[Federal Register Volume 60, Number 90 (Wednesday, May 10, 1995)]
[Notices]
[Pages 24953-24955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11444]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21039; File No. 812-9288]


Companion Life Insurance Company, et al.

May 3, 1995.
AGENCY: U.S. Securities and Exchange Commission (``SEC'').

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

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APPLICANTS: Companion Life Insurance Company (``Companion Life''), 
Companion Life Separate Account C (the ``Separate Account'') and Mutual 
of Omaha Investor Services, Inc. (``Mutual of Omaha'').

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: An order is sought exempting Applicants and 
principal underwriters of certain flexible payment deferred variable 
annuity contracts (the ``Policies'') to the extent necessary to permit 
the payment to Companion Life of a mortality and expense risk charge 
from the assets of the Separate Account under the Policies.

FILING DATE: The application was filed on October 17, 1994 and amended 
and restated on April 4, 1995.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC 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 May 30, 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 who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549; Applicants, Companion Life Insurance Company, 401 Theodore Fremd 
Avenue, Rye, New York 10580-1493.

FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, Staff Attorney, or Wendy 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.

Applicant's Representations

    1. Companion life is a stock life insurance company, incorporated 
under the laws of the State of New York on June 3, 1949, and engaged in 
the sale of life insurance and annuity policies in New York State. It 
is also licensed in New Jersey and Connecticut but does not currently 
do business in these states. Companion Life, a wholly-owned subsidiary 
of United of Omaha Life Insurance Company, is the depositor of the 
Separate Account.
    2. The Separate Account was established by Companion Life as a 
separate investment account, on February 18, 1994, under the laws of 
the State of New York to serve as the funding medium for the Policies. 
The Separate Account currently has nine subaccounts (the 
``Subaccounts'') and is registered under the Act as a unit investment 
trust. Each Subaccount invests in a corresponding portfolio of an 
underlying management investment company (``Fund''). Each Fund is 
registered under the Act as an open-end, management investment company 
and its shares are registered under the Securities Act of 1933.
    3. Mutual of Omaha serves as distributor and principal underwriter 
for the Policies. It is registered with the SEC as a broker-dealer and 
is a member of the National Association of Securities Dealers, Inc. 
(``NASD''). Broker-dealers other than Mutual of Omaha may also serve as 
distributors and principal underwriters of the Policies, to the extent 
the Policies are sold through alternate distribution channels. Any 
[[Page 24954]] such other broker-dealer will be registered under the 
Securities Exchange Act of 1934 as a broker-dealer and will be a member 
of the NASD.
    4. The Policies may be purchased on a non-tax qualified basis 
(``Non-Qualified Policies'') or they may be purchased and used in 
connection with retirement plans that qualify for special federal tax 
treatment under Sections 401, 403, 408 or 457 of the Internal Revenue 
Code (``Qualified Policies''). The Policies require a minimum initial 
purchase payment of at least $5,000, and subsequent purchase payments 
must be at least $500. An owner can allocate purchase payments to one 
or more Subaccounts or to a fixed account option. which is part of 
Companion Life's general account.
    5. An owner can transfer accumulation value from one Subaccount of 
the Separate Account to another, or from the Separate Account to the 
fixed account within certain limits. The minimum amount which may be 
transferred is the lesser of $500 or the entire Subaccount value. If 
the Subaccount value remaining after a transfer is less than $500, 
Companion Life reserves the right, at its discretion, either to deny 
the transfer request or to include that amount as part of the transfer. 
Transfers out of a Subaccount currently may be made as often as the 
owner wishes, subject to the mimimum amount specified above. Companion 
Life reserves the right to otherwise limit or restrict transfers in the 
future or to eliminate the transfer privilege. Companion Life also 
reserves the right to restrict transfers from the Separate Account to 
the fixed account of amounts previously transferred from the fixed 
account, for a period of time determined by Companion Life.
    6. A death benefit is available under the Policy. If an owner dies 
prior to age 76, the death benefit will equal the greatest of (a) the 
accumulation value (without deduction of a withdrawal charge) as of the 
end of the valuation period during which due proof of death and an 
election of payout option is received by Companion Life's service 
office, less any charge for applicable premium taxes; (b) the sum of 
net purchase payments less partial withdrawals; or (c) in the eighth 
Policy year and later, the accumulation value as of the most recent 7-
year Policy anniversary, less any amounts subsequently withdrawn and 
less any charge for applicable premium taxes. If any owner dies upon, 
or after age 76, the death benefit will equal the larger of (a) and (b) 
above.
    7. On the last evaluation date of each Policy year prior to the 
annuity starting date and upon a complete surrender, Companion Life 
deducts from the accumulation value an annual fee of $30 to reimburse 
it for administrative expenses relating to the Policies. The fee will 
be deducted from each Subaccount based on the proportion that the 
accumulation value in each account bears to the total accumulation 
value. This charge is guaranteed not to increase for the duration of 
the Policy. Applicants represent that this charge will be deducted in 
reliance on Rule 26a-1 under the Act and represents reimbursement only 
for administrative costs expected to be incurred over the life of the 
Policy. Companion Life does not anticipate any profit from this charge.
    8. Companion Life does not deduct a sales charge at the time of 
investment. However, a withdrawal charge may be deducted upon surrender 
or partial withdrawal of purchase payments. A withdrawal charge also 
may be deducted upon the election of certain annuity options. 
Withdrawal charges are not deducted upon the payment of a death benefit 
or, under Qualified Policies, any refund of contributions paid in 
excess of the owner's deductible amounts. The withdrawal charge equals 
a specified percentage of the purchase payment withdrawn. The 
withdrawal charge is calculated by multiplying the percentages 
specified in the table below by the amount of purchase payments 
withdrawn. The number of years since the date of the purchase payment 
being withdrawn will determine the withdrawal charge percentage that 
will apply to that purchase payment.

