[Federal Register Volume 66, Number 170 (Friday, August 31, 2001)]
[Notices]
[Pages 46041-46045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-22015]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-25140; File No. 812-12470]


United of Omaha Life Insurance Company, et al

August 24, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order pursuant to Section 6(c) of 
the Investment Company Act of 1940 (the ``Act'') granting exemptions 
from the provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the 
Act and Rule 22c-1 thereunder.

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SUMMARY OF APPLICATION: Applicants seek an order of exemption pursuant 
to Section 6(c) of the Act to the extent necessary to permit the 
recapture, under specified circumstances, of credits applied to 
purchase payments made under certain flexible premium variable annuity 
contracts that the Companies (defined below) will issue through the 
Accounts (the ``Policies''), as well as other policies that the 
Companies may issue in the future through their existing or future 
separate accounts (``Other Accounts'') that are substantially similar 
to the Policies in all material respects (``Future Policies''). 
Applicants also request that the order being sought extend to any other 
National Association of Securities Dealers, Inc. (``NASD'') member 
broker-dealer controlling or controlled, by or under common control or 
affiliated with MOIS (defined below), whether existing or created in 
the future, that serves as distributor or principal underwriter for the 
Policies or Future Policies (``Affiliated Broker-Dealers'').

APPLICANTS: United of Omaha Life Insurance Company (``United''), 
Companion Life Insurance Company (``Companion,'' together with United, 
the ``Companies''), United of Omaha Separate Account C, Companion Life 
Separate Account C (together with United of Omaha Separate Account C, 
the ``Accounts''), and Mutual of Omaha Investor Services, Inc. 
(``MOIS'').

FILING DATE: The application was filed on March 5, 2001 and amended and 
restated on April 27, 2001, August 20, 2001 and August 23, 2001.

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, in person or by mail. 
Hearing requests must be received by the SEC by 5:30 p.m. on September 
18, 2001, and should be accompanied by proof of service on the 
Applicants in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
may request notification of the date of a hearing by writing to the 
Secretary of the SEC.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, in care of Michael 
E. Huss, Esq., Senior Counsel, United of Omaha Life Insurance Company, 
Mutual of Omaha Plaza, Omaha, NE 68175.

FOR FURTHER INFORMATION CONTACT: Joyce M. Pickholz, Senior Counsel, or 
Keith E. Carpenter, Branch Chief, Division of Investment Management, 
Office of Insurance Products, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
SEC's Public Reference Branch at 450 Fifth Street, NW., Washington, DC 
20549-0102 [tel. (202) 942-8090].

Applicants' Representations

    1. United is a stock life insurance company organized under the 
laws of the State of Nebraska in 1926. It is authorized to sell life 
insurance and annuities in all states (except New York) and the 
District of Columbia. United is a wholly owned subsidiary of Mutual of 
Omaha Insurance Company (``Mutual''),

[[Page 46042]]

a mutual life insurance company organized under the laws of the State 
of Nebraska.
    2. Companion is a stock life insurance company organized under the 
laws of the State of New York. It is authorized to sell life insurance 
and annuities in Connecticut, New Jersey and New York. Companion is a 
direct subsidiary of United and an indirect subsidiary of Mutual.
    3. United of Omaha Separate Account C was established on December 
1, 1993 as a separate account under Nebraska law for the purpose of 
funding variable annuity policies issued by United. It is a segregated 
asset account of United and is registered with the Commission as a unit 
investment trust under the Act.
    4. Companion Life Separate Account C was established on February 
18, 1994 as a separate account under New York law for the purpose of 
funding variable annuity policies issued by Companion. It is a 
segregated asset account of Companion and is registered with the 
Commission as a unit investment trust under the Act.
    5. MOIS is the principal underwriter of the Policies. MOIS is 
registered with the Commission as a broker-dealer under the Securities 
Exchange Act of 1934 and is a member of the NASD. The Policies are sold 
by registered representatives of broker-dealers that have entered into 
distribution agreements with MOIS, and by registered representatives of 
MOIS. MOIS is an indirect wholly owned subsidiary of Mutual.
    6. The minimum initial purchase payment is $10,000. A Policy owner 
may make additional purchase payments of at least $500 at any time 
($100 if the purchase payment is made by an electronic funds transfer). 
Additional purchase payments may be made at any time until the Policy 
anniversary following the Policy owner's 95th birthday.
    7. Policy owners can elect an enhanced credit rider to the Policy. 
If elected, this rider will add the Enhanced Credit, which is equal to 
the following percentage of purchase payments made during the first 
seven Policy years.

