[Federal Register Volume 59, Number 60 (Tuesday, March 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7286]
[[Page Unknown]]
[Federal Register: March 29, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20152; File No. 812-8896]
Allianz Life Insurance Company of North America, et al.,
Applications
March 22, 1994.
AGENCY: Securities and Exchange Commission (the ``Commission'' or the
``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Allianz Life Insurance Company of North America (the
``Company''), Allianz Life Variable Account B (the ``Variable
Account''), and NALAC Financial Plans, Inc.
Relevant 1940 Act Sections: Amended order requested under section 6(c)
for exemptions from sections 26(a)(2) and 27(c)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an amended order to permit the
deduction of a mortality and expense risk charge under certain variable
annuity contracts from the assets of the Variable Account, or any other
separate account established by the Company in the future to support
materially similar variable annuity contracts.
FILING DATE: An application was initially filed on July 18, 1988, and
amended on September 8 and September 19, 1988. Notice of the
Application for Exemption was published on November 2, 1988 (File No.
812-7070, Release No. IC-16620) and an Order Granting Exemptions was
issued November 30, 1988 (Release No. 16664). This Application for an
Amended Order was filed on March 17, 1994.
HEARING OR NOTIFICATION OF HEARING: An amended order granting the
application and superseding the existing order will be issued unless
the Commission 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 April 18, 1994, 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 may request notification of
a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW., Washington, DC 20549. Applicants, 1750 Hennepin Avenue,
Minneapolis, Minnesota 55403.
FOR FURTHER INFORMATION CONTACT: Wendy Finck Friedlander, Senior
Attorney, at (202) 272-3045, or Wendell M. Faria, Deputy Chief, 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 Commission's
Public Reference Branch.
Applicant's Representations
1. The Company is a stock life insurance company organized under
the laws of Minnesota.
2. The Variable Account is a segregated investment account of the
Company and is registered as a unit investment trust under the 1940
Act. The Variable Account was established to act as the funding entity
for certain variable annuity contracts (the ``Contracts'') issued by
the Company. The Variable Account is divided into sub-accounts, each of
which invests solely in the shares of one of the Funds of Franklin
Valuemark Funds, a Massachusetts business trust registered under the
1940 Act as an open-end management investment company.
3. NALAC Financial Plans, Inc., a broker-dealer registered under
the Securities Exchange Act of 1934, is the distributor of the
Contracts.
4. The Contracts are individual flexible payment deferred variable
annuity contracts (``Deferred Contracts'') or individual immediate
variable annuity contracts (``Immediate Contracts''). The Contracts are
available in connection with retirement plans that qualify for Federal
tax advantages and for plans that do not so qualify.
5. Premium taxes, or other taxes payable to a state or other
government entity, paid by the Company are charged against Contract
values either when due or at a later time, at the Company's discretion.
6. Owners of Deferred Contracts may transfer all or a part of their
interest in a sub-account to another sub-account. The Company reserves
the right to charge, per transfer, the lesser of $25 or 2% of the
amount transferred. Prior to the date annuity payments begin (the
``Annuity Date''), there is no charge for the first three transfers per
Contract year. Currently the Company permits 12 transfers per Contract
year without a transfer fee.
Owners of Immediate Contracts may transfer all or part of their
interest in a sub-account to another sub-account without the imposition
of any transfer fee.
7. For Deferred Contracts, there is an annual $30 Contract
Maintenance Charge. Applicants represent that this charge has not been
set at a level greater than its cost and contains no element of profit.
There is no Contract Maintenance Charge for Immediate Contracts.
8. The Company deducts an Administrative Expense Charge that is
equal on an annual basis to .15% of the average daily net assets of the
Variable Account. This charge, together with the Contract Maintenance
Charge, is designed to reimburse the Company for the expenses it incurs
in the establishment and maintenance of the Contracts and the Variable
Account. The Company does not intend to profit from this charge. Should
this charge be insufficient, the Company will not increase this charge
and will incur the loss. Applicants rely on rule 26a-1 with respect to
the deduction of the Contract Maintenance Charge and the Administrative
Expense Charge. Applicants represent that the Administrative Expense
Charge will be reduced in the future to the extent that the amount of
this charge is in excess of that necessary to reimburse the Company for
its administrative expenses.
