[Federal Register Volume 59, Number 68 (Friday, April 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8438]
[[Page Unknown]]
[Federal Register: April 8, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20187; 812-8806]
PFL Life Insurance Company, et al.
April 1, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (``1940 Act'').
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APPLICANTS: PFL Life Insurance Company (``PFL Life''), PFL Endeavor
Variable Annuity Account (``Variable Account''), and AEGON USA
Securities, Inc. (``AEGON Securities'').
RELEVANT 1940 ACT SECTIONS: An Amended Order is requested under Section
6(c) of the 1940 Act for exemptions from Sections 26(a) and 27(c)(2).
SUMMARY OF APPLICATION: Applicants seek an amended order to permit the
deduction from the assets of the Variable Account of a mortality and
expense risk charge and a distribution charge under certain individual
flexible premium variable annuity contracts (the ``contracts''). The
amended order would supersede a prior order that permitted the
deduction of the mortality and expense risk charge by permitting the
additional deduction for the distribution charge.
FILING DATE: The application was filed on January 31, 1994.
HEARING OR NOTIFICATION OF HEARING: An amended 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 Commission 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 April 26, 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 writer's 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, Securities and Exchange Commission, 450 Fifth
Street NW., Washington, DC 20549. Applicants, c/o Craig D. Vermie,
Esq., PFL Life Insurance Company, 4333 Edgewood Road NE., Cedar Rapids,
Iowa 52499.
FOR FURTHER INFORMATION CONTACT:
Wendy Finck Friedlander, Senior Attorney, 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.
Applicants' Representations and Statements
1. Applicants filed an application on January 12, 1993 (the
``Original Application''), for an order pursuant to section 6(c) of the
1940 Act to the extent necessary to permit the deduction of a mortality
and expense risk charge under the Contracts. A notice was issued on
February 22, 1993 (investment Company Act Release No. 19278). An order
was issued on March 23, 1993 (Investment Company Act Release No. 19345)
granting the requested exemptions from sections 26(a)(2) and 27(c)(2)
of the 1940 Act. This application for an amended order seeks relief to
permit the deduction of a distribution financing charge as well as the
mortality and expense risk charge.
2. PFL Life (formerly known as NN Investors Life Insurance Company)
is a stock life insurance company incorporated under the laws of Iowa
on April 19, 1961. PFL Life is an indirect wholly-owned subsidiary of
AEGON USA, Inc. which, in turn, is indirectly owned by AEGON n.v.
3. The Variable Account is registered with the Commission under the
1940 Act as a unit investment trust. The Variable Account is divided
into a number of subaccounts, each of which invests solely in a
specific corresponding portfolio of the Endeavor Series Trust (the
``Series Fund'') or in the shares of the Janus Growth Portfolio of the
WRL Series Fund, Inc. (the ``Janus Growth Portfolio'').
4. The Contracts may be purchased on a non-tax qualified basis or
may be purchased and used in connection with retirement plans or
individual retirement accounts that qualify for favorable federal
income tax treatment. The Contracts may be purchased with an initial
premium payment of at least $25,000. Contract owners may allocate
premium payments to one or more subaccounts of the Variable Account,
each of which will invest in a corresponding portfolio of the Series
Fund or the Janus Growth Portfolio. The minimum amount allocable to any
subaccount is $500.
5. AEGON Securities (formerly known as MidAmerica Management
Corporation) will serve as the distributor and principal underwriter of
the Contracts.
6. If an annuitant who is not the Contract owner dies before the
annuity commencement date, then the owner will become the annuitant. In
the event that the annuitant (who also is the Policy owner) dies before
the annuity commencement date, a death benefit is payable to the
beneficiary upon receipt of due proof of death, and will be the greater
of (i) the Contract value on the date proof of death and election of
the method of settlement are received, or (ii) the total premiums paid
less any partial surrenders plus interest at an annual rate of 5
percent.
7. Prior to the annuity commencement date, a Contract owner may
surrender all or a portion of the Contract value, or transfer Contract
value between subaccounts of the Variable Account. The minimum amount
that can be withdrawn from a subaccount is $500. The minimum amount
that can be transferred from one subaccount to another is the lesser of
$500 or the entire subaccount value. PFL Life currently imposes no
charge for any transfers, but reserves the right to impose a $25
charger the thirteenth and each subsequent transfer request made by the
Contract owner during a single Contract year.
8. PFL Life will deduct an annual contract maintenance charge of
the lesser of 2% of Contract value or $35 per Contract year. This
charge will be deducted pro rata from each subaccount in which the
Contract owner is invested at the end of each Contract year prior to
the annuity commencement date to compensate PFL Life for the
administrative services provided to Contract owners. PFL Life also
deducts a daily administrative expense charge from the assets of each
subaccount of the Variable Account. This charge is equal to an
effective annual rate of .15% of the net assets of the subaccount. PFL
Life does not anticipate any profit from any of these administrative
charges, and will monitor its administrative expenses and the proceeds
of these charges on at least an annual basis, to ensure compliance with
Rule 26a-1 under the 1940 Act.
9. PFL Life will deduct the aggregate premium taxes paid on behalf
of a particular Contract from the Contract value on the annuity
commencement date (or upon full surrender or payment of the death
benefit). No charges currently are made for federal, state, or local
taxes other than premium taxes. PFL Life reserves the right to deduct
such taxes from the Variable Account in the future.
