[Federal Register Volume 68, Number 72 (Tuesday, April 15, 2003)]
[Notices]
[Pages 18302-18306]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-9158]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25998; File No. 812-11760]


Pacific Life Insurance Company, et al.; Notice of Application

April 9, 2003.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

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

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Applicants: Pacific Life Insurance Company (``Pacific Life''); Separate 
Account A of Pacific Life (``Pacific Separate Account A''); Pacific 
Select Variable Annuity Separate Account of Pacific Life Insurance 
Company (``PSVA Separate Account''); Pacific Life and Annuity Company 
(``PL&A'') (together with Pacific Life the ``PL Insurers''); Separate 
Account A of Pacific Life and Annuity Company (``PL&A Separate Account 
A'') (together with Pacific Separate Account A, PSVA Separate Account, 
and any other separate account of Pacific Life, PL&A or any life 
insurance company that is a successor in interest to PL Insurers, the 
``Separate Accounts''); and Pacific Select Distributors, Inc. (``PSD'') 
(collectively referred to herein as ``Applicants'').


Summary of Application: Applicants seek an order to permit, when 
contracts are returned during the free look period, (i) the recapture 
of certain credit enhancements (``Credit Enhancements'') applied to the 
``Contract Value'' (as defined herein) of Contractholders \1\ under: 
(a) Pacific Value variable annuity, a flexible premium deferred 
variable annuity contract that Pacific Life issues through Pacific 
Separate Account A (``Pacific Value''), and (b) other Variable 
Contracts and any Future Variable Contracts offered by a Future 
Account, provided that any such Variable Contract or Future Variable 
Contract is substantially similar in all material respects to Pacific 
Value; and (ii) the recapture of any amounts credited under Pacific 
Portfolios variable annuity (``Pacific Portfolios''), Pacific 
Innovations Select variable annuity (``Pacific Innovations Select''), 
and Pacific One variable annuity (``Pacific One''), each a flexible 
premium deferred variable annuity contract funded by Pacific Separate 
Account A; Pacific Select Variable Annuity, a flexible premium deferred 
annuity and variable accumulation contract funded by Pacific Select 
Variable Annuity Separate Account (``PSVA''), Pacific Innovations 
Select variable annuity, a flexible premium deferred variable annuity 
contract funded by PL&A Separate Account A (``PL&A Innovations 
Select''), or any Variable Contract or Future Variable Contract that is 
sold to Contractholders in situations where selling and/or maintenance 
costs associated with the Variable Contracts are reduced (``Cost 
Reduction Credit'') or to Contractholders who meet certain criteria as 
established by the relevant PL Insurer (``Eligible Person Credit''), 
provided that any such Variable Contract or Future Variable Contract is 
substantially similar in all material respects to PSVA, Pacific 
Portfolios, Pacific One, Pacific Innovations Select or PL&A Innovations 
Select.
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    \1\ The term ``Contractholder'' refers to contractholders of any 
variable annuity contract funded by a Separate Account (each, a 
``Variable Contract'' and collectively, ``Variable Contracts''), and 
also to contractholders of any variable annuity contract funded in 
the future by a Separate Account or a separate account that will be 
established in the future by a PL Insurer to support variable 
annuity contracts issued by a PL Insurer (``Future Account'') 
(collectively, ``Future Variable Contracts'').

Filing Dates: The Application was filed with the SEC on August 24, 1999 
and amended and restated on March 28, 2000, April 30, 2002, November 
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25, 2002 and April 8, 2003.

Hearing or Notification of Hearing: An order granting the Application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
Applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m., on May 1, 2003, 
and should be accompanied by proof of service on Applicants, in the 
form of an affidavit, or, for lawyers, a certificate of service.

[[Page 18303]]

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 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants: Robin S. Yonis, Esq., Pacific Life Insurance Company, 
700 Newport Center Drive, Newport Beach, California 92660.

FOR FURTHER INFORMATION CONTACT: Mark Cowan, Senior Counsel, or Zandra 
Y. Bailes, Branch Chief, at (202) 942-0670 (Division of Investment 
Management, Office of Insurance Products).

