contingent deferred sales load.\3\
---------------------------------------------------------------------------

    \3\Applicants represent that, during the Notice Period, the 
application will be amended to reflect this representation.
---------------------------------------------------------------------------

    8. Contract owners may make unlimited exchanges among the 
Portfolios, provided a minimum balance of $1,000 is maintained in each 
subaccount or general account option to which a Contract owner has 
allocated a portion of accumulated value. No fee is imposed for such 
exchanges; however, National Home has reserved the right to charge $15 
for each exchange in excess of twelve per Contract year.
    9. The Contracts are subject to an annual policy fee of $30 which 
will be deducted on each Contract anniversary and upon surrender, on a 
pro rata basis, from each subaccount.
    10. An administrative charge which is guaranteed for the life of 
the Contracts to be an amount equal to .15% annually of the net asset 
value of the Separate Account is assessed daily.\4\ The administrative 
fee is intended to cover National Home's ongoing administrative 
expenses, and will not exceed the cost of services to be provided over 
the life of the Contract in accordance with the applicable standards in 
Rule 26a-1 under the 1940 Act.
---------------------------------------------------------------------------

    \4\Applicants represent that, during the Notice Period, the 
application will be amended to reflect this representation.
---------------------------------------------------------------------------

    11. National Home makes a deduction fro the accumulated value or 
purchase payments from premium taxes, imposed by state law, as the 
taxes are incurred. Currently these taxes range up to 3.5%
    12. National Home imposes a charge as compensation for bearing 
certain mortality and expense risks under the Contract. The annual 
charge is assessed daily based on the net asset value of the Separate 
Account. The annual mortality and expense risk charge is .65% of the 
net asset value of the Separate Account attributable to A Unit 
Contracts, and 1.25% of the net asset value of the Separate Account 
attributable to B Unit Contracts. For contracts offered in the future 
similar to either the A Unit Contracts or the B Unit Contracts, the 
annual mortality and expense risk charge will not exceed 1.25% of the 
net asset value of the Separate Account attributable to such contracts.
    For A Unit Contracts, .45% is allocated to the mortality risk and 
.20% is allocated to the expense risk. For B Unit Contracts and future 
contracts, .80% is allocated to the mortality risk and .45% is 
allocated to the expense risk.\5\
---------------------------------------------------------------------------

    \5\Applicants represent that, during the Notice Period, the 
application will be amended to reflect this representation.
---------------------------------------------------------------------------

    13. Where a life annuity payment option is selected, the mortality 
risk borne by National Home under the two forms of the Contract arises 
from the obligation of National Home to make annuity payments 
regardless of how long an annuitant may live. The mortality risk is the 
risk that annuitants will live longer than National Home's actuarial 
projections indicate, resulting in higher than expected annuity 
payments. National Home also assumes mortality risk as a result of an 
adjusted death benefit which is to be paid to an annuitant's 
beneficiary if the adjusted death benefit is greater than the 
Contract's accumulated value.
    14. The expense risk borne by National Home is the risk that the 
charges for administrative expenses which are guaranteed for the life 
of the Contract may be insufficient to cover the actual costs of 
issuing and administering the Contract.
    15. The mortality and expense risk is higher under the B Unit 
Contracts than under the A Unit Contracts because B Unit Contracts are 
expected to be more attractive to Contract owners purchasing a 
Qualified Contract. While both A Unit Contracts and B Unit Contracts 
are offered as Qualified Contracts, historically, the Contracts 
offering a contingent deferred sales load (like the B Unit Contracts) 
have been more appealing to those seeking to purchase Qualified 
Contracts than contracts with a front-end sales load (like the A Unit 
Contracts). The more complicated regulatory structure surrounding the 
offering and maintenance of Qualified Contracts makes these Contracts 
more expensive to administer. In addition, it is anticipated that the 
utilization of B Unit Contracts for Qualified Contracts will increase 
the instances where life annuity payment options are selected by B Unit 
Contract owners, in comparison to A Unit Contract owners, thereby 
increasing the mortality risk National Home is bearing under B Unit 
Contracts.
    16. If the charges deducted are insufficient to cover the actual 
cost of the mortality and expense risk, the loss will fall on National 
Home. If the charges prove more than sufficient, the excess will be 
added to National Home's surplus and will be used for any lawful 
purpose including any shortfalls in the costs of distributing the 
Contracts.

Applicants' Legal Analysis and Conditions

    1. Applicants request an exemption from sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to the extent any relief is necessary to 
permit the deduction from the Separate Account of the mortality and 
expense risk charges under the Contracts. Applicants request that the 
order also permit the deduction of the mortality and expense risk 
charges described herein from the assets of the Separate Account 
pursuant to other contracts offered in the future through the Separate 
Account, to the extent that such contracts are substantially similar to 
the Contracts.
    2. Applicants submit that their request for an order that applies 
to materially similar contracts offered in the future by the Separate 
Account is appropriate in the public interest. Such an order would 
promote competitiveness in the variable annuity contract market by 
eliminating the need for National Home 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 National Home 
to repeatedly seek exemptive relief with respect to the same issues 
addressed in this Application.
    3. Applicants represent that they have reviewed publicly available 
information regarding the aggregate level of the mortality and expense 
risk charges under variable annuity contracts comparable to the A Unit 
Contracts and the B Unit Contracts currently being offered in the 
insurance industry taking into consideration such factors as current 
charge level, the manner in which charges are imposed, the presence of 
charge level or annuity rate guarantees and the markets in which the 
Contracts will be offered. Based upon this review, Applicants represent 
that the mortality and expense risk charges under the Contracts are 
within the range of industry practice for comparable contracts. 
Applicants will maintain and make available to the Commission, upon 
request, a memorandum outlining the methodology underlying this 
representation. Similarly, prior to making available any substantially 
similar contracts through the Separate Account, Applicants will 
represent that the mortality and expense risk charges under any such 
contracts will be within the range of industry practice for comparable 
contracts. Applicants will maintain and make available to the 
Commission, upon request, a memorandum outlining the methodology 
underlying such representation.
    4. Applicants represent that the Separate Account will invest only 
in underlying funds that have undertaken to have a board of directors/
trustees, a majority of whom are not interested persons of any such 
fund, formulate and approve any plan under Rule 12b-1 under the 1940 
Act to finance distribution expenses.
    5. Applicants do not believe that the front-end sales load or 
contingent deferred sales load imposed under the Contracts will 
necessarily cover the expected costs of distributing the Contract. Any 
shortfall will be made up from National Home's general account assets 
which will include amounts derived from the mortality and expense risk 
charges. National Home has concluded that there is a reasonable 
likelihood that the distribution financing arrangement being used in 
connection with the Contracts will benefit the Separate Account and the 
Contract owners. National Home will keep and make available to the 
Commission, upon request, a memorandum setting forth the basis for this 
representation.

Conclusion

    Applicants assert that for the reasons and upon the facts set forth 
above, the requested exemption from sections 26(a)(2)(C) and 27(c)(2) 
of the 1940 Act to deduct the mortality and expense risk charge under 
the Contract, or under substantially similar contracts offered in the 
future by the Separate Account, meets 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 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. 94-14984 Filed 6-20-94; 8:45 am]
BILLING CODE 8010-01-M