[Federal Register Volume 60, Number 116 (Friday, June 16, 1995)]
[Notices]
[Pages 31744-31746]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14747]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21126; No. 812-9372]
PHL Variable Insurance Company, et al.
June 9, 1995.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: PHL Variable Insurance Company (``PHLV''), PHL Variable
Accumulation Account (the ``Account''), and Phoenix Equity Planning
Corporation (``Phoenix Equity'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) granting
exemptions from the provisions of Sections 26(a)(2)(C) and 27(c)(2).
SUMMARY OF APPLICATION: Applicants seek an order permitting the
deduction of a mortality and expense risk charge from the assets of the
Account in connection with the offer and sale of certain variable
annuity contracts (``Existing Contracts''), and any annuity contracts
that are similar in all material respects to the Existing Contracts
(``Future Contracts,'' together with Existing Contracts, the
``Contracts''), which may be sold in the future by the Account, or from
the assets of any other separate account (``Future Accounts,'' together
with the Account, the ``Accounts'') established in the future by PHLV
in connection with the issuance of Future Contracts.
FILING DATE: The application was filed on December 19, 1994, and
amended on May 12, 1995.
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 Secretary of the
Commission 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 July 5, 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 Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th
Street, NW., Washington, DC 20549. Applicants, c/o Phoenix Home Life
Mutual Insurance Company, One American Row, Hartford, Connecticut
06115, Attention: Patricia O. McLaughlin, Esq.
FOR FURTHER INFORMATION CONTACT:
Kevin M. Kirchoff, Senior Counsel, or Wendy Friedlander, Deputy Chief
at (202) 942-0670, Office of Insurance Products (Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application; the complete application is available for a fee from the
Public Reference Branch of the Commission.
Applicants' Representations
1. PHLV is a corporation organized under the laws of the state of
Connecticut. On May 31, 1994, Phoenix Home Life Mutual Insurance
Company (``Phoenix Home Life''), a New York domiciled insurer, through
its wholly-owned subsidiary, PM Holdings Inc., a Connecticut
corporation, acquired all of the issued and outstanding stock of PHLV.
PHLV is currently licensed to issue variable annuity contracts in 26
states and the District of Columbia.
2. The Account is a separate investment account established by PHLV
for the purpose of investing purchase payments received under the
Existing Contracts. The Account is a unit investment trust which has
filed a registration statement on Form N-4 under the Securities Act of
1933 to register the Existing Contracts.
3. The Account presently consists of seven subaccounts
(``Subaccounts''), each of which currently invests in a corresponding
series of The Phoenix Edge Series Fund and which may, in the future,
invest in any other registered open-end management investment company
funding variable annuity or variable life insurance contracts. Contract
owners may allocate accumulation value to any one or more of the
Subaccounts or to the general account of PHLV (the ``Guaranteed
Interest Account''), provided that prescribed minimum purchase payment
requirements are met. PHLV may issue Future Contracts through the
Account and through Future Accounts.
4. Phoenix Equity, an indirect wholly-owned subsidiary of Phoenix
Home Life, is registered as a broker-dealer pursuant to the Securities
Exchange Act of 1934 (the ``Exchange Act'') and is a member of the
National Association of Securities Dealers. Phoenix Equity is the
principal underwriter for the Existing Contracts. The principal
underwriter for Future Contracts may be any broker-dealer registered as
a broker-dealer pursuant to the Exchange Act and wholly-owned, directly
or indirectly, by Phoenix Home Life.
5. The Phoenix Edge Series Fund is a diversified open-end
management investment company which consists of various investment
series or portfolios (collectively, ``Portfolios'') each with different
investment objectives and policies. Shares of the Portfolios also are
offered to other separate accounts of PHLV, Phoenix Home Life or of
other insurance companies offering variable annuity or variable life
insurance contracts.
6. The Existing Contracts are flexible premium variable annuity
contracts offered for use by retirement plans which qualify for special
federal income tax treatment under the Internal Revenue Code or by any
other purchasers for whom they may be a suitable investment.
7. The Existing Contracts provide for minimum initial purchase
payments and permit additional minimum purchase payments and periodic
payments, subject to certain limitations. The Contracts provide for the
accumulation of values on a variable basis determined by the investment
experience of the Subaccounts to which the Contract owner allocates
payments.
8. Prior to the maturity date, amounts held under Contracts may be
transferred among the Subaccounts and the Guaranteed Interest Account.
PHLV currently makes no charge for transfers among the Subaccounts, but
reserves the right to assess a transfer fee, guaranteed never to exceed
$10 per transfer, after the first two transfers in each Contract year
to offset administrative expenses. Currently, unlimited transfers are
permitted, but PHLV reserves the right to limit the number of transfers
each Contract year.