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, NW., Washington, 
DC, 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Pacific Life is a life insurance company that is domiciled in 
California. Along with subsidiaries and affiliates, Pacific Life's 
operations include life insurance, annuities, pension and institutional 
products, group employee benefits, broker/dealer operations and 
investment advisory services. Pacific Life is authorized to conduct 
life insurance and annuity business in the District of Columbia and all 
states except New York. Its principal offices are located at 700 
Newport Center Drive, Newport Beach, California 92660.
    2. Pacific Separate Account A was established on September 7, 1994 
as a segregated asset account of Pacific Life and is registered with 
the Commission as a unit investment trust. Pacific Life is the legal 
owner of the assets in Pacific Separate Account A. Pacific Separate 
Account A currently has 37 subaccounts or ``Variable Investment 
Options.'' Each Variable Investment Option invests in a corresponding 
series of Pacific Select Fund (``Select Fund''), an open-end registered 
management investment company for which Pacific Life serves as 
investment adviser, or The Prudential Series Fund, Inc., an open-end 
registered investment company for which Prudential Investments Fund 
Management LLC serves as investment adviser. Pacific Separate Account A 
funds the variable benefits available under Pacific Value, Pacific 
Innovations Select, Pacific Portfolios, Pacific One, Pacific One Select 
variable annuity (``Pacific One Select''), Pacific Innovations variable 
annuity (``Pacific Innovations''), and Pacific Odyssey variable annuity 
(``Pacific Odyssey''). Interests in Pacific Separate Account A under 
Pacific Value, Pacific Innovations Select, Pacific Portfolios, Pacific 
One, Pacific One Select, Pacific Innovations, and Pacific Odyssey are 
registered under the Securities Act of 1933, as amended (the ``1933 
Act'').
    3. PSVA Separate Account was established by Pacific Life on 
November 30, 1989 as a segregated asset account of Pacific Life and is 
registered with the Commission as a unit investment trust. Pacific Life 
is the legal owner of the assets in PSVA Separate Account. Each 
Variable Investment Option invests in a corresponding series of Select 
Fund. PSVA Separate Account currently has 33 Variable Investment 
Options. PSVA Separate Account currently funds the variable benefits 
available under PSVA. Interests in PSVA Separate Account are registered 
under the 1933 Act.
    4. PL&A is a life insurance company domiciled in Arizona. PL&A's 
operations include life insurance, annuity and institutional products, 
group life and health insurance and various other insurance products 
and services. At the end of 2002, PL&A's total statutory assets were 
$854 million. PL&A is authorized to conduct life insurance and annuity 
business in Arizona, New York and certain other states. PL&A's 
principal office is located at 700 Newport Center Drive, Newport Beach, 
California 92660.
    5. PL&A Separate Account A was established by PL&A on January 25, 
1999 as a segregated asset account of PL&A and is registered with the 
Commission as a unit investment trust. PL&A is the legal owner of the 
assets in PL&A Separate Account A. Each Variable Investment Option 
invests in a corresponding series of Select Fund. PL&A Separate Account 
A currently has 33 Variable Investment Options. PL&A Separate Account A 
currently funds the variable benefits available under PL&A Innovations 
Select. Interests in PL&A Separate Account A are registered under the 
1933 Act.
    6. PSD, a wholly-owned subsidiary of Pacific Life, serves as the 
principal underwriter for the Variable Contracts issued by the PL 
Insurers. It is also anticipated that PSD will serve as the principal 
underwriter for any Future Variable Contracts issued by the PL 
Insurers. PSD is registered with the Commission as a broker/dealer 
under the Securities Exchange Act of 1934, as amended. The PL Insurers 
and PSD have entered into selling agreements with various broker/
dealers, under which such broker/dealers act as agents of the relevant 
PL Insurer and PSD in the sale of the relevant PL Insurer's Variable 
Contracts.
    7. Pacific Value offers a ``Credit Enhancement'' feature under 
which Pacific Life automatically adds an amount to each 
Contractholder's overall ``Contract Value'' at the time any amount is 
paid to Pacific Life by or on behalf of the Contractholder as 
consideration of the benefits provided under the Variable Contract 
(referred to herein as ``Purchase Payments''). The term ``Contract 
Value'' refers to the sum (as calculated at the end of each business 
day) of: (i) The aggregate amount of Purchase Payments and any prior 
Credit Enhancements, and any earnings or losses thereon, less any fees 
and charges, held for a Contractholder's Variable Contract in any 
Variable Investment Option; (ii) the aggregate amount of Purchase 
Payments and any prior Credit Enhancements, and any interest earned 
thereon, less any fees and charges held for a Contractholder's Variable 
Contract in any fixed option available under his or her Variable 
Contract; (iii) the amount, including any interest accrued, held to 
secure the principal amount the Contractholder has on any outstanding 
loan under his or her Variable Contract; less (iv) the amount, 
including any associated withdrawal charge, of any withdrawal from the 
Variable Contract.
    8. Credit Enhancements are allocated among a Contractholder's 
investment options then in effect in the same proportion that the 
applicable Purchase Payment is allocated. The Credit Enhancement with 
respect to each Purchase Payment is based on the Contractholder's total 
Purchase Payments made into Pacific Value less total withdrawals, 
including any withdrawal charges, from Pacific Value as of the date the 
Purchase Payment is applied. The Credit Enhancement available under 
Pacific Value, expressed as a percentage of the relevant Purchase 
Payment is set forth below:

