[Federal Register Volume 60, Number 21 (Wednesday, February 1, 1995)]
[Notices]
[Pages 6337-6338]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2428]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20863; File No. 812-9326]
Financial Horizons Variable Separate Account--2, et seq.
January 26, 1995.
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: Financial Horizons Variable Separate Account-2 (``Separate
Account''), Financial Horizons Life Insurance Company (the
``Company''), and Nationwide Financial Services (``NFS'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for
exemptions from Sections 26(a)(2)(C) and 27(c)(2).
SUMMARY OF APPLICATION: Applicants seek on order to permit the
deduction from the assets of the Separate Account of a mortality and
expense risk charge under certain variable annuity contracts.
FILING DATE: The application was filed on November 14, 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 February
21, 1995, 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, SEC, 450 5th Street, N.W., Washington, DC. 20549;
Applicants c/o Steven Savini, Esq., Druen Rath & Dietrich, One
Nationwide Plaza, Columbus, Ohio 43216.
FOR FURTHER INFORMATION CONTACT: Joseph G. Mari, Senior Special
Counsel, at (202) 942-0567, or Wendy F. Friedlander, 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 SEC's Public
Reference Branch.
Applicants' Representations
1. The Company is a stock life insurance company incorporated under
the laws of Ohio.
2. The Separate Account, registered as a unit investment trust
under the 1940 Act, is a separate account of the Company that was
established to fund certain variable annuity contracts issued by the
Company (the ``Contracts''). Purchase payments under the Contracts will
be allocated to the Separate Account and invested at net asset value in
shares of one or more mutual funds that are registered under the 1940
Act, as designated by the Contract owner at the time of the purchase.
The Separate Account maintains a separate sub-account corresponding to
each available mutual fund.
3. The Contracts are sold to individuals either as Non-Qualified
Contracts or as Individual Retirement Annuities that may qualify for
special federal tax treatment. They also may be sold as Qualified
Contracts to Qualified Plans on behalf of Qualified Plan Participants,
which may qualify for special federal tax treatment.
4. NFS, registered as a broker-dealer under the Securities Exchange
Act of 1934, is the general distributor for the Contracts.
5. An Administration Charge equal on an annual basis to .20% of the
daily net asset value of the Variable Account is deducted during both
the ``pay-in'' [[Page 6338]] accumulation phase and the ``pay-out''
annuity phase. The Company relies upon Rule 26a-1 to assess the
Administration Charge, and will monitor the proceeds of the
Administration Charge to ensure that they do not exceed expenses
without profit.
6. There are no sales charges under the Contracts.
7. The Company will assess a mortality and expense risk charge at
an annual rate of 1.25% of the daily net value of the Separate Account.
Of this amount, .80% represents mortality risks and .45% represents
expense risks.
The mortality risks the Company assumes arise from (1) the
guarantee to make monthly payments for the lifetime of the annuitant
regardless of how long the annuitant may live; and (2) the guaranteed
minimum death benefit risk assumed by the Company in connection with
its promise to return, upon the death of the annuitant, the greatest of
the Contract value as of the most recent five-year anniversary of the
Contract, total purchase payments, or the Contract value at the time of
death. The expense risk the Company assumes is the guarantee that the
Administration Charge will never be increased regardless of the actual
expense incurred by the Company.
Applicants' Legal Analysis
1. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act require that
all payments received under a periodic payment plan certificate be held
by a qualified trustee or a custodian under a trust indenture, and
prohibit any payment to the depositor of or a principal underwriter for
a registered unit investment trust 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 issue Contracts subject to the proposed mortality and
expense risk charge.
3. The Company represents that the level of the mortality and
expense risk charge is within the range of industry practice for
comparable annuity products and is reasonable in relation to the risks
assumed under the Contracts. The Company bases this representation on
its analysis of publicly available information regarding other
insurance companies of similar size and risk ratings offering similar
products. Applicants represent that the Company will maintain a
memorandum, available to the Commission, setting forth in detail the
products analyzed in the course of, and the methodology and results of,
its comparative survey. The Company also maintains, and will make
available to the Commission upon request, a supporting actuarial
memorandum demonstrating the reasonableness of the mortality and
expense risk charge.
4. If the mortality and expense risk charge is insufficient to
cover the actual cost of the mortality and expense risk, the loss will
be borne by the Company. If the mortality and expense risk charge
proves more than sufficient, the excess will be a profit to the
Company, and will become a part of the Company's general account
surplus.
5. The Company advances sales commissions from its surplus and
intends to recover sales expenses through the long-term profitability,
if any, derived from the mortality and expense risk charge. If long-
term profitability does not materialize, the Company will bear the
shortfall in its general account. The Company represents that there
exists a reasonable likelihood that this distribution financing
arrangement will benefit the separate Account and the Contract owners.
Applicants also represent that the basis of this conclusion is set
forth in a memorandum maintained on file by the Company which will be
made available to the Commission upon its request.
6. The Applicants represent that investments of the Separate
Account will be made only in investment companies that, if they adopt
any distribution financing plan under Rule 12b-1 under the 1940 Act,
will have boards of trustees or directors, the majority of which will
not be interested persons as defined in the 1940 Act. Applicants
further represent that such boards of directors or trustees must
formulate and approve any such distribution plan.
Conclusion
Applicants assert that based on the reasons and the facts set forth
above, their requested exemptions from Sections 26(c)(2)(C) and
27(c)(2) of the 1940 Act to deduct the mortality and expense risk
charge from the assets of the Separate Account under the Contracts are
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.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret M. McFarland,
Deputy Secretary.
[FR Doc. 95-2428 Filed 1-31-95; 8:45 am]
BILLING CODE 8010-01-M