[Federal Register Volume 59, Number 25 (Monday, February 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2646]
[[Page Unknown]]
[Federal Register: February 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20043; File No. 812-8582]
SAFECOLifeInsuranceCompany,etal.
January 28, 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: SAFECO Life Insurance Company (the ``Company''), SAFECO
Separate Account C (the ``Separate Account'') and PNMR Securities, Inc.
(``PNMR''), collectively, the ``Applicants.''
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) thereof.
SUMMARY OF THE APPLICATION: Applicants seek an order permitting the
deduction of a mortality and expense risk charge from the assets of the
Separate Account which serves as a funding medium for certain
individual flexible premium and individual single premium deferred
variable annuity contracts (the ``Contracts'') offered by the Company.
FILING DATE: The application was filed on September 28, 1993, and an
amendment thereto was filed on December 28, 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 the application by writing to the
Secretary of the SEC and serving Applicants with a copy of the request,
either personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on February 22, 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, c/o Elna A. Thomson, Esq., SAFECO Life Insurance Company,
SAFECO Plaza, Seattle, WA 98185.
FOR FURTHER INFORMATION CONTACT:
Patrice M. Pitts, Attorney, or Michael V. Wible, Special Counsel,
Office of Insurance Products, Division of Investment Management, at
(202) 272-2060.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
Commission's Public Reference Branch.
Applicants' Representations
1. The Company is a stock life insurance company organized under
the laws of the State of Washington on January 23, 1957.
2. Concurrent with the filing of the amendment to this application,
the Separate Account filed an amended Form N-4 with the Commission, to
register as a unit investment trust under the 1940 Act. The Separate
Account currently will be divided into subaccounts which will invest in
shares of the portfolios of SAFECO Resource Series Trust or Scudder
Variable Life Insurance Fund.
3. The Contracts will be distributed through PNMR, an affiliate of
the Company, that is a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc.
4. The Contracts will be individual flexible premium and individual
single premium deferred variable annuity contracts. The Contracts
provide for accumulation of Contracts values and payment of monthly
annuity payments on a fixed and variable basis. Certain of the
Contracts will qualify for federal tax advantages available under the
Internal Revenue Code (``Qualified Contracts'') and certain of the
Contracts will not (``Non-Qualified Contracts'').
5. The minimum initial and subsequent purchase payment for the
flexible premium Qualified Contracts is $50. The minimum initial
purchase payment for the flexible premium Non-Qualified Contracts is
$2,000, with a minimum subsequent purchase payment of $250. The minimum
initial purchase payment for the single premium Non-Qualified Contract
is $25,000; the minimum subsequent purchase payment is $2,500, with
additional purchase payments allowed within a six-month period
following the remitting of the initial purchase payment.
6. Contract owners may transfer all or a portion of their interests
in a subaccount to another subaccount of the Separate Account. Such
transfers may be made without charge, at any time prior to the date
upon which annuity payments begin, provided that there have been no
more than twelve transfers made in a Contract year. If more than twelve
transfers are made in a single Contract year, the Company reserves the
right to deduct a transfer charge from the amount which is transferred
which will equal the lesser of $10 or 2% of the amount transferred.
7. The minimum partial transfer amount is the lesser of $500 or the
Contract owner's entire interest in the subaccount, unless the Contract
owner is participating in the automatic transfer program which provides
for pre-establish automatic transfers of at least $250 from a
subaccount. No partial transfer will be made if the Contract owner's
remaining Contract value in the subaccount would be less than $500
after the transfer (unless the Contract owner is participating in the
automatic transfer program).
8. When the Contract value is less than $50,000, the Company will
deduct an annual administration maintenance charge of $30 from the
Contract value on the last day of each Contract year and in the event
of a full withdrawal. This charge is designed to reimburse the Company
for general administrative expenses which it incurs in the
establishment and maintenance of the Contracts and the Separate
Account. Prior to the annuity date, this charge is not guaranteed, and
may be changed for future years; in no event may it exceed $35 per
Contract year. Applicants represent that the charge has not been set a
level greater than its cost, and contains no element of profit.
9. In addition, relying on Rule 26a-1 of the 1940 Act, the Company
deducts an asset-related administration charge on each valuation date,
at an annual rate of 0.15% of the average daily net asset value of the
Separate Account. This charge is designed to cover the shortfall in
revenues from the annual administration maintenance charge, and will
not increase. The Company does not intent to profit from this charge.