------------------------------------------------------------------------
                                                           Percentage of
             Policy year of purchase payment                 purchase
                                                              payment
------------------------------------------------------------------------
1.......................................................               4
2.......................................................             3.5
3.......................................................               3
4.......................................................             2.5
5.......................................................               2
6.......................................................             1.5
7.......................................................               1
8+......................................................               0
------------------------------------------------------------------------

    8. The Companies will allocate Enhanced Credits pro rata among the 
fixed and variable investment options available under the Policy in the 
same ratio as the related purchase payment is allocated. The Companies 
will fund Enhanced Credits from their general account assets.
    9. The annual charge for the enhanced credit rider is .50% of the 
Policy owner's total accumulation value in the variable and fixed 
accounts of the Policy. The Companies assess the charge daily on the 
assets in the investment options to which a Policy owner's purchase 
payments are allocated. The Companies will discontinue deducting the 
charge eight years from the date the Policy is issued.
    10. The enhanced credit rider can only be elected on the Policy 
application, and cannot be elected after the Policy is issued. Once the 
enhanced credit rider is elected, it cannot be cancelled, and will only 
terminate (i) at the end of the first eight Policy years or (ii) the 
date the Policy terminates.
    11. The Enhanced Credit will be recaptured if the Policy owner 
exercises the free look provision available under the Policy. In 
addition, unless prohibited by state low, all or part of the Enhanced 
Credit will be recaptured if the Policy owner makes a cash surrender or 
a partial withdrawal in excess of the annual 10% free withdrawal amount 
during the first seven Policy years. The 10% free withdrawal provision 
allows a Policy owner to withdraw up to 10% annually of the 
accumulation value of the Policy without a withdrawal charge or 
interest adjustment being assessed. The amount of the bonus forfeited 
will equal the amount of the bonus, multiplied by the amount of the 
cash surrender or partial withdrawal in excess of the 10% free 
withdrawal amount, divided by the sum of all purchase payments made 
under the Policy, multiplied by the percentage of the Enhanced Credit 
which is not vested. Enhanced Credits that are not vested will be 
recaptured according to the following schedule:

------------------------------------------------------------------------
                                                           Percentage of
                                                             enhanced
                       Policy year                            credit
                                                            recaptured
------------------------------------------------------------------------
1.......................................................             100
2.......................................................             100
3.......................................................              75
4.......................................................              75
5.......................................................              50
6.......................................................              50
7.......................................................              25
------------------------------------------------------------------------