9. The Contracts also provide for the payment of a death benefit.
If the Contract owner is the Annuitant and dies prior to the Contract's
maturity date, and there is no surviving joint owner, a death benefit
calculated according to the death benefit formula will be paid to the
Contract owner's beneficiary. If the Contract owner is not the
Annuitant and dies prior to the maturity date, and there is no
surviving joint owner, a death benefit equal to the Contract's cash
surrender value (contract value less any applicable sales charge) will
be paid to the Contract owner's beneficiary. If the Contract owner and
the Annuitant are not the
[[Page 31745]]
same person and the Annuitant dies prior to the maturity date, the
contingent Annuitant becomes the Annuitant. If there is no contingent
Annuitant, a death benefit calculated according to the death benefit
formula will be paid to the Annuitant's beneficiary.
10. Pursuant to the death benefit formula, if the death occurred
prior to the Annuitant's eighty-fifth birthday and during the first
seven Contract years, the death benefit payment would be equal to the
greater of: (a) The sum of all purchase payments made under the
Contract less any prior partial withdrawals; or (b) the Contract value.
11. If the death occurs prior to the Annuitant eighty-fifth
birthday and during Contract years 8 through 14 (or during any
subsequent seven year period), the death benefit payment would be equal
to the greater of: (a) The death benefit that would have been payable
at the end of the immediately preceding seven year period, plus any
purchase payments made and less any partial withdrawals since such
date; or (b) the Contract value. After the Annuitant's eighty-fifth
birthday, the death benefit is the Contract value next determined
following receipt of a certified copy of the death certificate by PHLV.
If the Contract owner and the Annuitant are not the same and the
Contract owner dies prior to the maturity date and there is no
surviving joint owner, upon receipt of due proof of death PHLV will
fully surrender the Contract and pay the cash surrender value (Contract
value less any applicable sales charge) to the Contract owner's
beneficiary.
12. Various fees and expenses are deducted under the Contracts.
Prior to maturity of a Contract, PHLV charges $35 each year for
administrative and related expenses (``Contract Fee''). This charge is
waived for Contracts with an accumulation value on the last Contract
anniversary date of $50,000 or more. PHLV also makes a daily charge to
the Subaccounts equal on an annual basis to 0.125% of the current value
of the Subaccounts (``Administrative Service Charge''). The
Administrative Service Charge is designed to cover actual
administrative expenses which exceed the revenue from the Contract Fee.
13. Applicants represent that the Contract Fee and the
Administrative Service Charge are guaranteed for the duration of the
Contract and will be deducted in reliance upon and in conformity with
all of the requirements of Rule 26a-1 under the 1940 Act.
14. PHLV will pay any premium tax due and will then deduct any
premium tax from Contract value upon the earlier of partial withdrawal,
surrender of the Contract, maturity date or payment of death proceeds.
15. No front-end sales charges are deducted from premium payments
under the Contracts. The Contracts assess a contingent deferred sales
charge (``CDSC'') which may be taken from proceeds of withdrawals from,
or complete surrender of, the Contracts if assets are not held under
the Contract for a specified period of time. No sales charge is taken
after the annuity phase of the Contract has begun. Any sales charge is
applied on a first-in, first-out basis. With respect to withdrawals or
surrenders during the first year a Contract is in existence, the
deduction applies against the total amount withdrawn. After the first
year of a Contract, and prior to its maturity date, a withdrawal of up
to 10% of the amount held under the Contract as of the previous
Contract anniversary may be made each year without imposition of a
withdrawal or surrender sales charge, subject to certain restrictions
described in the Contract.
16. The deduction for sales charges, expressed as a percentage of
the amount redeemed in excess of the 10% allowable amount, is as
follows:
------------------------------------------------------------------------
CDSC as
percentage
Age of deposit in years of amount
withdrawn
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0........................................................... 7
1........................................................... 6
2........................................................... 5
3........................................................... 4
4........................................................... 3
5........................................................... 2
6........................................................... 1
7 and over.................................................. 0
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There is no sales charge assessed if the Contract owner or the
Annuitant dies before the Contract maturity date. The total deferred
sales charges on a Contract will never exceed 9% of the total purchase
payments, and the applicable level of sales charge will not be changed
with respect to outstanding Contracts. Sales charges imposed in
connection with partial surrenders will be deducted from the
Subaccounts and the Guaranteed Interest Account on a pro-rata basis.
17. Applicants are relying on Rule 6c-8 under the 1940 Act to
deduct the CDSC. PHLV believes that the CDSC will not necessarily be
sufficient to pay the cost of distributing the Contracts. If the CDSC
is unsufficient to cover such expenses, the deficiency will be met from
the general account assets of PHLV, which may include amounts derived
from the charge for mortality and expenses risks, discussed below.
18. A daily charge equal to an effective annual rate of 1.25% of
the net asset value of the Accounts will be imposed to compensate PHLV
for bearing certain mortality and expense risks in connection with the
Contracts. Of this amount, 0.85% is allocable to mortality risks and
0.40% is allocable to expense risks. The mortality and expense risk
charge is guaranteed never to exceed 1.25%.
