[Federal Register Volume 59, Number 30 (Monday, February 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3314]
[[Page Unknown]]
[Federal Register: February 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20060; File No. 812-8680]
Lincoln Benefit Life Co., et al.; Application for Exemption
February 7, 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'').
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APPLICANTS: Lincoln Benefit Life Company (``Lincoln Benefit''), Lincoln
Benefit Life Variable Annuity Account (the ``Account'') and Lincoln
Benefit Financial Services, Inc. (``Lincoln Financial'') (collectively,
``Applicants'').
RELEVANT 1940 ACT SECTIONS: Amended 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 amended 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 November 17, 1993.
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 March 4, 1994 and should be accompanied by
proof of service on Applicants in the form of an affidavit or, for
lawyers, by certificate. 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: Carol S. Watson, General Counsel, Lincoln Benefit Life
Company, 134 South 13th Street, Lincoln, Nebraska 68508.
FOR FURTHER INFORMATION CONTACT:
Barbara J. Whisler, Senior Attorney, or Wendell M. Faria, Deputy Chief,
both at (202) 272-2060, 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. By order dated September 29, 1993 (Investment Company Act
Release No. 19747) (the ``Order''), the Commission, pursuant to section
6(c) of the 1940 Act, provided Applicants exemptions from sections
26(a)(2)(C) and 27(c)(2) of the 1940 Act. The exemptions were granted,
to the extent necessary, to allow Applicant to deduct from the Account
the mortality and expense risk charge imposed under certain flexible
premium individual deferred variable annuity contracts (the
``Contracts'') funded through the Account.
2. Applicants request that the Order be amended. Specifically,
Applicants propose modification of the death benefit under the
Contracts. Currently, the death benefit provides for, among other
things, interest accumulations at four percent prior to the Contract
owner's attained age 80. Applicants propose that the death benefit be
modified to provide instead for such accumulations prior to the
Contract anniversary next following the Contract owner's 75th birthday.
Applicants request that the Order be amended to the extent necessary to
recognize the proposed modification to the Contracts.
3. Lincoln Benefit, a stock life insurance company organized under
the laws of Nebraska, is a wholly owned subsidiary of Allstate Life
Insurance Company. Allstate Life Insurance Company is an Illinois
corporation wholly owned indirectly by The Allstate Corporation.
Approximately 80.1 percent of the common stock of The Allstate
Corporation is indirectly owned by Sears, Roebuck & Co.
4. The Account, established by Lincoln Benefit on August 3, 1992 as
a segregated asset account under Nebraska law, serves as a funding
medium for the Contracts. The application states that the Account meets
the definition of a ``separate account'' under the federal securities
laws. The Account is registered with the Commission under the 1940 Act
as a unit investment trust. The application incorporates by reference
the registration statement, currently on file with the Commission (File
No. 33-66786), for the Account.
5. Lincoln Financial, a wholly owned subsidiary of Lincoln Benefit,
is the distributor of the Contracts. Lincoln Financial is registered as
a broker-dealer under the Securities Exchange Act of 1934, as amended,
and is a member of the National Association of Securities Dealers, Inc.
6. The Contracts are available for retirement plans which qualify
for federal tax advantages under the Internal Revenue Code and for
those plans which do not qualify for advantageous treatment. The
Contracts require a minimum initial premium payment of $1,200.
Additional premium payments must be in amounts of at least $100.
7. If the owner of a Contract dies prior to the annuity date and
the Contract is in force, Lincoln Benefit will, upon receipt of due
proof of death, pay a death benefit. At a minimum, the death benefit is
equal to the greater of: (a) All purchase payments less prior
withdrawals, accumulated at 4% per year prior to the Contract
anniversary next following the Contract owner's 75th birthday, and at
0% per year thereafter (the ``Floor Value''); or (b) the Contract value
less applicable premium tax.\1\ If the Contract value on the seventh
Contract anniversary is greater than the Floor Value, the Floor Value
will be increased to the level of the Contract value. If this increase
occurs, Floor Value for the eighth Contract year and for subsequent
years will then be calculated using the increased value. The Contract
owner may select the form of annuity from four annuity options
described in the registration statement for the Account.
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\1\The death benefit upon which the Order was based provided for
interest accumulations at 4% per year prior to the Contract owner's
attained age 80.