9. The Contracts do not provide for a front-end sales charge to be
deducted from purchase payments. Some Deferred Contracts charge a
Contingent Deferred Sales Charge (``CDSC'') on full or partial
surrenders to reimburse the Company for expenses incurred in connection
with the promotion, sale and distribution of the Contracts. The CDSC
applies only to purchases payments received within five years of the
date of surrender. No CDSC is imposed on distributions made as annuity
payments. In calculating the CDSC, purchase payments are allocated to
the amount surrendered on a first-in first-out basis. The amount of the
CDSC is calculated by (i) allocating purchase payments to the amount
surrenders; (ii) multiplying each allocated purchase payment that has
been held under certain of the Contracts for the period shown below by
the charge shown below:
------------------------------------------------------------------------
In percent--
-----------------------
Years since payment Certain Other
contracts contracts
------------------------------------------------------------------------
0-1............................................. 5 6
1-2............................................. 5 5
2-3............................................. 4 4
3-4............................................. 3 3
5-5............................................. 1.5 1.5
5+.............................................. 0 0
------------------------------------------------------------------------
and (iii) adding the products of each multiplication in (ii) above.
In no event will the aggregate CDSC exceed 9% of the total purchase
payments made. A Contract owner may surrender no more than once
annually 15% or purchase payments less prior surrenders without
incurring a CDSC. The Company may eliminate or reduce the CDSC under
Company procedures then in effect. There is no CDSC imposed on
Immediate Contracts.
10. For all Contracts issued in connection with the Variable
Account, the Company deducts a Mortality and Expense Risk Charge that
is equal, on an annual basis, to 1.25% of the average daily net assets
of the Variable Account: Approximately .90% for mortality risks and
.35% for expense risks.
The mortality risks assumed by the Company arise from its
contractual obligation to make annuity payments after the Annuity Date
for the life of the annuitant in accordance with the annuity rates
guaranteed in the Contracts. The expense risk assumed by the Company is
that all actual expenses involved in administering the Contracts,
including Contract maintenance costs, administrative costs, mailing
costs, data processing costs, legal fees, accounting fees, filing fees
and the costs of other services may exceed the amount recovered from
the Contract Maintenance Charge and the Administrative Expense Charge.
Applicants' Legal Analysis and Conditions
1. Sections 26(a)(2) and 27(c)(2) of the 1940 Act prohibit a
registered unit investment trust and any depositor or underwriter
thereof from selling periodic payment plan certificates unless the
proceeds of all payments are deposited with a qualified 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.
2. Applicants request an amended order under section 6(c) exempting
them from sections 26(a)(2) and 27(c)(2) of the 1940 Act to the extent
necessary to permit the deduction of the mortality and expense risk
charge from the assets of the Variable Account under the Contracts.
Applicants request that the amended order also permit the deduction of
the Mortality and Expense Risk Charge from the assets of any other
separate account established by the Company in the future to support
variable annuity contracts offered on a basis similar in all material
respects to the basis on which the Contracts are offered.
3. Applicants submit that their request for an order that applies
to the Variable Account and to future separate accounts issuing
contracts that are substantially similar to the Contracts is
appropriate in the public interest. Such an amended order would promote
competitiveness in the variable annuity contract market by eliminating
the need for the Company to file redundant exemptive applications,
thereby reducing its administrative expenses and maximizing the
efficient use of its resources. Applicants further submit that the
requested relief is consistent with the purposes of the 1940 Act and
the protection of investors for the same reasons. Investors would not
receive any benefit or additional protection by the Company being
required to repeatedly seek exemptive relief with respect to the same
issues addressed in this Application.
4. Applicants represent that the mortality and expense risk charge
is reasonable in relation to the risks undertaken by the Company and
within the range of industry practice with respect to comparable
annuity products. Applicants base this representation on an analysis of
the mortality risks, taking into consideration such factors as any
contractual right to increase charges above current levels, the
guaranteed annuity purchase rates, the expense risks taking into
consideration the existence of charges against separate account assets
for other than mortality and expense risks, and the estimated costs,
now and in the future, for certain product features as well as an
examination of comparable annuity products. The Company represents that
it will maintain at its principal office a memorandum, available to the
Commission, setting forth in detail this analysis.
5. 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 CDSC. The Company
represents that there is a reasonable likelihood that the proposed
distribution financing arrangements will benefit the Variable Account
and Contract owners. The basis for such conclusion will be set forth in
a memorandum maintained by the Company at its principal office and
available to the Commission upon request.
6. The Company represents that the Variable Account will invest
only in management investment companies that undertake, in the event
the company adopts a plan to finance distribution expenses under rule
12b-1 under the 1940 Act, to have a board of directors, a majority of
whom are not interested persons of the company within the meaning of
section 2(a)(19) of the 1940 Act, formulate and approve any such plan.
Conclusion
Applicants assert that, for the reasons and upon the facts set
forth above, the requested exemptions from sections 26(a)(2) and
27(c)(2) of the 1940 Act to deduct the mortality and expense risk
charge from the assets of the Variable Account under the Contracts meet
the standards in section 6(c) of the 1940 Act. Applicants assert that
the exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and the
policies 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. 94-7286 Filed 3-28-94; 8:45 am]
BILLING CODE 8010-01-M
