[Federal Register Volume 59, Number 204 (Monday, October 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26219]
[[Page Unknown]]
[Federal Register: October 24, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20631; File No. 812-9138]
Nationwide Variable Account-6, et al.
October 17, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
-----------------------------------------------------------------------
APPLICANTS: Nationwide Life Insurance Company (``Nationwide''),
Nationwide Variable Account-6 (the ``Account'') and Financial Horizons
Securities Corporation (``Financial Horizons'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act for exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the
1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order permitting them to
deduct a daily charge from the assets of the Account for mortality and
expense risks in connection with the offering of certain variable
annuity contracts.
FILING DATE: The application was filed on August 3, 1994.
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 on this application by writing to the
Secretary of the SEC and serving Applicants with a copy of the request,
personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on November 14, 1994 and should be accompanied
by proof of service on Applicants in the form of an affidavit or, for
lawyers, by certificate of service. Hearing requests should state the
nature of the 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, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants: Steven Savini, McCutchan, Druen, Rath & Dietrich, One
Nationwide Plaza, Columbus, Ohio 43216.
FOR FURTHER INFORMATION CONTACT:
Barbara J. Whisler, Senior Attorney at (202) 942-0670, Office of
Insurance Products, Division of Investment Management.
SUPPLEMENTARY INFORMATION: Following is a summary of the application,
the complete application is available for a fee from the Public
Reference Branch of the SEC.
Applicants' Representations
1. Nationwide is a stock life insurance company incorporated under
the laws of Ohio. The Account was established under Ohio law on
February 2, 1994 and is registered as a unit investment trust with the
Commission (File No. 33-82370). Applicants incorporate by reference the
registration statement for the Account filed on Form N-4 with the
Commission. The Account will fund individual deferred variable annuity
contracts (the ``Contracts'') issued by Nationwide.
2. Financial Horizons serves as the general distributor for the
Contracts. Financial Horizons is registered with the Commission as a
broker-dealer. Applicants represent that Financial Horizons is a member
in good standing of the National Association of Securities Dealers.
3. The Contracts are sold either as nonqualified contracts or as
individual retirement annuities which may qualify for special tax
treatment under the provisions of Section 408(b) of the Internal
Revenue Code of 1986, as amended (the ``Code''). The Contracts may also
be sold as qualified contracts (to qualified plans on behalf of
qualified plan participants) which may qualify for special federal tax
treatment under the provisions of Section 401 of the Code. Purchase
payments may be allocated by the Contract owner to one or more
subaccounts of the Account. Each subaccount of the Account will invest
at net asset value in shares of the corresponding mutual fund which is
registered under the 1940 Act. Prior to the annuity commencement date,
a Contract owner may elect any of three annuity payment options.
4. Upon withdrawal of part or all of the Contract value, a
contingent deferred sales charge (the ``Sales Charge'') may be imposed
by Nationwide. The Sales Charge is calculated by multiplying the
applicable percentage by the amount withdrawn and is deducted from the
amount withdrawn rather than from the Contract value remaining after
withdrawal. The Sales Charge will be applied as follows:
------------------------------------------------------------------------
Sales
Number of years from date of payment charge
percentage
------------------------------------------------------------------------
0........................................................... 7
1........................................................... 6
2........................................................... 5
3........................................................... 4
4........................................................... 3
5........................................................... 2
6........................................................... 1
7........................................................... 0
------------------------------------------------------------------------
5. After the first Contract year, the owner of a Contract may
withdraw an amount, free of Sales Charge, equal to 10% of the sum of
all purchase payments made to the Contract at the time of withdrawal
less any purchase payments previously withdrawn that were subject to a
Sales Charge. This privilege is noncumulative.