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8. One transfer among subaccounts is permitted monthly without
charge. For each transfer among subaccounts in excess of once monthly,
a transfer fee of $25 is assessed. The transfer fee is deducted from
Contract values which remain in the subaccount or subaccounts from
which the transfer is made. Applicants represent that the transfer fee
is designed to be at cost with no margin included for profit. Lincoln
Benefit is currently waiving this fee.
9. Applicants impose an annual Contract maintenance charge of $25
per Contract year. Applicants guarantee that this charge will not
increase and state that the charge reimburses Lincoln Benefit for
expenses incurred in maintaining the Contracts. This charge will be
deducted on each Contract anniversary prior to the annuity date, but is
not imposed during the annuity period. If a Contract is surrendered,
the charge is assessed as of the surrender date without proration.
10. Lincoln Benefit deducts an administrative expense charge equal
to an annual effective rate of .15% of the net asset value of the
subaccount. The application states that this charge will compensate
Lincoln Benefit for administering the Contracts and the Account. This
charge is assessed during both the accumulation and the annuity
periods. Applicants state that the Contract maintenance charge and the
administrative expense charge are designed, in the aggregate, to be at
cost with no margin included for profit.
11. A contingent deferred sales charge (the ``Sales Charge'') of up
to 7% of the amount withdrawn is imposed on certain surrenders or
withdrawals of Contract value. No Sales Charge is applied on
annuitization or on the payment of a death benefit unless the
settlement option chosen is payment over a period certain of less than
five years. The Sales Charge is deducted from the Contract value
remaining after withdrawal so that the reduction in Contract value as a
result of a withdrawal will be greater than the withdrawal amount
requested. Amounts obtained from imposition of the Sales Charge will be
used to pay sales commissions and other promotional or distribution
expenses associated with the marketing of the Contracts. To the extent
that the Sales Charge does not cover all sales commissions and other
promotional or distribution expenses, Applicants state that Lincoln
Benefit may use any of its corporate assets, including potential profit
from the mortality and expense risk charge, to make up the shortfall.
12. Lincoln Benefit 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 Lincoln Benefit for bearing certain mortality and expense
risks in connection with the Contracts. Approximately .85% of the 1.25%
charge is attributable to mortality risk, and approximately .40% is
attributable to expense risk. Applicants represent that the charge for
mortality and expense risks will not increase. If the mortality and
expense risk charge is insufficient to cover actual costs and assumed
risk, Lincoln Benefit will bear the loss. Conversely, if the charge
exceeds costs, this excess will be profit to Lincoln Benefit. If
Lincoln Benefit realizes a gain from the charge for mortality and
expense risks, the amount of such gain may be used in the discretion of
Lincoln Benefit.
13. Applicants state that the mortality risk borne by Lincoln
Benefit consists of: (a) Bearing the risk that the life expectancy of
an annuitant will be greater than that assumed in the guaranteed
annuity purchase rates; (b) waiving the Sales Charge upon the death of
a Contract owner; and (c) providing a death benefit prior to the
annuity date. Applicants state that the expense risk assumed by Lincoln
Benefit is the risk that the costs of administering the Contracts and
the Account will exceed amounts received by Lincoln Benefit through
imposition of the Contract maintenance charge and the administrative
expense charge.
Applicants' Legal Analysis and Conditions
1. Applicants request that the Commission, pursuant to section 6(c)
of the 1940 Act, issue an amended order granting 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 the mortality and
expense risk. 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 Lincoln Benefit
under the Contracts.
3. Applicants represent that the charge of 1.25% for the mortality
and expense risks assumed by Lincoln Benefit is within the range of
industry practice with respect to comparable annuity products.
Applicants state that this representation is based upon their analysis
of publicly available information about similar industry practices,
taking into consideration such factors as: Current charge levels;
charge level guarantees; benefits provided; and guaranteed annuity
rates. Applicants represent that Lincoln Benefit will maintain at its
home office, available to the Commission, a memorandum setting forth in
detail the methodology used in determining that the level of risk
charge is within the range of industry practice.
4. Applicants represent that Lincoln Benefit 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 Lincoln Benefit and will be made available to the
Commission.
5. Lincoln Benefit also represents 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. 94-3314 Filed 2-11-94; 8:45 am]
BILLING CODE 8010-01-M
