[Federal Register Volume 60, Number 82 (Friday, April 28, 1995)]
[Notices]
[Pages 21018-21020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10483]
[[Page 21018]]
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-21025; 812-9198]
Integrity Life Insurance Company, et al.
April 24, 1995.
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: Integrity Life Insurance Company (``Integrity''), National
Integrity Life Insurance Company (``National Integrity'') (Integrity
and National Integrity shall be referred to hereinafter as the
``Companies''), Integrity Life Insurance Company Separate Account III
(the ``Integrity Separate Account''), National Integrity Life Insurance
Company Separate Account III (the ``National Integrity Separate
Account'') (the Integrity Separate Account and the National Integrity
Separate Account shall be referred to collectively hereinafter as the
``Separate Accounts''), and Integrity Financial Services (``IFS'').
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 APPLICATION: Applicants seek an order to permit the
deduction of a mortality and expense risk charge from the assets of the
Separate Accounts under certain flexible premium variable annuity
contracts (the ``Contracts'') and under any materially similar
contracts offered in the future by such Separate Accounts (the ``Future
Contracts'') or from the assets of any other separate account
established by either of the Companies in the future to support
variable annuity contracts which are materially similar to the
Contracts, and for which any National Association of Securities
Dealers, Inc. (``NASD'') member broker-dealer other than IFS--which is
wholly-owned by the ARM Financial Group, Inc. and registered with the
Commission under the Securities Exchange Act of 1934--may in the future
serve as the principal underwriter.
FILING DATES: The application was filed on August 24, 1994, and amended
on March 31, 1995.
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 by writing to the Commission's Secretary
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 May 19, 1995, and must be accompanied by proof of service on
Applicants in the form of an affidavit or, for lawyers, a certificate
of service. Hearing requests must 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 Commission's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants: c/o Jorden Burt & Berenson, 1025 Thomas Jefferson Street
NW., Suite 400 East, Washington, DC 20007-0805, Attention: Michael
Berenson, Esq.
FOR FURTHER INFORMATION CONTACT: Joseph G. Mari, Senior Special
Counsel, or Patrice M. Pitts, Special Counsel, Office of Insurance
Products, Division of Investment Management, at (202) 942-0670.
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. Integrity was organized in 1966 as an Arizona stock life
insurance company and has redomesticated as an Ohio stock life
insurance company. National Integrity was organized in 1968 as a New
York stock life insurance company. Each of the Companies is principally
engaged in offering life insurance policies and annuity contracts.
National Integrity is a subsidiary of Integrity and both Companies are
indirectly wholly-owned by The ARM Financial Group, Inc., an insurance
holding company. The ARM Financial Group, Inc. is a holding company in
the business of owning and managing life insurance companies that
specialize in the design, marketing, and management of accumulation
products.
2. The Integrity Separate Account is a distinct investment account
of Integrity, and the National Integrity Separate Account is a distinct
investment account of National Integrity. Each of the Separate Accounts
acts as a funding vehicle for the Contracts.
3. Each Separate Account invests solely in the Schabacker Select
Fund (the ``Portfolio''), currently the only investment portfolio of
United Services Insurance Funds (``USIF''), a diversified, open-end
management investment company that has filed a registration statement
with the SEC under the 1940 Act. The Portfolio primarily invests in a
broad range of other open-end and closed-end investment companies
(``underlying funds''). An investor in the Portfolio may have the
option of investing directly in the underlying funds, rather than
indirectly through the Portfolio which will duplicate some operating
expenses. As a result of this duplication of expenses, an investor not
only will bear the investor's proportionate share of the expenses of
the Portfolio, including operation costs and management fees, but also
will indirectly share in a portion of similar expenses of the
underlying funds. The shares of the Portfolio are purchased by each
Company for the Company's Separate Account at net asset value, without
a sales load.
4. The board of directors of each of the Companies may, in the
future, establish additional subaccounts within the same Separate
Account (``Subaccounts''), which may invest in other portfolios of USIF
as and when such portfolios are registered, or in other investments.
Each Company may, in the future, establish other contracts which are
funded by the Company's Separate Account and which are materially
similar to the Contracts. In addition, each Company may, in the future,
establish other separate accounts which issue contracts which are
materially similar to the Contracts.
5. IFS, a wholly-owned subsidiary of The ARM Financial Group, Inc.
which is registered as a broker-dealer under the Securities Exchange
Act of 1934, is the distributor of the Contracts.
6. The Contracts are intended to be used in connection with
retirement plans that qualify for Federal tax advantages and for plans
that do not so qualify. The Contracts are flexible premium variable
annuity contracts which provide for an initial contribution and allow
for additional contributions at any time before the annuity payments
begin, as long as the annuitant is living and subject to certain
limitations.
7. No sales load is deducted from the initial contribution or any
additional contributions, and there are no sales charges imposed upon
withdrawals.
8. The Contracts are subject to an annual maintenance fee of $35
which will be deducted on the last business day of each Contract year.
The annual maintenance fee will be waived in any year that the account
value of the Contract is $50,000 or more on the last business day of
the Contract year.
9. Prior to the retirement date, an administrative charge equal to
0.15% annually of the net asset value of the Separate Account of each
Company is assessed daily and will be deducted from the accumulation
unit value of the Contract. The administrative charge is intended to
cover the Company's ongoing administrative expenses. This charge and
the annual maintenance fee [[Page 21019]] will not in the aggregate
exceed the cost of services to be provided over the life of the
Contract defined in accordance with the applicable standards in Rule
26a-1 under the 1940 Act. The deductions for the administrative charge
and annual maintenance fee represent reimbursement for the costs
expected to be incurred by each Company over the life of the Contract
for issuing and maintaining each Contract and the Company's Separate
Account.