------------------------------------------------------------------------
                                                              Applicable
                                                              withdrawal
           Years since receipt of purchase payment              charge  
                                                              percentage
------------------------------------------------------------------------
1...........................................................           7
2...........................................................           6
3...........................................................           5
4...........................................................           4
5...........................................................           3
6...........................................................           2
7...........................................................           1
8 and later.................................................           0
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    Each Policy year, up to 10% of all purchase payments, less any 
prior withdrawals, may be withdrawn without the imposition of the 
withdrawal charge. Purchase payments surrendered or withdrawn in excess 
of this 10% amount will be assessed the withdrawal charge.
    9. Companion Life does not anticipate that the withdrawal charge 
will generate sufficient revenues to pay the cost of distributing the 
Policies. If these charges are insufficient to cover the expenses of 
distributing the Policies, the deficiency will be met from the general 
account assets of Companion Life, which may include amounts derived 
from the charge for mortality and expense risks.
    10. Companion Life deducts a daily administrative charge to 
compensate it for expenses it incurs in the administration of the 
Policies and the separate Account. The charge is deducted from the 
assets of the Separate Account at an annual rate of 0.15%, and is 
guaranteed not to increase. Companion Life represents that this charge 
will be deducted to reliance on Rule 26a-1 under the Act and represents 
reimbursement only for administrative costs expected to be incurred 
over the life of the Policy. Companion Policy does not expect to make a 
profit from this charge.
    11. Companion Life imposes an annual charge of 1.25% on the net 
assets of the Separate Account to compensate it for bearing certain 
mortality and expense risks in connection with the Policies. Of that 
amount .95% is attributable to the mortality risk, and .30%\1\ is 
attributable to the expense risk. Companion Life guarantees that this 
charge will never exceed an annual rate of 1.25%. If the morality and 
expense risk charges under the Policies are insufficient to cover 
actual costs and assumed risks, the loss will be borne by Companion 
Life. Conversely, if the charge is more than sufficient to cover such 
costs, any excess will be profit to Companion Life. Companion Life 
currently anticipates a profit from this charge.

    \1\Applicants will file an amendment during the notice period to 
add these numbers.
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    12. The mortality risk borne by Companion Life arises from its 
contractual obligation to make annuity payments regardless of how long 
all annuitants or any individual annuitant may live. This undertaking 
assures that neither an annuitant's own longevity, nor an improvement 
in general life expectancy, will adversely affect the periodic annuity 
payments that a payee will receive under a Policy. Companion Life also 
incurs a mortality risk in connection with the death benefit guarantee. 
There is no extra charge for this guarantee.
    13. The expense risk assumed by Companion Life is the risk that its 
actual administrative costs will exceed the amount recovered from the 
administrative charge, the transfer fee (if imposed), the processing 
fee (if imposed) and the annual Policy fee.
    14. Companion Life will deduct a charge for premium taxes, 
currently [[Page 24955]] ranging up to 3.5% on annuity policies issued 
by insurance companies. In addition, other government units within a 
state may levy such taxes.
    15. Companion Life imposes a $10 transfer fee to any transfer in 
excess of 12 per Policy year. Companion Life deducts the transfer fee 
from the amount transferred. No charge will be imposed on transfers 
from the fixed account and transfers made in connection with the dollar 
cost averaging program do not count toward the 12 free transfers per 
year limit. Applicants represent that this charge will be deducted in 
reliance on Rule 26a-1 and represents reimbursement only for 
administrative costs expected to be incurred in processing transfers 
over the life of the Policies. Companion Life does not anticipate any 
profit from this charge.