6. An annual Contract maintenance charge of $30 is deducted from
the value of the Contract. Additionally, an administration charge equal
on an annual basis to 0.05% of the daily net asset value of the Account
is deducted from the Contract value. This administration charge is
deducted during both the accumulation and the annuity phases of the
Contract. Nationwide estimates that the 0.05% charge for expenses will
yield an amount considerably less than the current and projected future
administrative costs of Nationwide, even when this charge is added to
the $30 annual Contract maintenance charge. Applicants state that
Nationwide will rely on Rule 26a-1 under the 1940 Act in deducting both
charges. Additionally, Applicants represent that neither the annual
Contract maintenance charge nor the administration charge will ever
increase. Applicants further state that Nationwide will monitor the
proceeds of the charges to ensure that the charges do not exceed
expenses.
7. Nationwide will impose a daily charge equal to an annual
effective rate of 1.25% of the value of the net assets of the Account
to compensate Nationwide for assuming certain mortality and expense
risks in connection with the Contracts. Approximately .80% of the 1.25%
charge is attributable to mortality risk, and approximately .45% is
attributable to expense risk. If the mortality and expense risk charge
is insufficient to cover actual costs and assumed risks, Nationwide
will bear the loss. Conversely, if the charge exceeds costs, the excess
will be profit to Nationwide. If Nationwide realizes a profit from the
charge, the profit will become part of Nationwide's general account and
may be used in the discretion of Nationwide.
8. Applicants state that the mortality risk borne by Nationwide
consists of: (a) The risk of guaranteeing to make monthly payments for
the lifetime of the annuitant regardless of how long that annuitant may
live; and (b) the risk of promising to pay a death benefit upon the
death of the designated annuitant prior to the annuity commencement
date even where the investment experience in the Account has eroded the
purchase payments made by the Contract owner. Applicants state that the
expense risk assumed by Nationwide is the guarantee that the Contract
maintenance charge and the administration charge will never increase
regardless of actual expenses incurred by Nationwide.
Applicants' Legal Analysis and Conditions
1. Applicants request that the Commission, pursuant to Section 6(c)
of the 1940 Act, grant the exemptions from Sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act in connection with Applicants' assessment of
the daily charge for mortality and expense risks. Sections 26(a)(2)(C)
and 27(c)(2) of the 1940 Act, in pertinent part, prohibit a registered
unit investment trust and any depositor thereof or underwriter therefor
from selling periodic payment plan certificates unless the proceeds of
all payments (other than sales load) are deposited with a qualified
bank as trustee or custodian and held under arrangements which prohibit
any payment to the depositor or principal underwriter except a fee, not
exceeding such reasonable amount as the Commission may prescribe, for
performing bookkeeping and other administrative services of a character
normally performed by the bank itself.
2. Applicants assert that the charge for mortality and expense
risks is reasonable in relation to the risks assumed by Nationwide
under the Contracts.
3. Applicants represent that the charge of 1.25% for the mortality
and expense risks is within the range of industry practice with respect
to comparable annuity products. Applicants state that this
representation is based upon the analysis by Nationwide of publicly
available information relative to other insurance companies of similar
size and risk ratings offering similar products. Applicants represent
that Nationwide will maintain a memorandum, available to the Commission
upon request, setting forth in detail the products analyzed in the
course of, and the methodology and results of, its comparative survey.
Nationwide also maintains a supporting actuarial memorandum, available
to the Commission upon request, demonstrating the reasonableness of the
mortality and expense risk charge given the risks asssumed under the
Contracts.
4. Applicants represent that Nationwide has concluded that there is
a reasonable likelihood that the proposed distribution financing
arrangement will benefit the Account and the Contract owners. The basis
for such conclusion is set forth in a memorandum which will be
maintained by Nationwide and will be made available to the Commission
upon request.
5. Applicants represent that the Account will invest only in
management investment companies which undertake, in the event such
company adopts a plan under Rule 12b-1 of the 1940 Act to finance
distribution expenses, to have such plan formulated and approved by the
company's board of directors, a majority of whom are not interested
persons of such company within the meaning of the 1940 Act.
Conclusion
Applicants assert that for the reasons and upon the facts set forth
above, the requested exemptions from Sections 26(a)(2)(C) and 27(c)(2)
of the 1940 Act are necessary and appropriate in the public interest
and consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-26219 Filed 10-21-94; 8:45 am]
BILLING CODE 8010-01-M
