[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]



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

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'').

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

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