[Federal Register Volume 60, Number 114 (Wednesday, June 14, 1995)]
[Notices]
[Pages 31338-31340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14471]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21119; File No. 812-9456]
IL Annuity and Insurance Company, et al.
June 7, 1995.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').
ACTION: Notice of application for an Order under the Investment Company
Act of 1940 (the ``1940 Act'').
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APPLICANTS: IL Annuity and Insurance Company (``IL Annuity''), IL
Annuity and Insurance Company Separate Account 1 (``IL Annuity
Account''), and IL Securities, Inc.
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act granting exemptions from the provisions of Sections
26(a)(2)(C) and 27(c)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order permitting the
deduction of a mortality and expense risk charge from the assets of the
IL Annuity Account and other separate accounts established by IL
Annuity in the future (``Other Separate Accounts'') in connection with
the issuance and sale of certain flexible premium deferred variable
annuity contracts (``Contracts'') and any contracts that are similar in
all material respects to the Contracts (``Other Contracts'').
Applicants also request that the exemptive relief extend to certain
other broker-dealers which may serve in the future as a principal
underwriter of the Contracts or Other Contracts (``Future
Underwriters'').
FILING DATE: The application was filed on January 31, 1995, and amended
on May 22, 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 should be received by the Commission by 5:30
p.m. on July 3, 1995, 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 requester'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 5th Street, N.W., Washington, D.C.
20549. Applicants, Margaret H. McKinney, Esq., Associate General
Counsel and Secretary, Indianapolis Life Insurance Company, 2960 North
Meridian Street, Indianapolis, IN 46208.
FOR FURTHER INFORMATION CONTACT:
Mark C. Amorosi, Attorney, or Wendy Finck Friedlander, 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. IL Annuity, formerly known as Sentry Investors Life Insurance
Company, is a stock life insurance company organized under the laws of
the Commonwealth of Massachusetts in 1966. IL Annuity is a wholly-owned
subsidiary of the Indianapolis Life Group of Companies, Inc., which is
a wholly-owned subsidiary of the Indianapolis Life Insurance Company
(``ILICO''). ILICO is a mutual life insurance company chartered under
Indiana law. IL Annuity is authorized to conduct life insurance and
annuity business in 40 states and the District of Columbia. IL Annuity
is the depositor and sponsor of the IL Annuity Account.
2. The IL Annuity Account was established by IL Annuity as a
separate account under the laws of Indiana on November 1, 1994 as a
funding medium for variable annuity contracts. The IL Annuity Account
meets the definition of a ``separate account'' under the federal
securities laws and is registered under the 1940 Act as a unit
investment trust. The IL Annuity Account is divided into fifteen
subaccounts (the ``Variable Accounts'') each of which will invest
solely in the shares of a designated series (each a ``Portfolio'') of
The Alger American Fund, the Fidelity Variable Insurance Products Fund,
the Fidelity Variable Insurance Products Fund II, the Quest for Value
Accumulation Trust, the T. Rowe Price International Series, Inc., the
T. Rowe Price Fixed Income Series, Inc., and the Van Eck Investment
Trust (the ``Funds''). Each of the Funds is registered as a
diversified, open-end management investment company under the 1940 Act.
3. IL Securities, Inc. (``ILS''), a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc., will serve as the distributor
and principal underwriter for the Contracts. ILS is a wholly-owned
subsidiary of the Indianapolis Life Group of Companies, Inc. Any Future
Underwriter will be registered as a broker-dealer under the Securities
Exchange Act of 1934 and will be a member of the National Association
of Securities Dealers, Inc.
[[Page 31339]]
4. The Contracts are flexible premium deferred variable annuity
contracts which may be sold on a non-tax qualified basis (``Non-
Qualified Contracts'') or offered in connection with retirement plans
which qualify for favorable federal income tax treatment (``Qualified
Contracts''). The Contracts provide for, among other things: (a)
Minimum initial and subsequent premium payments of $1,000; (b) several
annuity payment options beginning on the annuity commencement date; and
(c) if the annuitant dies during the accumulation phase, the payment of
a death benefit equal to the greater of (1) the aggregate premium
payments made under the Contract, less partial withdrawals, as of the
date IL Annuity receives due proof of death and payment instructions,
or (2) the Contract value as of the date IL Annuity receives due proof
of death and payment instructions; and less applicable premium taxes
not previously deducted (and less any outstanding loan amount on the
date the death benefit is paid, if the Contract is a Qualified
Contract).
