[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]


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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'').

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    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\
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    \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.
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    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.
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    \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.
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    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.
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    \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.
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    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