[Federal Register Volume 64, Number 223 (Friday, November 19, 1999)]
[Notices]
[Pages 63352-63357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30272]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-24135; File No. 812-11480]
PFL Life Insurance Company, et al.
November 15, 1999.
Agency: Securities and Exchange Commission (``SEC'' or ``Commission'').
Action: Notice of application for an order under the Investment Company
Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
Applicants: PFL Life Insurance Company (``PFL''), PFL Endeavor VA
Separate Account (``PFL Endeavor Account''), PFL Endeavor Target
Account, PFL Retirement Builder Variable Annuity Account (``Retirement
Builder Account''), PFL Life Variable Annuity Account C (``PFL Account
C''), AUSA Life Insurance Company (``AUSA''), AUSA Endeavor Variable
Annuity Account (``AUSA Endeavor Account''), AUSA Endeavor Target
Account (together with PFL Endeavor Target Account, the ``Target
Accounts''), AFSG Securities Corporation (``AFSG''), Western Reserve
Life Assurance Co. Of Ohio (``Western Reserve''), WRL Series Annuity
Account (``WRL Account''), Peoples Benefit Life Insurance Company
(``Peoples Benefit''), Peoples Benefit Life Insurance Company Separate
Account V (``People's Benefit Account''), Transamerica Occidental Life
Insurance Company (``Transamerica Occidental''), Separate Account VA-
2L, Transamerica Life Insurance Company of New York (``Transamerica New
York''), Separate Account VA-2LNY, Separate Account VA-6NY,
Transamerica Life Insurance and Annuity Company (``Transamerica''),
Separate Account VA-6, and Separate Account VA-7 (all collectively, the
``Applicants'').
Relevant Sections of the Act: Order of exemption requested under
Section 6(c) of the Act from the Sections 2(a)(32), 22(c), and
27(i)(2)(A) of the Act and Rule 22c-1 thereunder.
Summary of Application: PFL, AUSA, Western Reserve, Peoples
Benefit, Transamerica Occidental, Transamerica New York, and
Transamerica are together referenced herein as the ``Companies,'' or
individually as a ``Company.'' The PFL Endeavor Account, Retirement
Builder Account, PFL Account C, AUSA Endeavor Account, Target Accounts,
WRL Account, Peoples Benefit Account, Separate Account VA-2L, Separate
Account VA-2LNY, Separate Account VA-6NY, Separate Account VA-6, and
Separate Account VA-7 are together referenced herein as the
``Accounts,'' or individually as an ``Account.'' Applicants seek an
order of the Commission exempting them with respect to the support of
variable annuity policies that are similar in all material respects to
the policies described herein, issued both currently (``Policies'') and
the future (``Future Policies of Accounts''), and any other separate
accounts of the Companies or their affiliated insurance companies that
are controlling, controlled by, or under common control (within the
meaning of Section 2(a)(9) of the Act) with the Companies (``Future
Accounts'') that
[[Page 63353]]
support in the future variable annuity policies that are similar in all
material respects to the policies described herein (``Future Policies
of Future Accounts,'' and together with the Future Policies of
Accounts, ``Future Policies''), and certain National Association of
Securities Dealers, Inc. (``NASD'') member broker-dealers which may, in
the future, act as principal underwriter of such policies (``Future
Underwriters''), from the provisions of Sections 2(a)(32), 22(c), and
27(i)(2)(A) of the Act and Rule 22c-1 thereunder, pursuant to Section
6(c) of the Act, to the extent necessary to permit the deduction of a
charge on certain redemptions under the optional Family Income
Protector Rider, as summarized herein, available to the Policies and
Future Policies.
Filing Date: The Application was filed on January 27, 1999, and
amended and restated on June 3, 1999, July 12, 1999, and November 2,
1999.
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 should be received by the
Commission by 5:30 p.m. on December 8, 1999, 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 Secretary of the Commission.
Addresses: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549-0609. Applicants, c/o Frank A.
Camp, Esquire, PFL Life Insurance Company, 4333 Edgewood Road, NE,
Cedar Rapids, Iowa 52499. Copies to Frederick R. Bellamy, Esquire,
Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2415.
