[Federal Register Volume 60, Number 122 (Monday, June 26, 1995)]
[Notices]
[Pages 33021-33024]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15572]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21153; No. 812-9498]


United of Omaha Life Insurance Company, et al.

June 20, 1995.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

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

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

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act granting exemptions from the provisions of Sections 2(a)(32), 
22(c), 26(a)(2)(C), 27(c)(1), and 27(c)(2) of the 1940 Act and Rule 
22c-1 thereunder.

SUMMARY OF APPLICATION. Applicants seek an order to permit the 
deduction of a mortality and expense risk charge and an enhanced death 
benefit charge from the assets of the Separate Account or any other 
separate account (``Other Accounts'') established by United of Omaha to 
support certain flexible premium individual deferred variable annuity 
contracts (``Contracts'') as well as other variable annuity contracts 
that are substantially similar in all material respects to the 
Contracts (``Future Contracts''). In addition, Applicants propose that 
the order extend to any broker-dealer other than Services, that may in 
the future serve as principal underwriter for the Contracts or Future 
Contracts, the same exemptions granted to Services (``Future Broker-
Dealers''). Any such broker-dealer will register under the Securities 
Exchange Act of 1934 (``1934 Act'') as a broker-dealer and will be a 
member of the National Association of Securities Dealers, Inc. 
(``NASD'').

FILING DATE: The application was filed on February 27, 1995, and was 
amended and restated on June 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 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 July 14, 
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 requester'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 
SEC.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, NW., Washington, DC 20549. Applicants, Thomas J. McCusker, 
Esq., Law Division--3rd Floor, United of Omaha Life Insurance Company, 
Mutual of Omaha Plaza, Omaha, Nebraska 68175-1008.

FOR FURTHER INFORMATION CONTACT: Pamela K. Ellis, Attorney, or Wendy 
Friedlander, Deputy Chief, both 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' Representatives

    1. United of Omaha, a stock life insurance company, is organized in 
Nebraska and licensed to do business in the District of Columbia, all 
states except New York, and several foreign countries. United of Omaha 
is a wholly-owned subsidiary of Mutual of Omaha Insurance Company.
    2. The Separate Account is a separate account established by United 
of Omaha to fund the Contracts. The Separate Account is registered with 
the Commission as a unit investment trust under the 1940 Act, and the 
Contracts are registered as securities under the Securities Act of 
1933.
    3. United of Omaha will establish for each investment option 
offered under the Contract a Separate Account subaccount 
(``Subaccount''), which will invest solely in a specific corresponding 
portfolio of certain designated investment companies (``Funds''). The 
Funds will be registered under the 1940 Act as open-end management 
investment companies. Each Fund series will have separate investment 
objectives and policies.
    4. Services will serve as the distributor and principal underwriter 
of the Contracts, and also may serve in these capacities for the Future 
Contracts. Services, an affiliate of United of Omaha, is registered 
under the 1934 Act as a broker-dealer and a member of the NASD.
    5. In addition, broker-dealers other than Services also may serve 
as distributors and principal underwriters of certain of the Contracts 
as well as the Future Contracts. Future broker-dealers will be 
registered under the 1934 Act as broker-dealers and will be members of 
the NASD.
    6. The Contracts are individual flexible premium variable deferred 
annuity contracts. They may be purchased on a non-tax qualified basis 
(``Non-Qualified Contracts'') or they may be purchased and used in 
connection with retirement plans that qualify for favorable federal 
income tax treatment (``Qualified Contracts''). Both the Non-Qualified 
Contracts and the Qualified Contracts may be purchased with an initial 
premium of $5,000, except under the electronic fund transfer program 
where the minimum initial purchase payments is $2,000.\1\ The minimum 
subsequent premium for both the Unqualified and Qualified Contracts is 
$500 (or $100 if made in connection with the electronic fund transfer 
program). Net purchase payments may be allocated to one or more of the 
Separate Account Subaccounts that have been established to support the 
Contracts. The Contracts also provide for the allocation of net 
purchase payments to the general account of United of Omaha, where such 
purchase payments are credited with a predetermined fixed rate of 
interest.