    12. The amount of any account value, step-up value or roll-up value 
death benefit will not include any Enhanced Credits given within the 
twelve months prior to the date of a Policy owner's death.
    13. Regardless of whether or not the Enhanced Credit is recaptured, 
all gains attributable to such Enhanced Credit are part of the Policy 
owner's Policy value and will not be recaptured.
    14. Policy owners can elect to receive a renewal credit to the 
accumulation value of their Policy at any time after the end of the 
eighth Policy year and at the end of each renewal credit period 
thereafter. A renewal credit period is a five-year term that begins on 
the day a Policy owner elects to receive a renewal credit. The 
Companies will allocate the renewal credit pro rata among the fixed and 
variable investment options available under the Policy in same ratio as 
accumulation value of the Policy is allocated. The Companies will fund 
the renewal credit from their general account assets.
    15. There is no charge for the renewal credit and the Companies 
will not recapture the renewal credit.
    16. The free look period is the 10-day period (or longer if 
required by state law) during which a Policy owner may return a Policy 
after it has been delivered and receive a full refund of the Policy 
accumulation value, less any Enhanced Credits applied. Unless the law 
requires that the full amount of the purchase payment be refunded, less 
any withdrawals, the Policy owner bears the investment risk from the 
time of purchase until he or she returns the Policy and the refund 
amount may be more or less than the purchase payment the Policy owner 
made. The Enhanced Credit will be recaptured if the free look provision 
is exercised.
    17. A Policy owner may make withdrawals from the Policy before 
annuitization. The minimum withdrawal amount is $500. If the enhanced 
credit rider is elected, any withdrawal in excess of the annual 10% 
free withdrawal amount during the first seven Policy years will be 
subject to the recapture of some or all Enhanced Credits applied to the 
Policy and also may be subject to withdrawal charges and interest 
adjustments.
    18. The withdrawal charge applied to a partial withdrawal or cash 
surrender will be the applicable withdrawal charge percentage listed 
below, subject to a maximum of 9% of the sum of all purchases made by 
the Policy owner. The withdrawal charge percentages for the first eight 
Policy years are as follows:

[[Page 46043]]



------------------------------------------------------------------------
                                                           Percentage of
                       Policy year                            amount
                                                             withdrawn
------------------------------------------------------------------------
1.......................................................               8
2.......................................................               8
3.......................................................               8
4.......................................................               7
5.......................................................               7
6.......................................................               6
7.......................................................               6
8.......................................................               5
------------------------------------------------------------------------

    The withdrawal charges for all Policy years following the eighth 
Policy year will be 5% during any renewal credit period (which is the 
five-year term following the date the Policy owner elects to receive 
the renewal credit). Otherwise, no withdrawal charge is applicable 
after the eighth Policy year.
    19. The interest adjustment may be applied to a cash surrender or 
partial withdrawal from the Policy's 5-Year Fixed Account or 8-Year 
Fixed Accounts for amounts in excess of the annual 10% free withdrawal 
amount. This adjustment is intended to adjust the interest received in 
these accounts to a market rate of interest. The adjustment will never 
result in a credited interest rate that will yield less than 3% per 
annum.
    20. Withdrawal charges and interest adjustments will no longer 
apply as of the first policy anniversary following the annuitant's 90th 
birthday. In addition, the withdrawal charges and interest adjustments 
do not apply to (a) any death benefit received under the Policy, (b) 
when the waiver of withdrawal charges provision of the Policy is 
exercised and (c) in certain other very limited circumstances set forth 
in the Policy.
    21. The Policy provides for a basic death benefit. An enhanced 
death benefit is also available. Any Enhanced Credits to the Policy 
given within the twelve months prior to the date of a Policy owner's 
death will be recaptured when the death benefit is based on account 
value, step-up value or roll-up value. However, the accumulation value 
of the Policy will reflect all gains and losses attributed to all 
Enhanced Credits to the Policy, including those recaptured.
    22. Owners of the Policies may allocate their purchase payments 
among thirty-one variable investment options and four fixed investment 
options. Each sub-account of the Accounts is a variable investment 
option that will invest in shares of a corresponding portfolio of The 
Alger American Fund, Deutsche Asset Management VIT Funds, Federated 
Insurance Series, Fidelity Variable Insurance Products Fund, MFS 
Variable Insurance Trust, Morgan Stanley Universal Institutional Funds, 
Inc., Pioneer Variable Contracts Trust, Scudder Variable Life 
Investment Fund, T. Rowe Price Equity Series, Inc., T. Rowe Price Fixed 
Income Series, Inc. and T. Rowe Price International Series, Inc. or 
other investment companies.
    23. The Companies, at a later day, may decide to create additional 
subaccounts to invest in any additional funding media as may now or in 
the future be available. The Companies, from time to time, also may 
combine or eliminate subaccounts or transfer assets to and from 
subaccounts.
    24. The Policy provides for a death benefit, enhanced death benefit 
options, annuity benefits and annuity payout options, as well as 
transfer privileges, dollar cost averaging, asset allocation and other 
features. In addition to the withdrawal charge and interest adjustment 
discussed above, the Policy has the following charges: (a) For Policies 
that have an accumulation value of less than $100,000, an 
administrative expense charge equal to .15% per annum of the Policy's 
investment in the subaccounts, deducted on a daily basis; (b) an annual 
policy fee of $40 for Policies that have an accumulation value of less 
than $50,000; (c) a mortality and expense risk charge equal to 1.25% 
per annum of Policy's accumulation value, deducted on a daily basis; 
(d) a transfer fee of $20 for each transfer after twelve transfers made 
during a Policy year; (e) if elected, the charge for the enhanced 
credit rider which is equal to 0.50% per annum of accumulation value of 
the Policy, deducted on a daily basis for the first eight Policy years; 
(f) if elected, the charge for the enhanced death benefit rider which 
is equal to 0.30% per annum of the accumulation value in the 
subaccounts, deduced on a daily basis; and (g) any applicable state 
premium tax. In addition, assets invested in the subaccounts are 
charged with the annual operating expenses of the underlying 
portfolios.

