[Federal Register Volume 61, Number 53 (Monday, March 18, 1996)]
[Notices]
[Pages 11068-11070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6323]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21819; File No. 812-9370]
Southwestern Life Insurance Company, et al.
March 11, 1996.
AGENCY: U.S. Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Southwestern Life Insurance Company (``Southwestern
Life''), Variable Annuity Fund I of Southwestern Life (the ``Separate
Account''), and Philadelphia Life Asset Planning Company (``PLAPCO'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for
exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the Act.
SUMMARY OF APPLICATION: An order is sought exempting Applicants to the
extent necessary to permit the payment to Southwestern Life of a
mortality and expense risk charge from the assets of the Separate
Account under certain variable annuity contracts (``Contracts'') issued
through the Separate Account.
FILING DATE: The application was filed on December 19, 1994 and amended
and restated on March 14, 1995, November 24, 1995, and February 28,
1996.
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 Secretary of the SEC and serving
Applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on April 5, 1996,
and should be accompanied by proof of service on 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 who wish to be
notified of a hearing may request notification by writing to the
Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549; Applicants, Daniel B. Gail, Esq., Southwestern Life Corporation,
500 North Akard Street, Dallas, Texas 75201.
FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, Staff Attorney, or Wendy Friedlander, Deputy Chief
(Office of Insurance Products), Division of Investment Management, at
(202) 942-0670.
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. Southwestern Life, a stock life insurance company incorporated
under the laws of the State of Texas, is wholly-owned by Southwestern
Life Acquisition Corp., a Delaware corporation, which in turn is
wholly-owned by Southwestern Financial Corporation, a Delaware
corporation. Southwestern Life, the depositor of the Separate Account,
is engaged in the sale of life insurance and annuity policies in 39
states, Washington, D.C. and Guam.
2. The Separate Account was established by Southwestern Life as a
management investment company on December 19, 1967, under the laws of
the State of Texas to serve as the funding medium for the Contracts.
The Separate Account is in the process of converting from a management
investment company to a unit investment trust. Contractowners approved
the conversion at a meeting of Contractowners held on July 28, 1995.
Upon conversion, Contractowners will receive in exchange for their
shares of the Separate Account units of interest in the Separate
Account representing beneficial interests in shares of Scudder Growth
Portfolio, portfolio of Scudder Variable Life Investment Fund. If the
conversion is not consummated, the Separate Account will remain a
managed open-end separate investment account and there will be no
exchange of shares for units of interest. However, Southwestern Life
expects that the conversion will be consummated promptly upon the
issuance of an order by the SEC granting the exemptive relief requested
in the application.
3. PLAPCO, formerly but not currently an affiliate of Southwestern
Life, is the principal underwriter for the
[[Page 11069]]
Contracts. PLAPCO is registered with the SEC as a broker-dealer and is
a member of the National Association of Securities Dealers, Inc. PLAPCO
is a wholly-owned subsidiary of Wabash Life Insurance Company, which is
a wholly-owned subsidiary of Life Partners Group, Inc. No Contracts
have been marketed or distributed by PLAPCO or any other party for
approximately ten years and there are currently no plans to do so.
However, Southwestern Life continues to receive purchase payments under
outstanding Contracts and new participants to existing Contracts may be
added.
4. Six forms of Contracts are currently issued through the Separate
Account by Southwestern. Four of the Contracts are individual variable
annuity Contracts, and two are group variable annuity Contracts for
retirement plans qualified under Section 401(a) or 403(b) of the
Internal Revenue Code.
5. A death benefit is available under the Contracts. Prior to the
Annuity Date the death benefit is equal to the value of the
Contractowner's individual account as of the date on which due proof of
death is received by Southwestern Life. If the Annuitant under a
Contract dies after the Annuity Date, the death benefit, if any,
depends upon the form of annuity payment in effect at the time of
death.
6. Southwestern Life makes a deduction from each purchase payment
received for sales and administrative expenses relating to the
Contracts. The deduction for group Contracts is 3\1/4\% for the sales
charge and 3% for administrative expenses. The deduction for individual
Contracts is 4\1/2\% for the sales charge and 3\3/4\% for
administrative expenses. Southwestern Life represents that these
charges are guaranteed not to increase for the duration of the
Contracts. Southwestern Life also represents that the deductions for
administrative expenses are ``at cost'' in reliance upon Rule 26a-1.