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                                                               Credit
                                                             Enhancement
                                                              (percent)
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Contracts issued on or after April 1, 2000; Total Purchase
 Payments Less Total Withdrawals:
  Less than $250,000......................................           4.0
  $250,000 or more........................................           5.0
Contracts issued before April 1, 2000; Total Purchase
 Payments Less Total Withdrawals:
  Less than $100,000......................................           3.0
  At least $100,000 but less than $2.5 million............           4.0
  $2.5 million or more....................................           5.0
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[[Page 18304]]

    9. PL Insurers may agree to credit a Cost Reduction Credit under 
the Variable Contracts (other than Pacific Innovations), in situations 
where selling and/or maintenance costs associated with the Variable 
Contracts are reduced, such as the sale of several Variable Contracts 
to the same Contractholder(s), sales of large Variable Contracts, sales 
of Variable Contracts in connection with a group or sponsored 
arrangement or mass transactions over multiple Variable Contracts. The 
amount of any Cost Reduction Credit will be determined based upon the 
amount of reduction in the selling and/or maintenance cost associated 
with the sale of that particular Variable Contract. A Cost Reduction 
Credit may be applied at the time that a Purchase Payment is made. Any 
Cost Reduction Credit applied at that time will not exceed 1.45% of the 
amount of such Purchase Payment. Alternatively, Cost Reduction Credits 
may be credited on the basis of Contract Value. Any Cost Reduction 
Credit credited on the basis of Contract Value will not exceed 1.45% of 
Contract Value at the time that it is credited.
    10. PL Insurers may agree to credit an Eligible Person Credit under 
the Variable Contracts (other than Pacific One Select) owned by persons 
who meet criteria established by the relevant PL Insurer. These persons 
may include current and retired officers, directors and employees of 
Pacific Life and its affiliates, trustees of Pacific Select Fund, 
registered representatives and employees of broker/dealers with a 
current selling agreement with Pacific Life or PL&A, respectively, and 
the affiliates of those broker/dealers, employees of affiliated asset 
management firms and certain other service providers, and immediate 
family members of such persons (collectively referred to as ``Eligible 
Persons''). Under the Eligible Person Credit Program, the relevant PL 
Insurer credits additional amounts to Pacific Innovations Select, 
Pacific Portfolios, PSVA or PL&A Innovations Select Variable Contracts 
owned by Eligible Persons if such Variable Contracts are purchased 
directly through PSD. Under these circumstances, Eligible Persons will 
not be afforded the benefit of services of any other broker/dealer nor 
will any commission be payable to any broker/dealer in connection with 
such purchases. Rather, Eligible Persons must contact the relevant PL 
Insurer or PSD directly with servicing questions, changes in their 
Variable Contracts and related matters. Eligible Persons are currently 
credited with a 5% Eligible Person Credit on each Purchase Payment plus 
a 0.25% (annualized) Credit of Contract Value, payable quarterly in 
advance, from the second Contract Year through the third Contract Year 
for Pacific Innocations Select and PL&A Innovations Select and a 1% 
(annualized) Credit of Contract Value, payable quarterly in advance 
from the fourth Contract Year until annuitization, on an annual basis. 
Eligible Person who are Pacific Portfolios or PSVA Contractholders are 
currently credited with a 5% Eligible Person Credit on each Purchase 
Payment plus a 0.25% (annualized) Eligible Person Credit on Contract 
Value from the second Contract Year through the fifth Contract Year for 
PSVA (sixth Contract Year for Pacific Portfolios) on a quarterly basis, 
and a 1% (annualized) Eligible Person Credit on Contract Value from the 
sixth Contract Year for PSVA (seventh Contract Year for Pacific 
Portfolios) until annuitization, payable quarterly. The amount 
currently credited to Variable Contracts owned by Eligible Persons will 
approximate the reduction in expenses realized by the relevant PL 
Insurer by not incurring brokerage commission in selling such Variable 