Applicants' Legal Analysis and Condition

    1. Section 6(c) of the Act authorizes the Commission to exempt any 
person, security or transaction, or any class or classes or persons, 
securities or transactions from the provisions of the Act and the rules 
promulgated thereunder if and to the extent that such exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act.
    2. Applicants request that the Commission pursuant to Section 6(c) 
of the Act grant the exemptions requested below with respect to the 
Policy and any Future Policies issued by the Companies, funded by the 
Accounts or Other Accounts, and underwritten or distributed by MOIS or 
Affiliated Broker-Dealers. Applicants undertake that Future Policies 
will be substantially similar to the Policies in all material respects. 
Applicants believe that the requested exemptions are appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    3. Applicants seek exemptions pursuant to Section 6(c) from 
Sections 2(a)(32), 22(c), and 27(i)(2)(A) of the Act and Rule 22c-1 
thereunder to the extent deemed necessary to permit the Companies to 
recapture that portion of an Enhanced Credit which is not vested, as 
described above, in the following instances: (a) When a Policy owner 
exercises the Policy's free look provision; (b) when a Policy owner 
makes a cash surrender or a withdrawal in excess of the annual 10% free 
withdrawal amount within the first seven Policy years; and (c) any 
Enhanced Credits received within twelve months of the date of death of 
a Policy owner when the death benefit is based on account value, step-
up value or roll-up value.
    4. Applicants represent that it is not administratively feasible to 
track an Enhanced Credit in the Accounts after the Enhanced Credit is 
applied. Accordingly, the asset-based charges applicable to the 
Accounts will be assessed against the entire amount held in the 
Accounts, including the Enhanced Credit, during the free look period 
and the recapture period. As a result during such periods, the 
aggregate asset-based charges assessed against a Policy owner's 
accumulation value, which includes all assets in the sub-accounts and 
the fixed accounts, including any Enhanced Credit, will be higher than 
those that would be charged if the Policy owner's accumulation value 
did not include the Enhanced Credit.
    5. Subsection (i) of Section 27 of the Act provides that Section 27 
does not apply to any registered separate account funding variable 
insurance contracts, or to the sponsoring insurance company and 
principal underwriter of such account, except as provided in paragraph 
(2) of the subsection. Paragraph (2)(A) provides that it shall be 
unlawful for such a separate account or sponsoring insurance company to 
sell a contract funded by the registered separate account unless such 
contract is a redeemable security. Section 2(a)(32)