The Contract also provides for a maturity benefit payment if the
value of a particular Variable Account is less than the sum of the
premium payments which were initially allocated to that Variable
Account and which have remained continuously in that Variable Account
for a minimum of ten years. The maturity benefit payment is equal to
(a) the sum of the premium payments which have remained in a Variable
Account from the time of initial payment until the maturity benefit
date, provided ten years have elapsed from the time of payment until
the maturity benefit date; minus (b) the value of the Variable Account
on the maturity benefit date.
The Contract also provides transfer privileges, a dollar cost
averaging program, an interest sweep program and an automatic account
balancing program.
5. Various fees and charges are deducted under the Contracts. A
quarterly contract maintenance fee of $7.50 will be deducted from
Contract value at the end of each three month period measured from the
date of issue until the annuity commencement date and upon a full
withdrawal to reimburse IL Annuity for certain administrative expenses.
A daily asset-based administration charge equal to an effective annual
rate of 0.15% of the average daily separate account value will be
deducted to reimburse IL Annuity for certain administrative services
provided to Contract owners. These administrative fees are guaranteed
not to increase for the duration of the Contract. IL Annuity permits
twelve free transfers among the Variable Accounts per Contract year;
however, a $25 charge will be assessed on the thirteenth and each
subsequent transfer within the Contract year. IL Annuity represents
that these charges will be deducted in reliance upon Rule 26a-1 under
the 1940 Act and that each charge represents reimbursement only for
administrative costs expected to be incurred.
6. IL Annuity will deduct premium taxes paid on behalf of a
particular Contract either (a) from premium payments as received or (b)
from the Contract proceeds upon (i) a partial or full surrender, (ii)
application of the proceeds to a payment option or (iii) upon payment
of a death benefit. Premium taxes currently range up to 3.5%.
7. No sales charge is deducted from premium payments. However,
certain full or partial surrenders will be subject to a contingent
deferred sales charge (``Withdrawal Charge'') of up to 8% during the
first nine Contract years. Amounts subject to the Withdrawal Charge
will be deemed to be first from premium payments, then from earnings.
In any Contract year, a Contract owner may withdraw 10% of the Contract
value as of the beginning of the Contract year without incurring a
Withdrawal Charge. IL Annuity may also waive the Withdrawal Charge
under other circumstances permitted under the 1940 Act.
The Withdrawal Charge covers expenses relating to the distribution
and sale of the Contracts, including commissions to registered
representatives, preparation of sales literature and other promotional
expenses. IL Annuity does not anticipate that the Withdrawal Charge
will generate sufficient revenues to pay the cost of distributing the
Contracts. To the extent that the Withdrawal Charge is insufficient to
cover all sales and distribution expenses, the deficiency will be met
from IL Annuity's general account, which may include profits derived
from the mortality and expense risk charge.
8. Shares of the Portfolios are sold to the Variable Accounts at
net asset value. Each Portfolio pays its investment adviser a fee for
managing its investments and business affairs. Each Portfolio is
responsible for all of its operating expenses.
9. A daily charge equal to an effective annual rate of 1.25% of the
average daily net assets in the IL Annuity Account will be deducted to
compensate IL Annuity for bearing certain mortality and expense risks
under the Contracts. Of that amount, approximately 0.90% is for
mortality risks and approximately 0.35% is for the expense risk. The
mortality risks arise from IL Annuity's contractual obligations (1) to
make annuity payments (determined in accordance with the annuity tables
and other provisions provided in the Contract) regardless of how long
any individual annuitant or all annuitants may live and (2) to provide
a death benefit if the annuitant dies prior to annuitization.
Applicants represent that the mortality risk charge may not be
increased under the Contract. The expense risk assumed by IL Annuity is
the risk that IL Annuity's actual administrative costs will exceed the
amount recovered through the administrative and policy maintenance
charges. If the expense risk charge is insufficient to cover the actual
cost of administering the Contracts and the IL Annuity Account, IL
Annuity will bear the loss.