For Further Information Contact: Ann L. Vlcek, Senior Counsel, or Susan
M. Olson, Branch Chief, Office of Insurance Products, Division of
Investment Management, at (202) 942-0670.
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 SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549-0102 (tel. (202) 942-8090).
Applicant's Representations
1. PFL is a stock life insurance company. It was incorporated under
the name NN Investors Life Insurance Company, Inc. under the laws of
the State of Iowa on April 19, 1961. It is principally engaged in the
sale of life insurance and annuity policies, and is licensed in the
District of Columbia, Guam, and in all states except New York. PFL is a
wholly-owned indirect subsidiary of AEGON USA, Inc., which conducts
substantially all of its operations through subsidiary companies
engaged in the insurance business or in providing non-insurance
financial services. All of the stock of AEGON USA, Inc. is indirectly
owned by AEGON n.v. of the Netherlands. AEGON n.v., a holding company,
conducts its business through subsidiary companies engaged primarily in
the insurance business.
2. AUSA is a stock life insurance company. It was incorporated
under the laws of the State of New York on October 3, 1947. It is
principally engaged in the sale of life insurance and annuity policies,
and is licensed in the District of Columbia, and in all states except
Alabama and Hawaii. AUSA is a wholly-owned indirect subsidiary of AEGON
USA, Inc.
3. Western Reserve was incorporated under the laws of Ohio on
October 1, 1957. It is engaged in the business of writing life
insurance policies and annuity contracts. Western Reserve is licensed
in the District of Columbia, Guam, Puerto Rico, and in all states
except New York. Western Reserve is wholly-owned by First AUSA Life
Insurance Company, a stock life insurance company which is wholly-owned
by AEGON USA, Inc.
4. Peoples Benefit is a stock life insurance company incorporated
under the laws of Missouri on August 6, 1920. People Benefit is
principally engaged in offering life insurance, annuity contracts, and
accident and health insurance, and is admitted to do business in all
states except New York, as well as the District of Columbia and Puerto
Rico. Peoples Benefit is a wholly-owned indirect subsidiary of AEGON
USA, Inc.
5. Transamerica Occidental is a stock life insurance company
incorporated under the laws of the State of California on June 30,
1906. It is mainly engaged in the sale of life insurance and annuity
contracts. On July 21, 1999, Transamerica Corporation completed its
merger with a subsidiary of AEGON N.V. Transamerica Corporation, a
subsidiary of AEGON N.V., indirectly owns Transamerica Occidental.
6. Transamerica New York is a stock life insurance company
incorporated under the laws of the State of New York on February 5,
1986. It is mainly engaged in the sale of life insurance and annuity
policies. On July 21, 1999, Transamerica Corporation completed its
merger with a subsidiary of AEGON N.V. Transamerica Corporation, a
subsidiary of AEGON N.V., indirectly owns Transamerica New York.
7. Transamerica is a stock life insurance company incorporated
under the laws of the State of California in 1966. The company moved to
North Carolina in 1994. It is principally engaged in the sale of life
insurance and annuity policies. On July 21, 1999, Transamerica
Corporation completed its merger with a subsidiary of AEGON N.V.
Transamerica Corporation, a subsidiary of AEGON N.V., indirectly owns
Transamerica.
8. Each Account is comprised of sub-accounts established to receive
and invest net purchase payments under the Policies (the
``Subaccounts''). The income, gains and losses, realized or unrealized,
from the assets allocated to each Subaccount (each ``Investment
Option'') will be credited to or charged against that Investment Option
without regard to other income, gains or losses of the Companies.
Applicants represent that each Account meets the definition of a
``separate account'' in Rule 0-1(e) under the Act.
9. The Board of Directors of PFL established the PFL Endeavor
Account on January 19, 1990. The PFL Endeavor Account is registered
under the Act as a unit investment trust (File No. 811-6032). The
assets of the PFL Endeavor Account support certain flexible premium
variable annuity policies, and interests in the PFL Endeavor Account
offered through such contracts have been registered under the
Securities Act of 1933 (``1933 Act'') on Form N-4 (File Nos. 33-33085
and 33-56908).
