[Federal Register Volume 59, Number 103 (Tuesday, May 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13114]
[[Page Unknown]]
[Federal Register: May 31, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20310; File No. 812-8784]
First Xerox Life Insurance Company, et al.
May 23, 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: First Xerox Life Insurance Company (the ``Company''), First
Xerox Variable Annuity Account One (the ``Variable Account'') and Xerox
Life Sales Company.
RELEVANT 1940 ACT SECTIONS: Order requested under section 6(c) for
exemptions from sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an 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 filed on January 21, 1994, and amended
on April 22, 1994.
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 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 June 17,
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. The Company and the Variable Account,
120 Broadway, New York, NY 10271; Xerox Life Sales Company, One Tower
Lane, suite 3000, Oakbrook Terrace, Illinois 60181-4644.
FOR FURTHER INFORMATION CONTACT:
Wendy Finck Friedlander, Senior Attorney, at (202) 942-0682, or Wendell
M. Faria, Deputy Chief, at (202) 942-0670, 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
1. The Company, a stock life insurance company organized under the
laws of New York, is a wholly-owned subsidiary of Xerox Financial
Services Life Insurance Company, a Missouri insurance company.
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'') to be issued
by the Company. The Variable Account is divided into sub-accounts, each
of which invests solely in the shares of one of the portfolios of Van
Kampen Merritt Series Trust (the ``Trust'') or Lord Abbett Series Fund,
Inc. (the ``Fund''). The Trust and the Fund are registered under the
1940 Act as open-end management investment companies.
3. The Contracts are individual flexible payment deferred variable
and fixed annuity contracts. The Contracts are available in connection
with retirement plans that qualify for Federal tax advantages and for
plans that do not so qualify.
4. Xerox Life Sales Company, a broker-dealer registered under the
Securities Exchange Act of 1934, is the distributor of the Contracts.
5. Premium taxes, or other taxes payable to a state or other
government entity, are charged against Contract values. The Company
currently intends to advance any premium taxes due at the time purchase
payments are made and then deduct premium taxes from Contract value at
the time annuity payments begin or upon surrender, but the Company
reserves the right to deduct the premium taxes when incurred. Premium
taxes generally range from 0% to 4%.
6. Contract owners may transfer without charge all or a part of
their interest in a sub-account to another sub-account at any time
prior to the date upon which annuity payments begin, provided there
have been no more than 12 transfers per Contract year. If there have
been more than 12 transfers in the Contract year, the Company will
charge, per transfer, the lesser of $25 or 2% of the amount
transferred. After the date annuity payments begin, a Contract owner
may make one transfer per Contract year.
7. 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.
8. The Contracts do not provide for a front-end sales charge to be
deducted from purchase payments. Instead, a total or partial withdrawal
of a Contract prior to the annuity date is subject to a Withdrawal
Charge. The Withdrawal Charge is imposed on a withdrawal of Contract
value attributable to a purchase payment within seven years of receipt
of the purchase payment. The Withdrawal Charge is equal to 7% of the
purchase payment withdrawn within the first and second years following
receipt, 5% of the purchase payment withdrawn during the third, fourth
and fifth years following receipt and 3% of the purchase payments
withdrawn during the sixth and seventh years following receipt. An
owner may, not more frequently than once annually on a non-cumulative
basis, make a withdrawal each Contract year of up to ten percent of the
aggregate purchase payments free from Withdrawal Charges provided the
Contract value prior to the withdrawal exceeds $5,000.
9. The Company deducts an Administrative Expense Charge that is
equal on an annual basis to .15% of the average daily net asset value
of the Variable Account. This charge is designed to cover the shortfall
in revenues from the Contract Maintenance Charge to reimburse the
Company for expenses incurred in the maintenance of the Contracts and
the Variable Account. Should this charge prove insufficient, the
Company will not increase this charge and will incur the loss. The
Company does not intend to profit from this charge. The Company
represents that it will monitor the proceeds of the Administrative
Expense Charge to ensure that the proceeds do not exceed expenses.
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.
10. The Company deducts a Mortality and Expense Risk Charge that is
equal, on an annual basis, to 1.25% of the average daily net asset
value 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 and to waive the Withdrawal Charge in the
event of the death of the annuitant or Contract owner. 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 order under section 6(c) 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 the Mortality and Expense Risk
Charge from the assets of the Variable Account under the Contracts.
Applicants request that the 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 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. Investors would not receive any benefit
or additional protection by requiring the Company 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 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 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 and industry
practice with respect to 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 the Mortality and Expense Risk Charge is insufficient to
cover actual costs, the loss will be borne by the Company. Conversely,
if the amount deducted proves more than sufficient, the excess will be
a profit to the Company. The Company expects a profit from this charge.
To the extent the Withdrawal Charge is insufficient to cover the actual
cost of distribution, the Company may use any of its corporate assets,
including potential profit that may arise from the Mortality and
Expense Risk Charge, to make up the difference. Thus, all or a portion
of such profit may be viewed as being offset by distribution expenses
not reimbursed by the Withdrawal Charge. 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)(C) 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, or
from the assets of any other separate account established by the
Company in the future to support materially similar variable annuity
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 purposes fairly intended by 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. 94-13114 Filed 5-27-94; 8:45 am]
BILLING CODE 8010-01-M