Applicants' Legal Analysis
1. Section 6(c) of the 1940 Act authorizes the Commission to grant
an exemption from any provision, rule or regulation of the 1940 Act to
the extent that it 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. Sections
26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant part, prohibit a
registered unit investment trust, its depositor or principal
underwriter, from selling periodic payment plan certificates unless the
proceeds of all payments, other than sales loads, are deposited with a
qualified bank and held under arrangements which prohibit any payment
to the depositor or principal underwriter except a reasonable fee, as
the Commission may prescribe, for performing bookkeeping and other
administrative duties normally performed by the bank itself.
2. Applicants request exemptions from Sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act to the extent necessary to permit the
deduction of the 1.25% charge from the assets of the IL Annuity Account
to compensate IL Annuity for the assumption of mortality and expense
risks. Applicants further request that such exemptive relief extend to
any Other Contracts which may be issued in the future by the IL Annuity
Account or any Other Separate Account established by IL Annuity.
Applicants assert that the requested exemptions are necessary and
appropriate in the public interest and consistent with the protection
of
[[Page 31340]]
investors and the purposes fairly intended by the policy and provisions
of the 1940 Act.
3. IL Annuity represents that the 1.25% mortality and expense risk
charge is within the range of industry practice for comparable annuity
contracts. This representation is based upon IL Annuity's analysis of
publicly available information about comparable industry products,
taking into consideration such factors as annuity purchase rate
guarantees, death benefit guarantees, other contract charges, the
frequency of charges, the administrative services performed by IL
Annuity with respect to the Contracts, the means of promotion, the
market for the Contracts, investment options under the Contracts,
purchase payment, transfer, dollar cost averaging and automatic account
balancing features, and the tax status of the Contracts. IL Annuity
represents that it will maintain at its home office, a memorandum,
available to the Commission, setting forth in detail the products
analyzed in the course of, and the methodology and results of, its
comparative review.
4. Prior to issuing any Other Contracts, Applicants will determine
that the mortality and expense risk charge under any Other Contracts is
within the range of industry practice for comparable contracts. IL
Annuity represents that the basis for this conclusion will be set forth
in a memorandum which will be maintained at its home office and will be
available to the Commission upon request.\1\
\1\Applicants represent that, during the Notice Period, the
application will be amended to reflect this representation.
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5. IL Annuity acknowledges that, if a profit is realized from the
mortality and expense risk charge, all or a portion of such profit may
be available to pay distribution expenses not reimbursed by the
Withdrawal Charge. IL Annuity represents that there is a reasonable
likelihood that the proposed distribution financing arrangements will
benefit the IL Annuity Account and Contract owners. IL Annuity
represents that the basis for that conclusion is set forth in a
memorandum which will be maintained at its home office and will be
available to the Commission upon request.
6. Prior to issuing any Other Contracts, Applicants will determine
that there is a reasonable likelihood that the proposed distribution
financing arrangement for any Other Contracts will benefit the IL
Annuity Account or any Other Separate Account and Contract owners. IL
Annuity represents that the basis for this conclusion will be set forth
in a memorandum which will be maintained at its home office and will be
available to the Commission upon request.\2\
\2\Applicants represent that, during the Notice Period, the
application will be amended to reflect this representation.
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7. Applicants assert that the terms of the future relief requested
with respect to Other Separate Accounts, Other Contracts and Future
Underwriters are consistent with the standards set forth in Section
6(c) of the 1940 Act. Applicants submit that, if IL Annuity were to
repeatedly seek exemptive relief with respect to the same issues
addressed in this application, investors would not receive additional
protection or benefit. Applicants assert that the requested relief is
appropriate in the public interest because the relief will promote
competitiveness in the variable annuity market by eliminating the need
for the filing of redundant exemptive applications, thereby reducing
administrative expenses and maximizing efficient use of resources.
Applicants represent that both the delay and the expense of repeatedly
seeking exemptive relief would impair IL Annuity's ability to
effectively take advantage of business opportunities as they arise.
8. IL Annuity also represents that the IL Annuity Account or any
Other Separate Accounts will invest only in management investment
companies which undertake, in the event they should adopt a plan under
Rule 12b-1 of the 1940 Act to finance distribution expenses, to have a
board of directors or trustees, 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
For the reasons set forth above, Applicants represent 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 policy 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. 95-14471 Filed 6-13-95; 8:45 am]
BILLING CODE 8010-01-M