10. The Board of Directors of AUSA established the AUSA Endeavor
Account on September 7, 1994. The AUSA Endeavor Account is registered
under the Act as a unit investment trust (File No. 811-8750). The
assets of the AUSA Endeavor Account support certain flexible premium
variable annuity policies, and interests in the AUSA Endeavor Account
offered through such contracts have been registered under the 1933 Act
on Form N-4 (File No. 33-83560).
11. The Board of Directors of PFL established the Retirement
Builder Account on March 29, 1996. The Retirement Builder Account is
registered under the Act as a unit investment trust (File No. 811-
7689).
[[Page 63354]]
The assets of the PFL Endeavor Account support certain flexible premium
variable annuity policies, and interests in the PFL Endeavor Account
offered through such contracts have been registered under the 1933 Act
on Form N-4 (File No. 33-7509).
12. The Board of Directors of PFL established PFL Account C on
February 20, 1997. PFL Account C is registered under the Act as a unit
investment trust (File No. 811-9503). The assets of PFL Account C
support certain flexible premium variable annuity policies, and
interests in PFL Account C offered through such contracts have been
registered under the 1933 Act on Form N-4 (File No. 33-83957).
13. The Target Accounts are registered under the Act as open-end
management investment companies (File No. 811-8377 for the PFL Endeavor
Target Account, and File No. 811-9305 for the AUSA Endeavor Target
Account). The assets of the Target Accounts support certain flexible
premium variable annuity policies, and interests in the Target Accounts
offered through such contracts have been registered under the 1933 Act
on Form N-3 (File Nos. 33-47027 and 33-36297 for contracts issued by
PFL, and File No. 33-76803 for contracts issued by AUSA). Each Target
Account is a managed account and may be divided into two or more
Subaccounts, each of which invests according to specific investment
strategies. PFL may establish additional Subaccounts in the future.
14. The Board of Directors of Western Reserve established the WRL
Account on April 12, 1988. The WRL Account is registered under the Act
as a unit investment trust (File No. 811-5672). The assets of the WRL
Account support certain flexible premium variable annuity policies, and
interests in the WRL Account offered through such contracts have been
registered under the 1933 Act on Form N-4 (File Nos. 33-82705 and 33-
84773).
15. The Board of Directors of Peoples Benefit established the
Peoples Benefit Account on February 14, 1992. The Peoples Benefit
Account is registered under the Act as a unit investment trust (File
No. 811-06564). The assets of the Peoples Benefit Account support
certain flexible premium variable annuity policies, and interests in
the Peoples Benefit Account offered through such contracts have been
registered under the 1933 Act on Form N-4 (File No. 33-79502).
16. The Board of Directors of Transamerica Occidental established
Separate Account VA-2L on May 22, 1992. Separate Account VA-2L is
registered under the Act as a unit investment trust (File No. 811-
07042). The assets of Separate Account VA-2L support certain flexible
premium variable annuity policies, and interests in Separate Account
VA-2L offered through such contracts have been registered under the
1933 Act on Form N-4 (File No. 33-49998).
17. The Board of Directors of Transamerica New York established
Separate Account VA-2LNY on June 23, 1992. Separate Account VA-2LNY is
registered under the Act as a unit investment trust (File No. 811-
07368). The assets of Separate Account VA-2LNY support certain flexible
premium variable annuity policies, and interests in Separate Account
VA-2LNY offered through such contracts have been registered under the
1933 Act on Form N-4 (File No. 33-55152).
18. The Board of Directors of Transamerica New York established
Separate Account VA-6NY on September 11, 1996. Separate Account VA-6NY
is registered under the Act as a unit investment trust (File No. 811-
08677). The assets of Separate Account VA-6NY support certain flexible
premium variable annuity policies, and interests in Separate Account
VA-6NY offered through such contracts have been registered under the
1933 Act on Form N-4 (File No. 33-47219).
19. The Board of Directors of Transamerica established Separate
Account VA-6 on June 11, 1996. Separate Account VA-6 is registered
under the Act as a unit investment trust (File No. 811-07753). The
assets of Separate Account VA-6 support certain flexible premium
variable annuity policies, and interests in Separate Account VA-6
offered through such contracts have been registered under the 1933 Act
on Form N-4 (File Nos. 33-09745 and 33-37883).