Contracts, with the determination of the expense reduction and of such 
crediting being made in accordance with administrative procedures 
established by the relevant PL Insurer.
    11. In the future, PL Insurers may credit Contracts issued to 
Eligible Persons with Eligible Person Credits greater than 5% of each 
Purchase Payment, except that with respect to Purchase Payments made 
during: (i) The relevant free look period; and (ii) after the relevant 
free look period has expired, but during the first Contract month, the 
amount of any Eligible Person Credit will be limited to no more than 9% 
of such Purchase Payment.
    12. Although the PL Insurers are seeking to offer Credit 
Enhancements, Eligible Person Credits and Cost Reduction Credits 
(collectively, ``Credits'') through Variable Contracts and Future 
Variable Contracts, no PL Insurer will apply more than one Credit to 
the Contract Value of a Contractholder's Variable Contract or Future 
Variable Contract. Thus, if a PL Insurer applies the Credit Enhancement 
to the Contract Value of a particular Variable Contract or Future 
Variable Contract, it will not also apply an Eligible Person Credit or 
a Cost Reduction Credit. Similarly, if a PL Insurer applies the 
Eligible Person Credit to the Contract Value of a particular Variable 
Contract or Future Variable Contract, it will not also apply a Cost 
Reduction Credit or a Credit Enhancement. If a PL Insurer offers a Cost 
Reduction Credit to the Contract Value of a particular Variable 
Contract or Future Variable Contract, it will not also apply an 
Eligible Person Credit or a Credit Enhancement.
    13. The Variable Contracts issued by the PL Insurers permit 
Contractholders to cancel their Variable Contracts and to receive a 
refund during the ``free look'' period, which is mandated by state law. 
The free look period for Variable Contracts issued by the PL Insurers 
generally is a 10-day period beginning on the day a Contractholder 
receives his or her Variable Contract.\2\ Where a Contractholder 
returns a Variable Contract during the free look period, the Variable 
Contract will be canceled and treated as void from the Contract Date.
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    \2\ Certain states require longer free look periods with respect 
to variable annuity contracts.
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    14. In most instances, a Contractholder who returns a Variable 
Contract during the free look period is entitled to a refund of his or 
her Contract Value, as of the end of the business day on which the PL 
Insurer received a Contractholder's Variable Contract for 
cancellation.\3\ Contractholders for all Variable Contracts issued by 
PL Insurers (other than PSVA) generally will also receive a refund of 
any amounts that may have been deducted to pay for state premium taxes 
and/or other taxes. PSVA Contractholders who exercise their free-look 
rights are entitled to, in addition to a refund of Contract Value, a 
refund of any Variable Contract charges and fees deducted from the 
portion of their Contract Value allocated to Variable Investment 
Options.
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    \3\ Under the laws of a number of states, if free look rights 
are exercised within the allotted time, the sponsoring insurance 
company is required to refund a Contractholder's Purchase Payment 
allocated to the Variable Investment Options available under the 
Separate Account, instead of the value of the Variable Investment 
Options on the date the Variable Contract is returned. In those 
states, if a Contractholder exercises his free look rights when his 
Contract Value is less than the amount of his Purchase Payments, 
Pacific Life bears the risk of loss. Pacific Life currently 
allocates Purchase Payments during the free-look period to the 
investment options selected by the Contractholder, in accordance 
with the Contractholder application or the Contractholder's most 
recent allocation instructions, regardless of whether Pacific Life 
is required to refund a Contractholder's Purchase Payment or the 
value of the Variable Investment Options if a Contractholder 
exercises his free look rights.
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    15. There are two circumstances under which the Contract Value 
returned to a Contractholder who returns his or her Variable Contract 
during the free look period will be subject to certain additional 
deductions. First, the amount of any Credit Enhancement added to the 
Contract Value of a Pacific Value Contractholder