    \1\United of Omaha reserves the right to increase or decrease 
this amount.
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    7. The Contracts provide for a series of annuity payments beginning 
on the annuity date. The Contract owner may select from several payout 
options which provide periodic annuity payments on a fixed basis.
    8. The Contracts provide for a death benefit if the annuitant dies 
during the accumulation period. Any applicable premium taxes not 
previously deducted will be deducted from the death benefit payable. 
The standard death benefit is the greater of: (1) The accumulation 
value (without deduction of the CDSC, as defined below) on the later of 
the date on which due proof of death or an election of payout option is 
received by [[Page 33022]] United of Omaha's service office less any 
charge for applicable premium taxes; or (2) the sum of all net purchase 
payments, less any partial withdrawals. If the Contract owner elected 
the enhanced death benefit and dies before age 81, United of Omaha will 
provide an enhanced death benefit that will equal the greater of: (1) 
The accumulation value as of the end of the valuation period during 
which due proof of death and an election of a payout option are 
received by United of Omaha's service center; (2) the greatest 
anniversary value,\2\ plus any subsequent net purchase payments and 
less any subsequent partial withdrawals; and (3) the sum of all net 
purchase payments less any partial withdrawals, accumulated at a 4.5% 
annual rate of interest, up to a maximum of two times each purchase 
payment. If the Contract owner elected the enhanced death benefit and 
dies after attaining age 81, the enhanced death benefit under the 
Contract will equal the greatest of: (1) The accumulation value as of 
the end of the valuation period during which due proof of death and an 
election of a payout option are received by United of Omaha's service 
center; (2) the greatest anniversary value up to the last Contract 
anniversary before the Contract owner attains age 81, plus any 
subsequent purchase payments and less any subsequent partial 
withdrawals; and (3) the sum of all net purchase payments paid prior to 
the last Contract anniversary before the Contract owner attained age 
81, less any partial withdrawals, accumulated at a 4.5% annual rate of 
interest, up to a maximum of two times each purchase payment.

    \2\The anniversary value equals the accumulation value on the 
Contract anniversary and subsequent purchase payments less 
subsequent partial withdrawals and premium tax not yet deducted.
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    9. Certain charges and fees are assessed under the Contracts. There 
is no transfer fee charged for transfers from the fixed account or for 
the first 12 transactions from Subaccounts of the Separate Account in 
each Contract year. Subsequent transfers within a Contract year, 
however, will be assessed a fee of $10 per transfer.
    10. United of Omaha will deduct an administration charge from each 
Subaccount of the Separate Account. The charge is equal, on an annual 
basis, to .20% of the net asset value of each Subaccount.
    11. An annual policy fee of $30 will be charged against each 
Contract. This charge will be deducted pro rata from each Subaccount in 
which the Contract owner is invested at the end of each Contract year 
prior to the annuity starting date (and upon a complete surrender) to 
compensate United of Omaha for the administrative services provided to 
Contract owners. Currently, this fee is waived if the accumulation 
value exceeds $50,000.
    12. Applicants represent that the transfer fee, administration 
charge, and the annual policy fee will not increase regardless of the 
actual cost incurred. In addition, Applicants represent that these 
charges are at cost with no anticipation of profit.
    13. A contingent deferred sales charge (``CDSC'') may be imposed on 
certain withdrawals. The amount of the CDSC decreases annually from 7% 
to 0% over 8 Contract years. For the purposes of determining the CDSC, 
withdrawals will be allocated first to premiums on a first-in, first-
out basis so that all withdrawals are allocated to premiums to which 
the lowest (if any) CDSC applies, then to earnings. In addition, there 
is a free withdrawal amount equal to up to 15% of accumulation value 
each Contract year.\3\ Applicants state that the CDSC will not 
increase.