20. The Board of Directors of Transamerica established Separate
Account VA-7 on June 11, 1996. Separate Account VA-7 is registered
under the Act as a unit investment trust (File No. 811-08835). The
assets of Separate Account VA-7 support certain flexible premium
variable annuity policies, and interests in Separate Account VA-7
offered through such contracts have been registered under the 1933 Act
on Form N-4 (File No. 33-57697).
21. AFSG, an affiliate of the Companies, is the principal
underwriter and the distributor of the Policies. AFSG is registered
with the Commission as a broker-dealer under the Securities Exchange
Act of 1934, as amended, and is a member of the NASD. AFSG may enter
into written sales agreements with various broker-dealers or banks to
aid in the distribution of the Policies.
22. Each Investment Option (other than the Target Accounts) will
invest exclusively in a designated series of shares, representing an
interest in a particular portfolio of one or more designated management
investment companies of the series type (``Funds''). Applicants reserve
the right to designate the shares of another portfolio of the Funds or
of other management investment companies of the series type (``Other
Funds'') as the exclusive investment vehicle for each new Investment
Option that may be created in the future. Subject to Commission
approval under Section 26(b) of the Act, Applicants also reserve the
right to substitute the shares of another portfolio of the Funds or of
other Funds for the portfolio previously designated as the exclusive
investment vehicle for each Investment Option.
23. The Policies are flexible premium variable annuity policies
issued by the Companies through their respective separate accounts. The
Policies provide for accumulation of values on a variable basis, fixed
basis, or both during the accumulation period, and may provide
settlement or annuity payment options on a variable basis, fixed basis,
or both. The Policies may be purchased on a non-qualified tax basis.
The Policies may also be purchased and used in connection with plans
qualifying for favorable federal income tax treatment.\1\
---------------------------------------------------------------------------
\1\ The Companies state that the policies may use different
terminology, such as contract or policy, investment option or
investment division or sub-account, fixed account or guaranteed
period option or general account, annuity commencement date or
annuity date or maturity date, funds or portfolios, policy value or
cash value or cash value or account value, etc.
---------------------------------------------------------------------------
24. The Policy owner determines how the initial net purchase
payment will be allocated among the Investment Options of the Accounts
and any guaranteed period options or dollar cost averaging option of
the fixed account (the ``Fixed Account Options''). The Policy owner may
allocate any whole percentage of net purchase payments, from 0% to
100%, to each Investment Option and to each Fixed Account Option. The
Policy value will vary with the investment performance of the
Investment Options selected, and the Policy owner bears the entire risk
for amounts allocated to an Account.
25. A Policy owner may transfer Policy values. Transfers out of a
Subaccount generally must be for at least a specified dollar amount, or
the entire value of the Subaccount. If less than the specified amount
would remain in a Subaccount following such
[[Page 63355]]
a transfer, a Company may, at its discretion, either deny the transfer
or include that amount as part of the transfer. Transfers may be
limited, or a charge may apply. The Policy owner may surrender the
Policy or make a partial withdrawal from the Policy value.
26. The Policy owner may elect or change an annuity payment option
during the life-time of the Policy owner. The first annuity payment
will be made as of the annuity commencement date. The Policy owner
generally may change the annuity commencement date, subject to limits
specified in the prospectus. The amount of each annuity payment under
the annuity payment options will depend on the sex (if allowed) and age
of the annuitant (or annuitants) at the time the first payment is due
and the payment option.
27. The Family Income Protector rider \2\ is an optional benefit
which is available to Policy owners in the Accounts. It assures a
Policy owner a minimum level of income in the future by guaranteeing a
minimum annuitization value after 10 years, based on the Policy value
at the date the rider is issued (the ``Rider Date'') \3\ (adjusted for
any withdrawals, applicable taxes and charges), and increased by a
guaranteed annual growth rate (the ``Minimum Annuitization Value''). On
the Rider Date, the Minimum Annuitization Value equals the Policy
value. Thereafter, it will equal the Policy value on the Rider Date,
plus any additional payments, minus an adjustment for any withdrawals
made after the Rider Date, accumulated at an annual growth rate
(specified in the rider) minus premium taxes. The annual growth rate is
currently 6% per year, but may be increased or decreased by a Company
at its discretion. The annual growth rate will never be less than 3%
per year and, once in effect with respect to a particular rider, cannot
be changed from the rate specified in that rider. A Policy owner may
upgrade a Minimum Annuitization Value within thirty days after a Policy
anniversary if the Policy value is greater than the Minimum
Annuitization Value. If a Policy owner elects such an upgrade, a
Company will terminate the Family Income Protector Rider then in effect
and issue a new Family Income Protector Rider.