19. The mortality risk arises from PHLV's (1) guarantee that it
will make annuity payments, in accordance with annuity rate provisions
established at the time a Contract is issued for the life of the
annuitant or in accordance with the annuity option selected, no matter
how long the annuitant or other payee lives and no matter how long all
annuitants as a class live, and (2) death benefit guarantees under the
Contracts.
20. The expense risk borne by PHLV is the risk that the charges for
administrative expenses, which are guaranteed for the life of the
Contracts, may be insufficient to cover the actual costs of issuing and
administering the Contracts.
21. If the mortality and expense risk charges deducted are
insufficient to cover the actual cost of the mortality and expense
risk, PHLV will bear the loss. Conversely, if the mortality and expense
risk charges deducted prove more than sufficient, the excess will be
added to PHLV's surplus and will be used for any lawful purpose,
including offsetting the costs of distributing the Contracts.
Applicants' Legal Analysis and Conditions
1. Applicants request an order pursuant to Section 6(c) of the 1940
Act exempting them from Sections 26(a)(2)(C) and 27(c)(2) thereof to
the extent necessary to permit the deduction of mortality and expense
risk charges from the assets of the Accounts in connection with the
issue and sale of the Contracts.
2. Pursuant to Section 6(c) of the 1940 Act the Commission may, by
order upon application, conditionally or unconditionally exempt any
person, security, or transaction, or any class or classes of persons,
securities or transactions, from any provision or provisions of the
1940 Act or from any rule or regulation thereunder, if and to the
extent that such exemption is 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.
[[Page 31746]]
3. 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 therefor 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
are 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 charter normally performed by the
bank itself.
4. Applicants submit that their request for exemptive relief for
deduction of the mortality and expense risk charge from the assets of
the Accounts in connection with the issue and sale of the Contracts
would promote competitiveness in the variable annuity contract market
by eliminating the need for redundant exemptive applications, thereby
reducing Applicants' administrative expenses and maximizing the
efficient use of their resources. Applicants further submit that the
delay and expense involved in having repeatedly to seek exemptive
relief would impair their ability effectively to take advantage of
business opportunities as they arise. Further, if Applicants were
required repeatedly to seek exemptive relief with respect to the same
issues addressed in this application, investors would not receive any
benefit or additional protection. Thus, Applicants believe that the
requested exemptions are appropriate in the public interest and
consistent with the protection of investors and purposes fairly
intended by the policy and provisions of the 1940 Act.
5. Applicants represent that the 1.25% mortality and expense risk
charge under the Contracts is within the range of industry practice for
comparable annuity contracts. This representation is based upon
Applicants' analysis of publicly available information about similar
industry products, taking into consideration such factors as current
charge levels, the manner in which charges are imposed, the existence
of charge level or annuity-rate guarantees, and the markets in which
the Existing Contracts are offered. Applicants represent that Phoenix
Home Life will maintain at the offices of its actuarial department,
available to the Commission, a memorandum setting forth in detail the
products analyzed in the course of, and the methodology and results of,
its comparative survey.
6. Applicants represent that they will, prior to offering Future
Contracts, conclude that the mortality and expense risk charges under
such contracts (which cannot exceed in amount the mortality and risk
charges under the Existing Contracts) will be within the range of
industry practice for comparative contracts. PHLV will maintain at the
offices of its actuarial department, and make available to the
Commission upon request, a memorandum setting forth in detail the
products analyzed in the course of, and the methodology and results of
the comparative survey resulting in that conclusion.
7. Applicants acknowledge that, if a profit is realized from the
mortality and expense risk charge under the Existing contracts, all or
a portion of such profit may be available to pay distribution expenses
not reimbursed by the CDSC. PHLV has concluded that there is a
reasonable likelihood that the proposed distribution financing
arrangements will benefit the Accounts and the owners of Existing
Contracts. The basis for that conclusion is set forth in a memorandum
which will be maintained by PHLV at the offices of its actuarial
department and will be made available to the Commission.
8. Applicants acknowledge that, if a profit is realized from a
mortality and expense risk charge under Future Contracts, all or a
portion of such profit may be available to pay distribution expenses
not reimbursed by a CDSC. Applicants represent that they will, prior to
offering Future Contracts, conclude that there is a reasonable
likelihood that the proposed distribution financing arrangements will
benefit the Future Accounts and the owners of such Future Contracts.
The basis for that conclusion will be set forth in a memorandum which
will be maintained by PHLV at the offices of its actuarial department
and will be made available to the Commission.
9. Applicants also represent that the Accounts will invest only in
underlying funds that have undertaken to have a board of directors, a
majority of whom are not interested persons of any such funds within
the meaning of Section 2(a)(19) of the 1940 Act, formulate and approve
any plan under Rule 12b-1 under the 1940 Act to finance distribution
expenses.
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 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. 95-14747 Filed 6-15-95; 8:45 am]
BILLING CODE 8010-01-M