    \3\United of Omaha may waive the CDSC under certain 
circumstances.
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    14. United of Omaha proposes to deduct a daily mortality and 
expense risk charge. United of Omaha represents that this charge is 
equal to an effective annual rate of 1.00% of the net asset value of 
the Separate Account, and that it will not increase. Of this amount, 
approximately .75% is for mortality risks and .25% is for expense 
risks.
    15. United of Omaha assumes the mortality risk that the life 
expectancy of the annuitant will be greater than that assumed in the 
guaranteed annuity purchase rates, thus requiring United of Omaha to 
pay out more in annuity income than it had planned. Additional 
mortality risks assumed by United of Omaha are that it will waive the 
CDSC in the event of the death of the owner and United of Omaha's 
contractual obligation to provide a standard and an enhanced death 
benefit prior to the annuity date. Thus, United of Omaha assumes the 
risk that it may not be able to cover its distribution expenses and 
that the owner may die at a time when the amount of the death benefit 
payable exceeds the then net surrender value of the Contracts. The 
expense risk assumed by United of Omaha is that the contract 
administration charge will be insufficient to cover the cost of 
administering the Contracts.
    16. In the event the mortality and expense risk charges are more 
than sufficient to cover United of Omaha's costs and expenses, any 
excess will be a profit to United of Omaha. The cost of distributing 
the Contracts will be met from funds derived from the CDSC and from 
United of Omaha's general account, which may include amounts derived 
from the mortality and expense risk charge.
    17. There will be a charge made each year for expenses related to 
the enhanced death benefit. United of Omaha deducts this charge through 
the cancellation of accumulation units at each Contract anniversary and 
at surrender to compensate it for the increased risks associated with 
providing the enhanced death benefit. The charge at full surrender will 
be a pro-rata portion of the annual charge. United of Omaha guarantees 
that this charge will never exceed an annual rate of .35% of the 
average death benefit amount.\4\

    \4\The average death benefit amount is the mean of the death 
benefit amount on the most recent Contract anniversary and the death 
benefit amount on the immediately preceding Contract anniversary.
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    18. Should the owner live in a jurisdiction that levies a premium 
tax, United of Omaha will pay the taxes when due. United of Omaha 
represents that state premium taxes may range up to 3.5% of purchase 
payments and are subject to change. United of Omaha reserves the right 
to deduct the amount of the tax either from the premiums as they are 
received, upon payment in connection with the surrender of the 
Contract, upon death of any owner, or upon application of proceeds to a 
payout option.