---------------------------------------------------------------------------
\2\ The Companies state that the ``Family Income Protector'' is
the name of the benefit in the current PFL and AUSA Policies, and
that the benefit may have a different name in the other Companies'
Policies (or in Future Policies). The Companies also state that, in
the future, this feature may be included in the base policy rather
than as a rider or endorsement.
\3\ The Companies state that the Rider Date can be the date the
policy is issued or a later date when the rider is elected.
---------------------------------------------------------------------------
28. A Policy owner may only exercise the Family Income Protector
within the thirty days immediately following the tenth or later Policy
anniversary after the Family Income Protector is elected. If an upgrade
is elected, the earliest date that a Policy owner may exercise the
Family Income Protector will be extended to the tenth Policy
anniversary following the upgrade. If a Policy owner annuities their
Policy at any other time, the Family Income Protector cannot be
exercised, and therefore will provide no benefits. The Family Income
Protector is only applicable if a Policy owner annuitizes under the
rider.
29. The Companies guarantee that the annuity payments under the
Family Income Protector Rider will never be less than the initial
payment, and will also be ``stabilized'' or held constant during each
Policy year. Under the Family Income Protector Rider, each Policy year
the ``stabilized'' payments are guaranteed to never be less than the
initial payment for the Policy year. However, if the annuity units in
the selected Subaccounts can support a payment higher than the initial
payment, then the ``stabilized'' payment will be that higher amount.
For this ``stabilized'' payment guarantee, the Companies currently
deduct a ``stabilized payment'' fee equal to an effective annual rate
of 1.25% of the daily net asset value in the variable investment
options. This stabilized payment fee is deducted only after
annuitization, and only if annuitization is under the Family Income
Protector Rider. This fee is reflected in the daily calculation of
annuity unit values.4 The Companies state that this
stabilized payment fee is not the subject of this application.
---------------------------------------------------------------------------
\4\ The Companies state that a Company may charge up to 2.25%
for this stabilized payment fee but, for a particular rider, the
amount cannot change after the Rider Date.
---------------------------------------------------------------------------
30. Prior to the annuity commencement date, there will be a charge
made each year for expenses related to the Family Income Protector
available under the terms of the Family Income Protector Rider. The
Companies deduct this charge through the cancellation of accumulation
units at each Policy anniversary and at surrender to compensate it for
the increased risks associated with providing the Family Income
Protector Rider. The Companies state that the Family Income Protector
Rider charge is not deducted when the Policy owner makes a partial
withdrawal. Upon a full surrender prior to annuitization, the full
charge is deducted. Surrenders are not permitted after annuitization,
since the Family Income Protector Rider only applies to life contigent
payment options. The Family Income Rider charge does not apply after
annuitization. It is appropriate to deduct the charge upon surrender
because it is an annual charge, and absent a surrender it applies
retroactively, i.e., at the end of each Policy year. Deferring the
charge and deducting it retroactively, at the end of each year, instead
of deducting it prospectively, at the beginning of each year, gives
Policy owners the benefit of any investment gains on that amount during
the year.
31. The current Family Income Protector Rider charge equals an
annual rate of 0.30% of the Minimum Annuitization Value on the previous
Policy anniversary. The Companies guarantee that this charge will never
exceed an annual rate of 0.50% of the Minimum Annuitization Value. The
Family Income Protector Rider charge for a particular Rider cannot be
changed after its Rider Date. Once elected, the Family Income Protector
Rider cannot be canceled. This fee is the subject of this application.
Applicants' Legal Analysis
1. Applicants respectfully request that the Commission, pursuant to
Section 6(c) of the Act, grant the exemptions set forth below to permit
the Applicants to assess the full Family Income Protector Rider charge
upon surrender where the Policy owner has elected the Family Income
Protector Rider.