[[Page 46044]]

defines ``redeemable security'' as any security, other than short-term 
paper, under the terms of which the holder, upon presentation to the 
issuer, is entitled to receive approximately his or her proportionate 
share of the issuer's current net assets, or the cash equivalent 
thereof.
    6. Applicants assert that the recapture of an Enhanced Credit in 
the circumstances set forth above would not deprive a Policy owner of 
his or her proportionate share of the issuer's current net assets. 
According to the Applicants, a Policy owner's interest in an Enhanced 
Credit allocated to his or her Policy value upon receipt of a purchase 
payment made during the seven years of the Policy is not fully vested 
until the end of the seventh Policy year. Unless and until the full 
amount of an Enhanced Credit is vested, the Companies retain at least a 
partial right and interest in the Enhanced Credit, although not in the 
earnings attributable to that amount. Thus, when the Companies 
recapture an Enhanced Credit, they are merely retrieving their own 
assets and the Policy owner has not been deprived of a proportionate 
share of the applicable Accounts' assets because his or her interest in 
the Enhanced Credit has not vested.
    7. In addition, Applicants assert that permitting a Policy owner to 
retain an Enhanced Credit under a Policy upon the exercise of the free 
look provision would not only be unfair, but would also encourage 
individuals to purchase a Policy, with no intention of keeping it, and 
return it for a quick profit. Furthermore, the recapture of Enhanced 
Credits applied to purchase payments made within the first seven Policy 
years is designed to provide the Companies with a measure of protection 
against anti-selection. The anti-selection risk is that a Policy owner 
could collect the Enhanced Credit and then cancel the Policy soon 
thereafter, thereby leaving the Companies little time to recover the 
cost of the Enhanced Credit. As noted earlier, the amounts recaptured 
equal the Enhanced Credits provided by the Companies from their general 
account assets, and any gain would remain a part of the Policy owner's 
accumulation value.
    8. For the foregoing reasons, Applicants submit that the provisions 
for recapture of Enhanced Credits under the Policies and Future 
Policies do not violate Sections 2(a)(32) and 27(i)(2)(A) of the Act. 
The application of an Enhanced Credit to purchase payments made under 
the Policies should not raise any questions as to the Companies' 
compliance with the provisions of Section 27(i). However, to avoid any 
uncertainty as to full compliance with the Act, Applicants request an 
exemption from Sections 2(a)(32) and 27(i)(2)(A), to the extent deemed 
necessary, to permit the recapture of any Enhanced Credit under the 
circumstances described in this application without the loss of relief 
from Section 27 provided by Section 27(i).
    9. Section 22(c) of the Act authorizes the Commission 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 to accomplish the same purposes as 
contemplated by Section 22(a). Rule 22c-1 under the Act prohibits a 
registered investment company issuing any redeemable security, a person 
designated in such issuer's prospectus as authorized to consummate 
transactions in any such security, and a principal underwriter of, or 
dealer in, such security, from selling, redeeming, or repurchasing any 
such security except at a price based on the current net asset value of 
such security next computed after receipt of a tender of such security 
for redemption or of an order to purchase or sell such security.
    10. The Companies' recapture of an Enhanced Credit might arguably 
be viewed as resulting in the redemption of redeemable securities for a 
