[Federal Register Volume 59, Number 44 (Monday, March 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5070]
[[Page Unknown]]
[Federal Register: March 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20100; File No. 812-8682]
Lincoln Benefit Life Company, et al.
February 28, 1994.
AGENCY: Securities and Exchange Commission (the ``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. (collectively, the ``Applicants'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act for exemption from Section 22(d) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order to the extent
necessary to allow Lincoln Benefit to waive, under certain
circumstances, the contingent deferred sales charge that would
otherwise be imposed on certain flexible premium individual deferred
variable annuity contracts (the ``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 SEC by
5:30 p.m. on March 25, 1994 and accompanied by proof of service on the
Applicants in the form of an affidavit or, for lawyers, a 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 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, on (202) 272-2060, Office of
Insurance Products, Division of Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application the complete application is available for a fee from the
Public Reference Branch of the SEC.
Applicant's Representations
1. 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% of the common stock of The Allstate Corporation is
indirectly owned by Sears, Roebuck & Co.
2. 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.
3. 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.
4. 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.
5. Purchase payments may be allocated, according to a Contract
owner's instructions, to one or more of the subaccounts of the Account.
Upon annuitization, Contract owners may select from a number of
variable or fixed annuity options. If the owner of a Contract dies
prior to the annuity date and the Contract is in force, a death benefit
is payable under the Contract.
6. 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 designated to be at cost with no margin included for profit. Lincoln
Benefit is currently waiving this fee.
7. 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.
8. 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.
9. 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.
10. 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 risks, 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 risks charge is insufficient to cover actual costs and assumed
risks, 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.
11. Applicants state that the mortality risks borne by Lincoln
Benefit consist 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.
12. Where available under applicable state law, Applicants offer a
Confinement Waiver benefit. The Confinement Waiver benefit provides
that any applicable Sales Charge will be waived where the following
conditions are satisfied:
a. The Annuitant must be confined to a Long Term Care Facility or a
Hospital for at least 60 consecutive days. Confinement must begin after
the Issue Date;
b. The Contract owner must request the withdrawal no later than 90
days following the date that confinement has ceased. Written proof of
confinement must accompany the withdrawal request; and
c. For confinements in a Long Term Care Facility, confinement must
be prescribed by a Physician and be Medically Necessary.\1\
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\1\Capitalized terms used but not defined in this paragraph
twelve, shall have the meanings assigned such terms in the
application.
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Applicants' Legal Analysis
1. Pursuant to section 6(c) of the 1940 Act, the Commission may, by
order upon application, conditionally or unconditionally exempt any
person, security, or transaction, or any class or classes of persons,
securities or transactions, from any provision or provisions of the
1940 Act or from any rule or regulation thereunder, if and to the
extent that such exemption 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 1940 Act.
Pursuant to section 6(c), Applicants request that the Commission issue
an order to provide exemptive relief set forth below.
2. Section 22(d) of the 1940 Act prohibits a registered investment
company, its principal underwriter or a dealer in its securities from
selling any redeemable security issued by such registered investment
company to any person except at a public offering price described in
the prospectus. Rule 6c-8 adopted under the 1940 Act permits variable
annuity separate accounts to impose a deferred sales charge. Although
Rule 6c-8, unlike proposed Rule 6c-10, does not impose any conditions
on the ability of the investment company involved to provide for
variations in the deferred sales charges, Rule 6c-8 (again unlike
proposed Rule 6c-10) does not provide an exemption from section 22(d).
Applicants recognize that the proposed waiver of the Sales Charge in
connection with the Confinement Waiver benefit could be viewed as
causing the Contracts to be sold at other than a uniform offering
price. Rule 22d-1 is not directly applicable to Applicants' proposed
waiver of the Sales Charge because that Rule has been interpreted as
granting relief only for scheduled variations in front-end loads, not
deferred sales load such as the Sales Charge.
3. Rule 22d-2 under the 1940 Act exempts registered variable
annuity accounts, their principal underwriters, dealers and their
sponsoring insurance companies from section 22(d) to the extent
necessary to permit variations in the sales load or in any
administrative charge or other deductions from the purchase payments,
provided that such variations reflect differences in costs or services,
are not unfairly discriminatory and are adequately described in the
prospectus. Applicants, however, do not represent that the Confinement
Waiver benefit reflects differences in sales costs or services, and,
for that reason, Applicants do not rely on Rule 22d-2 for the requested
relief, even assuming that Rule 22d-2 does apply to deferred sales
load.
4. Nonetheless, Applicants submit that the proposed waiver is
consistent with the policies of section 22(d) and the rules promulgated
thereunder. One of the purposes of section 22(d) is to prevent an
investment company from discriminating among investors by charging
different prices to different investors. Applicants represent that, in
jurisdictions where the Confinement Waiver benefit is permitted by
state law, the benefit will be available to any Contract owner if the
annuitant under the Contract becomes confined to a hospital or long
term care facility for 60 days or more, and, therefore, the benefit
will not unfairly discriminate among Contract owners. Moreover,
Applicants argue that the benefit is advantageous to Contract owners by
permitting any such owner, upon a triggering of the Confinement Waiver
benefit, to surrender the Contract without imposition of the Sales
Charge. Applicants further state that the Confinement Waiver benefit
will not result in dilution of the interests of any other Contract
owner. Finally, Applicants argue that waiving the Sales Charge under
such circumstances will not result in the occurrence of any of the
abuses that section 22(d) is designed to prevent.
5. Applicants represent that the Confinement Waiver benefit meets
the substantive requirements of Rule 22d-1 in that Applicants
specifically represent that: (a) The Confinement Waiver will be
uniformly available to all eligible (as described in paragraph four
above) Contract owners except where prohibited by state law; and (b)
that the Confinement Waiver benefit will be adequately described in the
Account's prospectus for the Contracts. Applicants also note that there
are no existing Contract owners since the public offering of Contracts
has not yet commenced.
Conclusion
For the reasons stated above, Applicants believe that the requested
exemptions, in accordance with the standards of section 6(c), are
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,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-5070 Filed 3-4-94; 8:45 am]
BILLING CODE 8010-01-M