2. Section 6(c) authorizes the Commission, by order upon
application, to conditionally or unconditionally grant an exemption
from any provision, rule or regulation of the Act 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 Act. Applicants state
that, because the provisions described below may be inconsistent with
certain aspects of the Family Income Protector Rider charge, they are
seeking exemptions from Section 2(a)(32), 27(i)(2)(a) and 22(c) of the
Act, and Rule 22c-1 thereunder, pursuant to Section 6(c), to the extent
necessary to assess the full Family Income Protector Rider charge
against Policies when a Policy owner surrenders the Policy prior to
annuitization. Applicants seek exemptions therefrom in order to avoid
any questions concerning the Policies' compliance with the Act and
rules thereunder. For the reasons discussed below, Applicants assert
that the
[[Page 63356]]
deduction of the Family Income Protector Rider charge is in the public
interest and consistent with the protection of investors and purposes
fairly intended by the Act.
3. Rule 6c-8(b) under the Act exempts a registered separate account
and its depositor or principal underwriter from certain provisions of
the Act and Rule 22c-1 to permit imposition of a deferred sales load on
variable annuity contracts participating in such separate account.
Applicants maintain that Rule 6c-8(b) is not available with respect to
imposition of the Family Income Protector Rider charge because it is a
charge for an optional insurance benefit rather than a deferred sales
load.
4. Rule 6c-8(c) provides exemptions from certain provisions of the
Act and Rule 22c-1 to permit deduction of a full annual administrative
services fee from variable annuity contacts upon surrender.
Applications state that the Family Income Protector Rider charge,
however, is not a fee for ``administrative services,'' and therefore
Rule 6c-8(c) is not applicable. Applicants note, however, that Rule 6c-
8(c) permits deduction of the entire annual administrative fee upon
surrender; it does not require that the feel be prorated.
5. Section 2(a)(32) of the Act defines ``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. Applicants submit that the imposition of a Family Income
Protector Rider charge upon surrender does not violate Section 2(a)(32)
of the Act. Applicants state that the Companies assess the Family
Income Protector Rider charge to compensate them for the increased risk
they bear if a Policy owner elects the Family Income Protector Rider.
Applicants further maintain that the Family Income Protector benefit
represents an optional insurance benefit that the Companies may provide
through the life of the Policy and for which they are entitled to
receive compensation. Applicants state that, normally, the Family
Income Protector Rider charge accrues each Policy year and is deducted
retroactively on each Policy anniversary, for that prior Policy year.
Applicants submit that, by deducting the Family Income Protector Rider
charge upon a Policy owner's surrender, the Policy owner merely
compensates a Company for the additional risk a Company bears.
Applicants state that, accordingly, the deduction of the Family Income
Protector Rider charge upon surrender is a legitimate charge for an
optional insurance benefit and, therefore, does into reduce the amount
of each Account's current net assets a Policy owner would otherwise be
entitled to receive.
6. Section 22(c) of the Act gives the Commission authority to make
rules and regulations applicable to registered investment companies and
to principal underwriters of, and dealers in, the redeemable securities
of any registered investment company. Rule 22c-1, promulgated under
Section 22(c) of the Act, in pertinent part, prohibits a registered
investment company issuing a redeemable security, a person designated
in such issuer's prospectus as authorized to consummate transactions in
such security, and a principal underwriter of, or dealer in, any such
security from selling, redeeming, or repurchasing any such security
except at a price based on the current net asset value of such
security. Applicants represent that, although they assess the Family
Income Protector Rider charge upon surrender, the net surrender value
is still determined based on the current net asset value. Applicants
state that the Companies deduct the Family Income Protector Rider
charge from the surrender proceeds. Applicants maintain that,
accordingly the assessment of the Family Income Protector Rider charge
upon surrender, or at any other time during the life of the Policy,
will not alter the Policy's current accumulation unit value.
7. Applicants contend that the deduction of the Family Income
Protector Rider charge is consistent with the policy behind Rule 22c-1.