7. Southwestern Life deducts from the assets of the Separate
Account a charge to reimburse if for auditing the Separate Account.
This charge of .20% will be made pursuant to Rule 26a-1 under the Act
and Southwestern Life represents that it will not make a profit from
this charge.
8. Southwestern Life also deducts a charge for premium taxes, which
range from .5% up to 3%.
9. Southwestern Life imposes an annual charge of 1.00% on the net
assets of the Separate Account to compensate it for bearing certain
mortality and expense risks in connection with the Contracts. Of that
amount .70% is attributable to the mortality risk, and .30% is
attributable to the expense risk. Southwestern Life guarantees that
this charge will never exceed an annual rate of 1.00%. If the mortality
and expense risk charges under the Contracts are insufficient to cover
actual costs and assumed risks, the loss will be borne by Southwestern
Life. Conversely, if the charge is more than sufficient to cover such
costs, any excess will be profit to Southwestern Life. Southwestern
Life currently anticipates a profit from this charge.
10. The mortality risk born by Southwestern Life arises from its
contractual obligation to make annuity payments regardless of how long
all annuitants or any individual annuitant may live. This undertaking
assures that neither an annuitant's own longevity, nor an improvement
in general life expectancy, will adversely affect the periodic annuity
payments that an annuitant will receive under a Contract. Southwestern
Life also incurs a mortality risk in connection with the death benefit
guarantee.
11. The expense risk assumed by Southwestern Life is the risk that
its actual administrative costs will exceed the amount recovered from
the administrative charge.
Applicants' Legal Analysis
1. Section 6(c) of the Act authorizes the SEC to grant an exemption
from any provision, rule or regulation of the Act to the extent that it
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. Sections 26(a)(2)(C) and 27(c)(2) of
the Act, in relevant part, prohibit a registered unit investment trust,
its depositor or principal underwriter, from selling periodic payment
plan certificates unless the proceeds of all payments, other than sales
loads, are deposited with a qualified bank and held under arrangements
which prohibit any payment to the depositor or principal underwriter
except a reasonable fee, as the SEC may prescribe, for performing
bookkeeping and other administrative duties normally performed by the
bank itself.
2. Applicants request exemptions from Sections 26(a)(2)(C) and
27(c)(2) of the Act to the extent necessary to permit the deduction of
a charge of 1.00% from the assets of the separate Account to compensate
Southwestern Life for the assumption of mortality and expense risks.
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.
3. Southwestern Life represents that the charge of 1.00% on an
annual basis under the Contracts made for mortality and expense risks
is within the range of industry practice with respect to comparable
annuity products. This representation is based upon an analysis of
publicly available information about similar industry products, taking
into consideration such factors as current charge levels, the existence
of charge level guarantees, and guaranteed annuity rates. Southwestern
Life will maintain at it its administrative office, available to the
SEC, a memorandum setting forth in detail the products analyzed in the
course of, and the methodology and results of, the comparative survey.
4. Southwestern Life acknowledges that the proceeds of the sales
charges may be insufficient to cover all costs relating to the
distribution of the Contracts. Southwestern Life also acknowledges
that, if a profit is realized from the mortality and expense risk
charge, all or a portion of such profit may be viewed as being offset
by distribution expenses not reimbursed by the sales charge.
Southwestern Life has concluded that there is a reasonable likelihood
that the proposed distribution financing arrangements 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 Southwestern
Life at its administrative offices and will be available to the SEC.
Southwestern Life also represents that the Separate Account will only
invest in management investment companies which undertake, in the event
any such company adopts a plan under Rule 12b-1 to finance distribution
expenses, to have a board of directors (or trustees), a majority of
whom are not interested persons of the company as defined in the Act,
formulate and approve any such plan under Rule 12b-1.
Conclusion
For the reasons set forth above, Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and purposes
fairly intended by the policy and provisions of the Act.
[[Page 11070]]
For the SEC by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-6323 Filed 3-15-96; 8:45 am]
BILLING CODE 8010-01-M