price other than one based on the current accumulation unit value of 
the Accounts. Applicants contend, however, that the recapture of the 
Enhanced Credit does not violate Section 22(c) or Rule 22c-1.
    11. Applicants argue that the recapture of the Enhanced Credit does 
not involve either of the problems that Rule 22c-1 was intended to 
eliminate or reduce, namely (a) the dilution of the value of 
outstanding redeemable securities of registered investment companies 
through their sale at a price below net asset value or repurchase at a 
price above it, and (b) other unfair results, including speculative 
trading practices. These problems were the result of backward pricing, 
the practice of basing the price of a mutual fund share on the net 
asset value per share determined as of the close of the market on the 
previous day. Backward pricing allowed investors to take advantage of 
increases or decreases in net asset value that were not yet reflected 
in the price, thereby diluting the values of outstanding mutual fund 
shares.
    12. Applicants state that the proposed recapture of the Enhanced 
Credit does not pose such a threat of dilution. To effect a recapture 
of an Enhanced Credit, the Companies will redeem interests in a Policy 
at a price determined on the basis of the current accumulation unit 
value(s) of the sub-account(s) to which the Policy owner's accumulation 
value is allocated. The amount recaptured will never exceed the amount 
of the Enhanced Credit paid out of the Companies' general account 
assets. Although the Policy owner will be entitled to retain any 
investment gain attributable to the Enhanced Credit, the amount of that 
gain will be determined on the basis of the current accumulation unit 
values of the applicable subaccounts. Thus, no dilution will occur upon 
the recapture of the Enhanced Credit. Applicants also state that the 
second harm that Rule 22c-1 was designed to address, namely speculative 
trading practices calculated to take advantage of backward pricing, 
will not occur as a result of the recapture of the Enhanced Credit.
    13. Applicants submit that because neither of the harms that Rule 
22c-1 was meant to address is found in the recapture of the Enhanced 
Credit, Rule 22c-1 and Section 22(c) should not apply to any Enhanced 
Credit. However, to avoid any uncertainty as to full compliance with 
the Act, Applicants request an exemption from the provisions of Section 
22(c) and Rule 22c-1 to the extent deemed necessary to permit them to 
recapture the Enhanced Credit under the Policies and Future Policies.
    14. Applicants represent that the Companies will offer the renewal 
credit subject to the following conditions:
    a. Election Letter. In connection with the renewal credit, the 
Companies will send a letter (the ``Letter'') that prominently 
discloses in concise plain English that (a) the renewal credit is most 
suitable for Policy owners who expect to continue their Policies for 
five or more years, and (b) if he Policy is surrendered or if 
accumulation value is withdrawn during the five-year renewal credit 
period, then the Policy owner may be worse off in certain circumstances 
than if the or she had not elected the renewal credit. The Letter will 
disclose exactly how a Policy owner who surrenders a Policy or makes a 
withdrawal during the renewal credit period could be worse off as a 
result of poor separate account investment performance than if he or 
she had not elected the renewal credit.
    b. Written Election. The Companies will send the Letter directly to 
Policy owners eligible to elect the renewal credit and elections to 
receive the renewal credit will only be effective upon receipt by the 
Companies of an election signed by the Policy owner on a duplicate copy 
of the Letter. The

