[Federal Register Volume 59, Number 140 (Friday, July 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17864]


[[Page Unknown]]

[Federal Register: July 22, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20409; File No. 812-8496]

 

Financial Horizons Life Insurance Company, et al.

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

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

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APPLICANTS: Financial Horizons Life Insurance Company (``Financial 
Horizons''), Financial Horizons VA Separate Account-3 (the ``Account'') 
and Nationwide Financial Services, Inc. (``Nationwide'').

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

SUMMARY OF APPLICATION: Applicants seek an order permitting them to 
deduct a daily charge from the assets of the Account for mortality and 
expense risks in connection with the offering of certain variable 
annuity contracts.

FILING DATE: The application was filed on July 23, 1993 and amended on 
November 22, 1993 and on June 23, 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 on this application by writing to the 
Secretary of the SEC and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on August 12, 1994 and should be accompanied by 
proof of service on Applicants in the form of an affidavit or, for 
lawyers, by certificate. Hearing requests should state the nature of 
the interest, the reason for the request and the issues contested. 
Persons may request notification of the date of a hearing by writing to 
the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants: Carol Edwards Dunn, McCutchan, Druen, Maynard, Rath & 
Dietrich, One Nationwide Plaza, Columbus, Ohio 43216.

FOR FURTHER INFORMATION CONTACT:
Barbara J. Whisler, Senior Attorney 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 Public 
Reference Branch of the SEC.

Applicants' Representations

    1. Financial Horizons, a wholly owned subsidiary of Nationwide Life 
Insurance Company (``Nationwide Life''), is a stock life insurance 
company incorporated under the laws of Ohio. Financial Horizons 
established the Account on July 24, 1991 to serve as a funding medium 
for certain individual deferred variable annuity contracts (the 
``Contracts'') issued by Financial Horizons. The Account is registered 
with the Commission under the 1940 Act as a unit investment trust. The 
application incorporates by reference the registration statement, 
currently on file with the Commission (File No. 33-66496), for the 
Account.
    2. Nationwide, also a wholly-owned subsidiary of Nationwide Life, 
serves as the general distributor for the Contracts. Nationwide is 
registered with the Commission as a broker-dealer and as an investment 
advisor. Applicants also represent that Nationwide is a member in good 
standing of the National Association of Securities Dealers.
    3. The Contracts are sold either as nonqualified contracts or as 
individual retirement annuities which may quality for special tax 
treatment under the provisions of Section 408(b) of the Internal 
Revenue Code of 1986, as amended. Purchase payments may be allocated by 
the Contract owner to one or more subaccounts of the Account. Each 
subaccount of the Account will invest at net asset value in shares of 
the corresponding mutual fund which is registered under the 1940 Act. 
Prior to the annuity commencement date, a Contract owner may elect any 
of three annuity payment options.
    4. Upon withdrawal of part or all of the Contract value, a 
contingent deferred sales charge (the ``Sales Charge'') may be imposed 
by Financial Horizons. The Sales Charge is calculated by multiplying 
the applicable percentage by the amount withdrawn and is deducted from 
the amount withdrawn. The Sales Charge will be applied as follows:

------------------------------------------------------------------------
                                                                 Sales  
              No. of years from date of payment                 charge  
                                                              percentage
------------------------------------------------------------------------
0...........................................................           7
1...........................................................           6
2...........................................................           5
3...........................................................           4
4...........................................................           3
5...........................................................           2
6...........................................................           1
7...........................................................           0
------------------------------------------------------------------------