10. The Contract owner will pay premium taxes, where such taxes are
imposed by state law, and which taxes currently range up to 3.5%. These
taxes will be deducted from the account value or contributions, as
incurred by each Company. Any other taxes levied by any government
entity regarding the Contracts or the Separate Accounts will be paid by
each of the Companies.
11. Each Company will impose a charge as compensation for bearing
certain mortality and expense risks under the Contract. The annual
charge is assessed daily and is based on the net asset value of each
Separate Account. The annual mortality and expense risk charge will not
exceed an effective annual rate of 0.50% of the net asset value of each
Separate Account, where 0.40% is allocated to the mortality risk and
0.10% is allocated to the expense risk. Likewise, for Future Contracts,
the annual mortality and expense risk charge will not exceed an
effective annual rate of 0.50% of the net asset value of the Separate
Account attributable to such contracts, where 0.40% is allocated to the
mortality risk and 0.10% is allocated to the expense risk.
12. The mortality risk borne by each Company under the Contract
arises from the Company's obligation to make annuity payments
regardless of how long an annuitant may live. Each Company also assumes
mortality risk as a result of death benefits which may be paid under
the Contract and which guarantee a minimum payment in the event that
the annuitant dies prior to the annuity date. The expense risk borne by
each Company under the Contract is the risk that the charges for
administrative expenses, which charges are guaranteed for the life of
the Contract, may be insufficient to cover the actual costs of issuing
and administering the Contract.
13. If the mortality and expense risk charges deducted are
insufficient to cover the actual cost of the mortality and expense
risk, each Company will bear the loss. Conversely, if the mortality and
expense risk charges deducted exceed the costs, the excess will be
added to each Company's surplus and will be used for any lawful
purpose, including any shortfalls on the costs of distributing the
Contracts.\1\
\1\Applicants represent that, during the notice period, the
application will be amended to reflect this representation.
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Applicants' Legal Analysis and Conditions
1. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally grant an
exemption from any provision, rule or regulation of the 1940 Act to the
extent that the 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.
2. Sections 26(a)(2) and 27(c)(2) of the 1940 Act, in pertinent
part, 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 are held under arrangements which prohibit any
payment to the depositor or principal underwriter except for a fee, not
exceeding such reasonable amounts as the Commission may prescribe, for
performing bookkeeping and other administrative services.
3. Applicants request an order under Section 6(e) exempting them
from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act to the extent
necessary to permit the deduction of a mortality and expense risk
charge from the assets of the Separate Account funding the Contracts
and Future Contracts. Applicants also request that the order permit the
deduction of a mortality and expense risk charge from the assets of any
other separate account established by either of the Companies in the
future to support variable annuity contracts which are materially
similar to the Contracts, and for which any NASD member broker-dealer
other than IFS may in the future serve as the principal underwriter.
Any such future principal underwriter will be wholly-owned, directly or
indirectly, by the ARM Financial Group, Inc., and be registered with
the Commission under the Securities Exchange Act of 1934.
4. Applicants submit that the requested relief is appropriate in
the public interest because such an order would promote competitiveness
in the variable annuity contract market by eliminating the need for the
Companies to file redundant exemptive applications, which reduces each
Company's resources. Applicants further submit that investors would not
receive any benefit or additional protection by the Company being
required repeatedly to seek exemptive relief regarding the same issues
addressed in this application.
5. Applicants represent that the mortality and expense risk charges
under the Contracts are within the range of industry practice for
comparable variable annuity contracts. Applicants base this
representation on their review of publicly available information
regarding the aggregate level of the mortality and expense risk charges
under variable annuity contracts currently being offered in the
insurance industry which are comparable to the Contracts. In this
regard, Applicants have taken into consideration such factors as
current charge levels, the manner in which charges are imposed, the
presence of charge-level or annuity-rate guarantees, and the markets in
which the Contracts will be offered. Applicants will maintain and make
available to the Commission upon request a memorandum setting forth in
detail the products analyzed in the course of, and the methodology and
results of, the comparative survey.
6. Similarly, prior to making available any Future Contracts and
prior to making available any materially similar contracts through
other separate accounts established by either of the Companies in the
future, Applicants will represent that the mortality and expense risk
charges under any such contracts will be within the range of industry
practice for comparable contracts. Applicants will maintain and make
available to the Commission upon request a memorandum setting forth in
detail the products analyzed in the course of, and the methodology and
results of, the comparative survey.
7. The Contracts do not provide for a sales charge to cover the
costs incurred in distributing the Contracts, and there are no sales
charges imposed upon surrender or partial withdrawal of a Contract.
Applicants represent that the costs related to the distribution of the
Contracts will be paid from the assets of the general account of the
Company, which amounts will be derived in part from gains from
operations regarding the Contracts and from the mortality and expense
risk charge. Each Company has concluded that there is a reasonable
likelihood that the distribution financing arrangement being used in
connection with the Contracts and the Future Contracts will benefit the
Company's Separate Account and the Contract owners. The Companies will
maintain and make available to the Commission upon request a
[[Page 21020]] memorandum setting forth the basis for this
representation.
8. Applicants further represent that each Separate Account, and
other separate accounts established in the future, will invest only in
underlying funds which have undertaken to have a board of directors/
trustees, a majority of whom are not interested persons of any such
funds, formulate and approve any plan under Rule 12b-1 under the 1940
Act to finance distribution expenses.
Applicants' 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 policies 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. 95-10483 Filed 4-27-95; 8:45 am]
BILLING CODE 8010-01-M