Applicants note that the Commission's stated purpose in adopting Rule
22c-1 was to minimize (1) dilution of the interests of other security
holders and (2) speculative trading practices that are unfair to such
holders. Applicants maintain that the Family Income Protector Rider
charge will in no way have the dilutive effect that Rule 22c-1 is
designed to prohibit, because a surrendering Policy will ``receive'' no
more than an amount equal to the Policy value determined pursuant to
the formula set out in the Policy after the receipt of the Policy
owner's request for surrender of the Policy. Furthermore, Applicants
state that variable annuities, by nature, do not lend themselves to the
kind of speculative short-term trading that Rule 22c-1 was aimed
against and, even if they could be so used, the Family Income Protector
Rider charge would discourage, rather than encourage, any such trading.
8. Section 27(i)(2)(A) of the Act, in pertinent part, makes it
unlawful for any registered separate account funding variable insurance
contracts, or for the sponsoring insurance company of such account, to
sell any such contract unless such contract is a redeemable security.
Applicants submit that the assessment of a Family Income Protector
Rider charge upon a Policy owner's surrender, which is fully disclosed
in the prospectus for the Policy (or a supplement thereto), should not
be construed as a restriction on redemption. Applicants maintain that
the Policies are redeemable securities and that the imposition of the
Family Income Protector Rider charge upon surrender represents nothing
more than the deduction of an insurance charge that could otherwise be
deducted daily through the life of the Policy (or prospectively, at the
beginning of each year, rather than retrospectively). Moreover, as they
previously stated, Applicants note that the charge is only assessed if
the Policy owner has elected the optional Family Income Protector
Rider.
9. Accordingly, Applicants request exemptions from Sections
2(a)(32), 22(c), and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder,
to the extent necessary to permit the deduction upon surrender of the
full non pro rata Family Income Protector Rider charge, currently equal
to 0.30% (but in no event more than 0.50%) of the Minimum Annuitization
Value as described herein. For the reasons set forth above, Applicants
believe 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 Act
and Commission precedent.
10. Applicants seek relief not only for themselves with respect to
the support of the Policies, but also with respect to Future Accounts
and Future Policies as described herein.
11. Applicants represent that the terms of the relief requested
with respect to any Policies or Future Policies funded by the Accounts
and Future Accounts are consistent with the standards set forth in
section 6(c) of the Act and Commission precedent.
12. Applicants represent that the terms of the relief requested
with respect to any Future Underwriters are also consistent with the
standards set forth in section 6(c) of the Act and Commission
precedent.
13. Applicants state that, without the requested class relief,
exemptive relief for any Future Account, Future Policy or Future
Underwriter would have to be
[[Page 63357]]
requested and obtained separately. Applicants represent that these
additional requests for exemptive relief would present no issues under
the Act not already addressed herein. Applicants state that, if the
Applicants were to repeatedly seek exemptive relief with respect to the
same issues addressed herein, investors would not receive additional
protection or benefit, and investors and the Applicants could be
disadvantaged by increased costs from preparing such additional
requests for relief. Applicants argue that the requested class relief
is appropriate in the public interest because the relief will promote
competitiveness in the variable annuity market by eliminating the need
for the Companies or their affiliates to file redundant exemptive
applications, thereby reducing administrative expenses and maximizing
efficient use of resources. Elimination of the delay and the expense of
repeatedly seeking exemptive relief would, Applicants opine, enhance
each Applicant's ability to effectively take advantage of business
opportunities as such opportunities arise. Applicants submit, for all
the reasons stated herein, that their request for class exemptions 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 Act, and that an order of the Commission
including such class relief, should, therefore, be granted. All
entities that currently intend to rely on the requested order are named
as Applicants. Any entity that relies upon the requested order in the
future will comply with the terms and conditions contained in this
application.
Conclusion
Applicants represent that the Family Income Protector Rider charge
under the Policies meets (and the charge under Future Policies will
meet) all of the requirements for exemptive relief pursuant to Section
6(c) of the Act. Applicants submit that the requested exemptions are
necessary and appropriate in the public interest and consistent with
protection of investors and the purposes fairly intended by the policy
and provisions of the Act. Applicants therefore request that an order
be granted permitting the proposed transactions.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-30272 Filed 11-18-99; 8:45 am]
BILLING CODE 8010-01-M