    5. After the first Contract year, the owner of a Contract may 
withdraw an amount, free of Sales Charge, equal to 10% of the sum of 
all purchase payments made to the Contract at the time of withdrawal 
less any purchase payments previously withdrawn that were subject to a 
Sales Charge. This privilege is noncumulative.
    6. An annual Contract maintenance charge of $30 is deducted from 
the value of the Contract. Additionally, an administration charge equal 
on an annual basis to 0.05% of the daily net asset value of the Account 
is deducted from the value of the Contract. This administration charge 
is deducted during both the accumulation and the annuity phases of the 
Contract. Applicants represent that Financial Horizons estimates that 
the annual administration charge of 0.05% for expenses will yield an 
amount considerably less than the current and projected future 
administrative costs of Financial Horizons, even when this charge is 
added to the $30 annual Contract maintenance charge. Applicants state 
that they will rely on Rule 26a-1 under the 1940 Act in deducting both 
charges and that both charges are guaranteed not to increase. 
Applicants further state that Financial Horizons will monitor to ensure 
that the charges do not exceed expenses.
    7. Financial Horizons will impose a daily charge equal to an annual 
effective rate of 1.25% of the value of the net assets of the Account 
to compensate Financial Horizons for assuming certain mortality and 
expense risks in connection with the Contracts. Approximately .80% of 
the 1.25% charge is attributable to mortality risk, and approximately 
.45% is attributable to expense risk. If the mortality and expense risk 
charge is insufficient to cover actual costs and assumed risk, 
Financial Horizons will bear the loss. Conversely, if the charge 
exceeds costs, this excess will be profit to Financial Horizons. If 
Financial Horizons realizes a profit from the charge, the profit will 
become part of the general account of Financial Horizons and may be 
used in its discretion.
    8. Applicants state that the mortality risk borne by Financial 
Horizons consists of: (a) The risk of guaranteeing to make monthly 
payments for the lifetime of the annuitant regardless of how long the 
annuitant may live; and (b) the risk of promising to pay a death 
benefit upon the death of the designated annuitant prior to the annuity 
commencement date even where the investment experience in the Account 
has eroded the purchase payments made by the Contract owner. Applicants 
state that the expense risk assumed by Financial Horizons is the 
guarantee that the Contract maintenance charge and the administration 
charge will never increase regardless of actual expense incurred by 
Financial Horizons.

Applicants' Legal Analysis and Conditions

    1. Applicants request that the Commission, pursuant to Section 6(c) 
of the 1940 Act, grant the exemptions from Sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act in connection with Applicants' assessment of 
the daily charge for the mortality and expense risks. Sections 
26(a)(2)(C) and 27(c)(2) of the 1940 Act, in pertinent part, prohibit a 
registered unit investment trust and any depositor thereof or 
underwriter thereof from selling periodic payment plan certificates 
unless the proceeds of all payments (other than sales load) are 
deposited with a qualified bank as trustee or custodian and held under 
arrangements which prohibit any payment to the depositor or principal 
underwriter except a fee, not exceeding such reasonable amount as the 
Commission may prescribe, for performing bookkeeping and other 
administrative services of a character normally preformed by the bank 
itself.
    2. Applicants assert that the charge for mortality and expense 
risks is reasonable in relation to the risks assumed by Financial 
Horizons under the Contracts.
    3. Applicants represent that the charge of 1.25% for the mortality 
and expense risks assumed by Financial Horizons is within the range of 
industry practice with respect to comparable annuity products. 
Applicants state that this representation is based upon the analysis by 
Financial Horizons of publicly available information relative to other 
insurance companies of similar size and risk ratings offering similar 
products. Applicants represent that Financial Horizons will maintain a 
memorandum, available to the Commission upon request, setting forth in 
detail the products analyzed in the course of, and the methodology and 
results of, its comparative survey. Financial Horizons also maintains a 
supporting actuarial memorandum, available to the Commission upon 
request, demonstrating the reasonableness of the mortality and expense 
risk charge given the risks assumed under the Contracts.
    4. Applicants represent that Financial Horizons has concluded that 
there is a reasonable likelihood that the proposed distribution 
financing arrangement will benefit the Account and the Contract owners. 
The basis for such conclusion is set forth in a memorandum which will 
be maintained by Financial Horizons and will be made available to the 
Commission upon request.
    5. Applicants represent that the Account will invest only in 
management investment companies which undertake, in the event such 
company adopts a plan under Rule 12b-1 of the 1940 Act to finance 
distribution expenses, to have such plan formulated and approved by the 
company's board of directors, a majority of whom are not interested 
persons of such company within the meaning of Section 2(a)(19) of the 
1940 Act.

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 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. 94-17864 Filed 7-21-94; 8:45 am]
BILLING CODE 8010-01-M