10. PFL Life will impose a daily charge to compensate it for
bearing certain mortality and expense risks under the Contracts. The
charge is equal to an effective annual rate of 1.25% of the value of
the net assets in the Variable Account. Of that amount, approximately
.45% is attributable to mortality risks, and approximately .80% is
attributable to expense risks. The mortality risk borne by PFL Life
arises from its obligation to make monthly annuity payments regardless
of how long all annuitants or any individual annuitant may live. The
expense risk borne by PFL Life is that the deductions for
administrative costs under the Contracts may be insufficient to cover
the actual costs incurred by PFL Life.
11. PFL also incurs a risk in connection with the death benefit
guarantee. On the Contract owner's death, PFL will pay the greater of
(a) the Contract value, or (b) premium payments (net of withdrawals)
plus 5% annual interest.
12. PFL Life imposes a daily charge designed to compensate it for
the cost of distributing the Contracts.\1\ This charge is equal to an
effective annual rate of 0.25% of the value of the net assets in the
Variable Account. This charge will cease after the tenth contract
anniversary or at such time as the cumulative amount of the charge
equals 8.5% of the cumulative premium payments for a Contract,
whichever occurs first. To the extent that this charge does not
completely cover the cost of distributing the Contracts, the excess
costs will be met from PFL Life's general account funds, which may
include amounts derived from the charge for mortality and expense
risks. No front-end load is deducted under the Contracts, and no
deferred sales load is deducted from the proceeds of partial
withdrawals or surrenders.
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\1\Applicants represent that, during the Notice Period, the
application will be amended to reflect this representation.
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13. PFL Life will bear all distribution and sales expenses of the
Contracts, including the payment of sales commissions to registered
broker-dealers. PFL Life will keep all revenues from the distribution
financing charge to partially offset its distribution and sales
expenses with respect to the Contracts. If the distribution financing
charge is insufficient to cover the actual distribution expenses, then
PFL Life will bear the loss. Conversely, if the charge proves more than
sufficient, then the excess will be profit to PFL Life and will be
available for any proper corporate purpose. The charge is not designed
or expected to generate a profit.
14. PFL Life will monitor the Variable Account to ensure that
aggregate deductions for the distribution financing charge do not
exceed 8.5% of aggregate payments for any Contract owner.
Applicants' Legal Analysis and Conditions
1. Sections 26(a)(2) and 27(c)(2), as herein pertinent, prohibit a
registered unit investment trust and any depositor thereof or
underwriter therefore from selling periodic payment plan certificates
unless the proceeds of all payments (other than 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. Applicants request exemptions from sections
26(a)(2) and 27(c)(2) of the 1940 Act to the extent relief is necessary
to permit the deduction from the Variable Account of the mortality and
expense risk charges and distribution financing charge under the
contracts.
2. Applicants submit that PFL Life is entitled to reasonable
compensation for its assumption of mortality and expense risks and for
bearing distribution costs, and that the charge of 1.25% for mortality
and expense risks is consistent with the protection of investors
because it is a reasonable and proper insurance charge. The Applicants
also submit that the charge of 1.25% for mortality and expense risks is
within the range of industry practice with respect to comparable
annuity products. This representation is based upon PFL Life's 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 benefits guaranteed by the
Contracts. PFL Life will maintain at its administrative offices,
available to the Commission, a memorandum setting forth in detail the
products analyzed in the course of, and the methodology and results of,
its comparative survey.
3. If the mortality and expense risk charge is insufficient to
cover actual costs and assumed risks, the loss will fall on PFL Life.
Conversely, if the charge is more than sufficient to cover costs, any
excess will be profit to PFL Life. If a profit is realized from the
mortality and expense risk charge, all or a portion of such profit may
be viewed by the Commission as being offset by distribution expenses
not reimbursed by a sales charge. PFL Life has concluded that there is
a reasonable likelihood that the proposed distribution financing
arrangements will benefit the Variable Account and the Contract owners.
The basis for such conclusion is set forth in a memorandum which will
be maintained by PFL Life at its administrative offices and will be
available to the Commission.
4. PFL Life represents that the distribution financing charge of
0.25% is a reasonable and proper charge. No front-end or deferred sales
charges are imposed under the Contracts.
Because PFL Life will ensure that the aggregate deductions for the
distribution financing charge under any Contract will never exceed 8.5%
of the aggregate payments under that Contract, the difference between
the proposed distribution arrangement and an 8.5% front-end sales load
is that the distribution financing charge deductions will either be
smaller, later, or both smaller and later than such a front-end load.
Accordingly, the proposed distribution financing charge would be more
favorable to Contract owners than a front-end sales load of 8.5%. PFL
Life has concluded that the proposed distribution financing
arrangements will benefit the Variable Account and the Contract owners.
The basis for such conclusion is set forth in a memorandum that will be
maintained by PFL Life at its administrative offices and will be
available to the Commission.
5. Applicants undertake to include, in the prospectus forming part
of the registration statement for the Contracts under the Securities
Act of 1933, as it may from time to time be amended, statements (a)
describing the purpose of the distribution financing charge, and (b)
stating that the staff of the Securities and Exchange Commission deems
such charge to constitute a deferred sales charge.\2\
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\2\Applicants represent that, during the Notice Period, the
application will be amended to reflect this representation.
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6. PFL Life also represents that the Variable Account will only
invest in management investment companies which undertake, in the event
such companies adopt plans 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, formulate and approve
any such plans under Rule 12b-1.
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 permit the deduction of the mortality and
expense risk charges and the distribution financing charge under the
Contracts meet the standards in section 6(c) of the 1940 Act. In this
regard, the 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. 94-8438 Filed 4-7-94; 8:45 am]
BILLING CODE 8010-01-M