[[Page 18305]]

will be deducted if the Contractholder returns the Variable Contract 
during the free look period. Second, any Cost Reduction Credit or 
Eligible Person Credit that is added to the Contract Value of a Pacific 
One, Pacific Portfolios, PSVA, Pacific Innovations Select and PL&A 
Innovations Select Contractholder who returns his or her Variable 
Contract during the free look period will also be deducted from the 
amount ultimately returned to the Contractholder.
    16. The relief sought in the Application is intended to permit PL 
Insurers to deduct the amounts of any Credit Enhancement, Cost 
Reduction Credit or Eligible Person Credit added to the Contract Value 
of any Variable Contract or Future Variable Contract, funded by a 
Separate Account or a Future Account, offering such credits in cases 
where Contractholders return their Variable Contract or Future Variable 
Contract during the free look period.
    17. Under the current practice in effect for each applicable 
Variable Contract, the amount of the Credit Enhancement or the Eligible 
Person Credit added to a Contractholder's Contract Value is returned to 
a PL Insurer where free look rights are exercised, together with any 
gains or losses on the amount credited.\4\ In addition, PSVA 
Contractholders receive any Contract fees and charges that Pacific Life 
may have deducted from the credited amounts.
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    \4\ However, if the amount of a Credit Enhancement, Cost 
Reduction Credit or Eligible Person Credit, together with any gains 
on such credits, exceed the withdrawal charge percentage applicable 
for a particular Variable Contract, the PL Insurer will refund the 
amount of the excess.
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    18. If the relief sought in the Application is granted, Applicants 
would change the amount that Contractholders with any Credit 
Enhancement, Cost Reduction Credit or Eligible Person Credit would 
receive if they exercised their rights under the applicable free look 
policy. If the relief applied for in the Application is granted, 
Contractholders exercising their free look rights would not receive the 
amounts added to their Contract Value in the form of Credit 
Enhancements, Cost Reduction Credits or Eligible Person Credits, but 
such Contractholders would realize the gains or incur the losses on the 
credit amounts.

Applicants' Legal Analysis

    1. Applicants seek exemptive relief pursuant to section 6(c) from 
sections 2(a)(32), 22(c), and 27(i)(2)(A) of the 1940 Act and rule 22c-
1 thereunder to the extent deemed necessary to permit the PL Insurers: 
(1) To recapture any Credit Enhancement when a Contractholder returns a 
Variable Contract and/or Future Variable Contract during the free look 
period; and (2) to recapture any Cost Reduction Credits and Eligible 
Person Credits when a Contractholder returns a Variable Contract or 
Future Variable Contract during the free look period.
    2. Subsection (i) of section 27 of the 1940 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 separate account, except as provided 
in paragraph (2) of that subsection. Paragraph (2) 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 ``(A) such contract is a redeemable security.''
    3. Section 2(a)(32) of the 1940 Act 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 shares of the issuer's current 
net assets, or the cash equivalent thereof.
    4. Because the amount returned to a Contractholder who cancels a 
Variable Contract during the free look period does not include the 
amount of any Credit Enhancement, Cost Reduction Credit or Eligible 
Person Credit conditionally added to the Contractholder's Contract 
Value, the Contractholder arguably is not receiving his or her 
proportionate share of the applicable Separate Account's then-current 
net assets. Applicants assert, however, that the recapture of the 
Credit Enhancement offered under Pacific Value or the Cost Reduction 
Credit and the Eligible Person Credit offered under the Variable 
Contracts, as described in the Application, would not deprive a 
Contractholder of his or her proportionate share of the issuer's 
current net assets. Any Credit Enhancements, Cost Reduction Credits or 
Eligible Person Credits added to the Contract Value of a Contractholder 
are expressly conditioned on the Contractholder's decision to keep the 
Variable Contract beyond the free look period. Further, Applicants 
assert that a Contractholder's interest in the amount of a Credit 
Enhancement, Cost Reduction Credit or an Eligible Person Credit 
allocated to his or her Contract Value is not vested until the 
applicable free look period has expired without return of the Variable 
Contract in question. Unless and until the amount of the Credit 
Enhancement, Cost Reduction Credit or Eligible Person Credit is vested 
(i.e., at the end of the free look period), Applicants believe that the 
relevant PL Insurer retains the right and interest in the amount of the 
Credit Enhancement, Cost Reduction Credit or the Eligible Person 
Credit.
    5. Applicants further contend that it would be patently unfair to 
allow a Contractholder exercising his or her free look right to retain 
the Credit Enhancement or the Cost Reduction Credit or the Eligible 
Person Credit under a Variable Contract that has been returned for a 
refund after a period of only a few days. If PL Insurers could not 
recapture the amounts of such credits, individuals could purchase a 
Variable Contract, and simply return it for a quick profit. This could 
deter PL Insurers from offering the Credit Enhancement, the Cost 
Reduction Credit and Eligible Credit under Variable Contracts or Future 
Variable Contracts.
    6. Moreover, because the amount of the Credit Enhancement, Cost 
Reduction Credit or Eligible Person Credit is not vested during the 
free look period, Applicants state that it is arguable that any 
earnings or losses attributable to these credits should also be 
returned to the relevant PL Insurer as the sponsoring insurance 
company. PL Insurers have taken and will continue to take this approach 
unless and until the relief requested under the Application is granted. 
However, if and when the Commission grants the relief requested in the 
Application, any gains or losses attributable to the amount of the 
Credit Enhancement, Cost Reduction Credit or the Eligible Person Credit 
will be allocated to the Contractholders.
    7. Section 22(c) of the 1940 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 thereunder 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, such security, from selling, redeeming, or repurchasing any 
such security except at a price based on the current net asset value of 
such security which is next computed after receipt of a tender of such 
security for redemption or of an order to purchase or sell such 
security.