Applicant's Legal Analysis

    1.Section 6(c) of the Act authorizes the Commission to grant an 
exemption from any provision, rule or regulation of the Act to the 
extent that it is necessary or appropriate in the public interest and 
consist with the protection of investors and the purposes fairly 
intended by the Policy and provisions of the Act. Sections 26(a)(2)(C) 
and 27(c)(2) of the Act, in relevant part, prohibit a registered unit 
investment trust, its depositor or principal underwriter, from selling 
periodic payment plan certificates unless the proceeds of all payments, 
other than sales loads, are deposited with a qualified bank and held 
under arrangements which prohibit any payment to the depositor or 
principal underwriter except a reasonable fee, as the Commission may 
prescribe, for performing bookkeeping and other administrative duties 
normally performed by the bank itself.
    2. Applicants request exemptions from Sections 25(a)(2)(C) and 
27(c)(2) of the Act to the extent necessary to permit the deduction of 
a charge of 1.25% from the assets of the Separate Account to compensate 
Companion Life for the assumption of mortality and expense risks. 
Applicants assert that the requested exemptions 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 Act.
    3. Applicants request that the relief sought herein also apply to a 
class consisting of broker-dealers who may, in the future, act as 
principal underwriters of the Policies. Applicants believe that the 
terms of the relief requested with respect to future underwriters 
issuing the Policies are consistent with the standards enumerated in 
Section 6(c) of the Act. The requested relief would promote 
competitiveness in the variable annuity market by eliminating the need 
for Companion Life to file redundant exemptive applications for each 
new principal underwriter that distributes the Policies it issues, 
thereby reducing its administrative expenses and maximizing the 
efficient use of its resources. The delay and expense involved in 
having to repeatedly seek exemptive relief would impair Companion 
Life's ability to effectively take advantage of business opportunities 
as they arise and investors would not receive any benefit or additional 
protection thereby. Indeed, they might be disadvantaged as a result of 
Companion Life's increased overhead expenses. Thus, Applicants believe 
that the requested exemption is appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act.
    4. Applicants submit that Companion Life is entitled to reasonable 
compensation for its assumption of mortality and expense risks. 
Applicants represent that the charge of 1.25% on an annual basis under 
the Policies made for mortality and expense risks is consistent with 
the protection of investors because it is a reasonable and proper 
insurance charge. Companion Life represents that the charge of 1.25% 
for mortality and expense risks is within the range of industry 
practice with respect to comparable annuity products. This 
representation is based upon an analysis of publicly available 
information about similar industry products, taking into consideration 
such factors as current charge levels, the existence of charge level 
guarantees, guaranteed annuity rates. Companion Life will maintain at 
its administrative office, available to the Commission, a memorandum 
setting forth in detail the products analyzed in the course of, and the 
methodology and results of, the comparative survey.
    5. Applicants acknowledge that the proceeds of the withdrawal 
charges may be insufficient to cover all costs relating to the 
distribution of the Policies. Applicants also acknowledge that, if a 
profit is realized from the mortality and expense risk charge, all or a 
portion of such profit may be viewed by the Commission as being offset 
by distribution expenses not reimbursed by the sales charge. Companion 
Life has concluded that there is a reasonable likelihood that the 
proposed distribution financing arrangements will benefit the Separate 
Account and the Policy owners. The basis for such conclusion is set 
forth in a memorandum which will be maintained by Companion Life at its 
administrative offices and will be available to the Commission. 
Companion Life also represents that the Separate Account will only 
invest in management investment companies which undertake, in the event 
any such company adopts a plan under Rule 12b-1 to finance distribution 
expenses, to have a board of directors (or trustees), a majority of 
whom are not interested persons of the company as defined in the Act, 
formulate and approve any such plan under Rule 12b-1.

Conclusion

    For the reasons set forth above, Applicants represent that the 
exemptions requested are necessary and appropriate in the public 
interest and consistent with the protection of investors and purposes 
fairly intended by the Policy and provisions of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret M. McFarland,
Deputy Secretary.
[FR Doc. 95-11444 Filed 5-9-95; 8:45 am]
BILLING CODE 8010-01-M