[[Page 46045]]

Companies will distribute such duplicate Letters with election 
signature forms along with the Letter. If the Letter is more than two 
pages in length, the Companies will use a separate document to obtain 
the Policy owner's elections of the renewal credit, which document will 
prominently disclose in concise plain English the statements required 
in condition 1 above.
    c. Records. The Companies will maintain the following separately 
identifiable records in an easily accessible place for review by the 
Commission staff: (a) copies of any form of the Letter and any other 
written materials or scripts for presentations by representatives 
regarding the renewal credit, including the dates used, (b) records 
showing the number and percentage (on a calendar quarter basis) of 
eligible Policy owners that elect the renewal credit, (c) records 
showing the name and Policy number of each Policy owner who elects a 
renewal credit, the amount of the Policy owner's accumulation value at 
the time the renewal credit is elected, the amount of the renewal 
credit, the Policy owner's name, address, telephone number and date of 
birth, the date the Policy owner signed the Letter or election form, 
the signed Letters or separate documents that reflect the Policy 
owner's election of the renewal credit, and where a commission (or 
other compensation) is paid to a registered representative on or after 
the date of the election of the renewal credit, the amount of the 
commission (or other compensation), and the name of any sales 
representative involved with the solicitation of the election of the 
renewal credit or who receives any compensation in connection with the 
Policy after the date of the election of the renewal credit and her or 
his CRD number, firm affiliation, telephone number, and branch office 
address, (d) records of persistency information for Policies whose 
Policy owners have elected the renewal credit, including the date(s) of 
any subsequent surrender or withdrawal of accumulation value and the 
amount of any withdrawal charge, and (e) logs recording any Policy 
owner complaints about the renewal credit, state insurance department 
inquiries about the same, or litigation, arbitration or other 
proceedings regarding the renewal credit. The logs will include the 
date of the complaint (or of commencement of any proceeding), the name 
and address of the person making the complaint or commencing the 
proceeding, the nature of the complaint or proceeding and the persons 
involved in the complaint or proceeding. The forgoing records will be 
retained for the longer of: (1) six years after the later of their 
creation or their last use, or (2) two years after the end of the 
relevant renewal credit period.
    15. Applicants request an order pursuant to Section 6(c) for an 
exemption from Sections 2(a)(32), 22(c), and 27(i)(2)(A) of the Act and 
Rule 22c-1 thereunder to the extent deemed necessary to permit the 
Companies to recapture Enhanced Credits as described herein. Applicants 
represent that the Enhanced Credit will be attractive to and in the 
interest of investors because it will permit Policy owners to put from 
104% to 101% of each of their purchase payments in the first seven 
years of the Policy to work for them in the selected investment 
options. In addition, the Policy owners will retain any earnings 
attributable to the Enhanced Credit, as well as the principal amount of 
the Enhanced Credit once vested.
    16. Applicants further submit that the recapture of any Enhanced 
Credit only applies in relation to the risk of anti-selection against 
the Companies. Anti-selection can generally be described as a risk that 
Policy owners obtain an undue advantage. This undue advantage is based 
on elements of fairness to the Companies and the actuarial and other 
factors taken into account in designing the Policies and Future 
Policies. The Companies provide the Enhanced Credit from their general 
account assets on a guaranteed basis. Thus, they undertake a financial 
obligation that contemplates the retention of the Policies and Future 
Policies by their owners over an extended period, consistent with the 
long-term nature of retirement planning. The Companies generally expect 
to recover their costs, including Enhanced Credits, over an anticipated 
duration while a Policy or Future Policy is in force. The right to 
recapture Enhanced Credits applied to purchase payments made within the 
first seven Policy years protects the Companies against the risk that a 
Policy owner will purchase a Policy or Future Policy or make larger or 
additional payments with the intent to hold the Policy or Future Policy 
for speculative purposes or for a short period of time.
    17. With respect to refunds paid upon the return of a Policy or 
Future Policy within the free look period, Applicants assert that the 
amount payable by the Companies must be reduced by the amount of the 
Enhanced Credit. Otherwise, investors, purchase a Policy or Future 
Policy for the sole purpose of exercising the free look provision and 
making a quick profit equal to 4% of their investment.
    18. Applicants submit that their request for an order that applies 
to the Accounts and any Other Accounts established by the Companies, in 
connection with the issuance of the Policies and Future Policies, is 
appropriate in the public interest. Such an order would promote 
competitiveness in the variable annuity market by eliminating the need 
to file redundant exemptive applications, thereby reducing 
administrative expenses and maximizing the efficient use of Applicants' 
resources. Investors would not receive any benefit or additional 
protection by requiring Applicants to repeatedly seek exemptive relief 
that would present no issue under the Act that has not already been 
addressed in this application. Having Applicants file additional 
applications would impair Applicants' ability to take advantage of 
business opportunities as they arise. Further, if Applicants were 
required repeatedly to seek exemptive relief with respect to the same 
issues addressed in this application, investors would not receive any 
benefit or additional protection thereby.
    19. Applicants undertake that Future Policies funded by the 
Accounts or by Other Accounts, which seek to rely on the order issued 
pursuant to this application, will be substantially similar to the 
Policies in all material respects.

Conclusion

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

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-22015 Filed 8-30-01; 8:45 am]
BILLING CODE 8010-01-M