[[Page 18306]]

    8. PL Insurers' recapture of the Credit Enhancement, the Cost 
Reduction Credit and the Eligible Person Credit in instances where a 
Contractholder returns a Variable Contract during the free look period 
might arguably be viewed as resulting in the redemption of redeemable 
securities for a price other than one based on the current net asset 
value of the applicable Variable Investment Option of a Separate 
Account. In other words, because any such Credit Enhancements, Cost 
Reduction Credits and Eligible Person Credits credited by a PL Insurer 
are immediately added, on a conditional basis, to the Contract Value of 
certain Contractholders, and further because these amounts are 
allocated by the Contractholder to certain Variable Investment Options 
for the benefit of the participating Contractholder, the net asset 
value of each Variable Investment Option arguably is affected by these 
credits.
    9. Applicants contend, however, that the recapture of the Credit 
Enhancement, Cost Reduction Credit and Eligible Person Credit under the 
circumstances described in this Application should not be deemed to be 
a violation of section 22(c) and rule 22c-1. To the extent that the 
recapture practices described in the Application are considered to be 
technical violations of these provisions, Applicants respectfully 
request relief from section 22(c) and rule 22c-1 in order to recapture 
Credit Enhancements, Cost Reduction Credits and Eligible Person Credits 
as discussed above for Variable Contracts and Future Variable Contracts 
cancelled during the free look period.
    10. Applicants claim that the recapture of the Credit Enhancement, 
Cost Reduction Credit and the Eligible Person Credit does not involve 
either of the practices that rule 22c-1 was intended to eliminate or 
reduce as far as reasonably practicable, namely: (i) The dilution of 
the value of outstanding redeemable securities of registered investment 
companies through their sale at a price below net asset value or their 
redemption or repurchase at a price above it, and (ii) other unfair 
results, including speculative trading practices.
    11. Applicants submit that the proposed recapture of the Credit 
Enhancement, Cost Reduction Credit and the Eligible Person Credit poses 
no such threat of dilution. To effect a recapture of a Credit 
Enhancement, Cost Reduction Credit or an Eligible Person Credit, PL 
Insurers redeem interests in a Contractholder's Variable Investment 
Option at a price determined on the basis of the current net asset 
value of each of the Variable Investment Options of the Separate 
Account in which the Contractholder's Contract Value is allocated. The 
amount recaptured will be equal to the amount of the Credit 
Enhancement, Cost Reduction Credit or the Eligible Person Credit paid 
out of the general account assets of the relevant PL Insurer. In those 
instances where applicable state law does not require the return of 
Purchase Payments, and thus permits Contractholders to retain any 
investment gain or to realize any investment loss, in the event of the 
exercise of a free look right, the amount refunded will be determined 
on the basis of the current net asset value of the various Variable 
Investment Options of the applicable Separate Accounts including gain 
or loss. Thus, Applicants believe that no dilution will occur upon the 
recapture of a Credit Enhancement, Cost Reduction Credit or an Eligible 
Person Credit.
    12. Applicants also submit that the second practice 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 Credit Enhancement, Cost Reduction 
Credit or the Eligible Person Credit.

Conclusion

    Applicants submit that their request for an order for the exemptive 
relief described above is appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policies and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-9158 Filed 4-14-03; 8:45 am]
BILLING CODE 8010-01-P