Applicants' Legal Analysis

    1. Section 6(c) of the 1940 Act authorizes the Commission, by order 
upon application, to conditionally or unconditionally grant an 
exemption from any provision, rule or regulation of the 1940 to the 
extent that the 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.
    2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940, 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. [[Page 33023]] 
    3. Applicants request exemptions from Sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to the extent necessary to permit the 
deduction from the net assets of the Separate Account and the Other 
Accounts in connection with the Contracts and Future Contracts of the 
1.00% charge for the assumption of mortality an expense risks, and .35% 
of the average death benefit amount for the enhanced death benefit 
charge, and to exempt Future Broker-Dealers.
    4. Applicants assert that the terms of the relief requested with 
respect to any Future Contracts funded by the Separate Account or Other 
Accounts, as well as for Future Broker-Dealers, are consistent with the 
standards enumerated in Section 6(c) of the 1940 Act. Without the 
requested relief, Applicants would have to request and obtain exemptive 
relief for each new Other Account it establishes to fund any Future 
Contract, as well as for each Future Broker-Dealer that distributes the 
Contracts or the Future Contracts. Applicants submit that any such 
additional request for exemption would present no issues under the 1940 
Act that have not already been addressed in this application, and that 
investors would not receive any benefit or additional protections 
thereby.
    Applicants submit that the requested relief is appropriate in the 
public interest, because it would promote competitiveness in the 
variable annuity contract market by eliminating the need for Applicants 
to file redundant exemptive applications, thereby reducing their 
administrative expenses and maximizing the efficient use of their 
resources. The delay and expense involved in having repeatedly to seek 
exemptive relief would reduce Applicants' ability effectively to take 
advantage of business opportunities as they arise.
    Applicants further submit that the requested relief is consistent 
with the purposes of the 1940 Act and the protection of investors for 
the same reasons. Applicants thus 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 1940 Act.
    5. Applicants represent that the 1.00% per annum mortality and 
expense risk charge is within the range of industry practice for 
comparable annuity contracts. This representation is based upon an 
analysis of publicly available information about similar industry 
products, taking into consideration such factors as, among others, the 
current charge levels and benefits provided, the existence of expense 
charge guarantees, guaranteed death benefits, and guaranteed annuity 
rates. United of Omaha will maintain at its principal offices, 
available to the Commission, a memorandum setting forth in detail the 
products analyzed in the course of, and the methodology and results of, 
Applicants' comparative review.
    6. Applicants also assert that the charge equal to an annual rate 
of .35% of the average death benefit amount for Contracts and Future 
Contracts issued with the enhanced death benefit is reasonable in 
relation to the risks assumed by United of Omaha. In arriving at this 
determination, United of Omaha projected its expected cost in providing 
this benefit by using the price of put options which could be used to 
hedge the risk inherent in providing the enhanced death benefit. United 
of Omaha undertakes to maintain at its home office a memorandum, 
available to the Commission, setting forth in detail the methodology 
used in determining that the risk charge equal to an annual rate of 
.35% of the average death benefit amount under certain Contracts and 
Future Contracts for the enhanced death benefit is reasonable in 
relation to risks assumed by United of Omaha under the Contracts and 
Future Contracts.
    7. United of Omaha has concluded that there is a reasonable 
likelihood that the Separate Accounts and Other Accounts' proposed 
distribution financing arrangements will benefit the Separate Accounts 
and their investors. United of Omaha represents that it will maintain 
and make available to the Commission upon request a memorandum setting 
forth the basis of such conclusion.
    8. The Separate Account and Other Accounts will be invested only in 
management investment companies that undertake, in the event the 
company should adopt a plan for financing distribution expenses 
pursuant to Rule 12b-1 under the 1940 Act, to have such plan formulated 
and approved by the company's board members, the majority of whom are 
not ``interested persons'' of the management investment company within 
the meaning of Section 2(a)(19) of the 1940 Act.
    9. Section 2(a)(32) of the 1940 Act defines a redeemable security 
as any security under the terms of which the holder, upon its 
presentation to the issuer, is entitled to receive approximately his 
proportionate share of the issuer's current net assets, or the cash 
equivalent thereof. Section 27(c)(1) of the 1940 Act and Rule 22c-1 
thereunder, in pertinent part, prohibit a registered investment 
company, its depositor, or principal underwriter, from selling periodic 
payment plan certificates unless such certificates are redeemable 
securities.
    10. Applicants request exemptions from Sections 2(a)(32), 22(c), 
and 27(c)(1) of the 1940 Act, and Rule 22c-1 thereunder, to permit the 
deduction upon surrender of the prorated enhanced death benefit equal 
to .35% of the average death benefit.
    11. Applicants assert that the enhanced death benefit charge is 
assessed to compensate United of Omaha for the increase risk it bears 
if the Contract owner elects the enhanced death benefit. The death 
benefit represents an optional insurance benefit that United of Omaha 
may provide through the life of the Contract or Future Contract for 
which it is entitled to receive compensation. Normally, the enhanced 
death benefit charge accrues each Contract year and is deducted 
retroactively on each Contract anniversary, for that prior Contract 
year. By deducting a prorated enhanced death benefit charge upon a 
Contract owner's surrender, the Contract owner compensates United of 
Omaha for the additional risk the company bears during the period 
between the last Contract anniversary and the date of surrender.
    12. Applicants further assert that the assessment of the prorated 
enhanced death benefit charge upon surrender does not alter a Contract 
owner's current net asset value. As previously discussed, United of 
Omaha deducts the enhanced death benefit charge through the 
cancellation of a Contract owner's accumulation units. Accordingly, the 
assessment of the prorated enhanced death benefit charge upon 
surrender, or at any other time during the life of a Contract or Future 
Contract, will not alter the Contract or Future Contract's current net 
asset value.
    13. In addition, Applicants assert that the assessment of a 
prorated enhanced death benefit charge upon a Contract owner's 
surrender, which is fully disclosed in the prospectus for the Contract, 
should not be construed as a restriction on redemption. Applicants 
maintain that the Contracts and Future Contracts are and will be 
redeemable securities and that the imposition of the prorated enhanced 
death benefit charge upon surrender represents nothing more than the 
proportionate deduction of an insurance charge that could otherwise be 
deducted daily through the life of the Contract or Future Contract. 
Moreover, as stated previously, Applicants only assess the charge if 
the Contract owner has elected the enhanced death 
benefit. [[Page 33024]] 

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. 95-15572 Filed 6-23-95; 8:45 am]
BILLING CODE 8010-01-M