10. For each withdrawal (whether partial or full) after the first
in any Contract year, the Company deducts a withdrawal charge that
equals the lesser of $25 or 2% of the amount withdrawn. The withdrawal
charge is an administrative charge, not a sales charge, and is used to
pay for administrative expenses incurred by the Company in connection
with withdrawals after the first in any Contract year. No withdrawal
charge is deducted when the Contract owner is participating in the
systematic withdrawal program or is exercising a settlement option.
11. The Contracts do not provide for a front-end sales charge.
Instead, a full or partial withdrawal of a Contract prior to the
annuity date is subject to a contingent deferred sales charge
(``CDCS''). The CDSC is a declining charge which is graded down 1% per
year from 8% to 0% over eight years.
12. The Company assumes mortality and expense risks under the
Contracts. The mortality risks arise from the contractual obligation to
make annuity payments for the life of the Annuitant, and to waive the
CDSC in the event of the death of the Contract owner. The expense risk
assumed by the Company is that the actual expenses involved in
administering the Contracts may exceed the amount recovered from the
annual administration maintenance charge and the asset-related
administration charge. To compensate it for assuming these risks, the
Company deducts a mortality and expense risk charge on each valuation
date, at an annual rate of 1.25% of the average daily net asset value
of the Separate Account. Approximately 0.90% of the 1.25% charge
represents mortality risks and 0.35% represents expense risks.
13. Applicants state that if the mortality and expense risk charge
is insufficient to cover the actual costs, the loss will be borne by
the Company. Conversely, if the amount deducted proves more than
sufficient, the excess will be a profit to the Company. The mortality
and expense risk charge is guaranteed by the Company not to increase.
Applicants' Legal Analysis and Conditions
1. Applicants request an exemption from Sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act to the extent relief is necessary to permit
the deduction from the Separate Account of a mortality and expense risk
charge under the Contracts.
2. Sections 26(a)(2)(C) and 27(c)(2) of the Act, as herein
pertinent, 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 the
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
amounts as the Commission may prescribe, for performing bookkeeping and
other administrative services.
3. Applicants submit that the Company is entitled to reasonable
compensation for its assumption of mortality and expense risks, and
represent that the charge is within the range of industry practice for
comparable variable annuity contracts. Applicants state that these
representations are based upon an analysis of the mortality risks,
taking into consideration such factors as: the guaranteed annuity
purchase rates; the expense risks, taking into account the existence of
charges against Separate Account assets for other than mortality and
expense risks; the estimated costs, now and in the future, for certain
product features; and industry practice with respect to comparable
variable annuity contracts. The Company will maintain at its principal
office, and make available to the Commission, a memorandum setting
forth in detail the products analyzed and the methodology and results
of this analysis.
4. Applicants acknowledge that the CDSC may be insufficient to
cover all costs relating to the distribution of the Contracts, and that
if a profit is realized from the mortality and expense risk charge, all
or a portion of such profit may be offset by distribution expenses not
reimbursed by the CDSC. In such circumstances a portion of the
mortality and expense risk charge might be viewed as providing for a
portion of the costs relating to distribution of the Contracts.
Notwithstanding the foregoing, the Company has concluded that there is
a reasonable likelihood that the proposed distribution financing
arrangements made with respect the Contracts will benefit the Separate
Account and the Contract owners. The basis for such conclusion is set
forth in a memorandum which will be maintained by the Company at its
principal office and will be available to the Commission.
5. Applicants represent that the Separate Account will invest only
in underlying mutual funds that undertake, in the event they adopt any
plan under Rule 12b-1 under the 1940 Act to finance distribution
expenses, to have such plan formulated and approved by a board of
directors or board of trustees, a majority of the members of which are
not ``interested persons'' of such funds within the meaning of Section
2(a)(19) 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 to deduct the mortality and expense risk charge under
the Contracts meet the standards in Section 6(c) of the 1940 Act. In
this regard, Applicants assert that the exemptions are necessary and
appropriate in the public interest and consistent with the protection
of investors and the policies and purposes of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2646 Filed 2-4-94; 8:45 am]
BILLING CODE 8010-01-M
