[Federal Register Volume 59, Number 118 (Tuesday, June 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14984]
[[Page Unknown]]
[Federal Register: June 21, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20357; File No. 812-9042]
National Home Life Assurance Company, et al.
June 14, 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'').
-----------------------------------------------------------------------
APPLICANTS: National Home Life Assurance Company (``National Home''),
National Home Life Assurance Company Separate Account V (the ``Separate
Account'') and Capital Values Securities Corporation.
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 permitting the
deduction of a mortality and expense risk charge from the assets of the
Separate Account under certain flexible premium variable annuity
contracts (the ``Contracts'') and any materially similar contracts
offered in the future by the Separate Account.
FILING DATE: The application was filed on June 9, 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 July 11,
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. Applicants, c/o National Home Life
Assurance Company, 20 Moores Road, Frazer, PA 19355.
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. National Home, a stock life insurance company organized under
the laws of Missouri, is wholly-owned by Providian Corporation, a
publicly held insurance holding company. National Home is principally
engaged in offering life insurance, annuity contracts; and accident and
health insurance and is admitted to do business in 40 states, the
District of Columbia and Puerto Rico.
2. The Separate Account was established by National Home as a
separate account under Missouri law to fund the Contracts. The Separate
Account is registered as a unit investment trust under the 1940 Act.
The Separate Account has eighteen subaccounts, each of which invests
solely in a corresponding portfolio (``Portfolio'') of one of seven
open-end management investment companies (``Funds''). The Funds are
registered under the 1940 Act.
3. Shares of each Portfolio are purchased by National Home for the
corresponding subaccount of the Separate Account at net asset value.
Shares of each Portfolio are also offered to other affiliated or
unaffiliated separate accounts of insurance companies offering variable
annuity contracts or variable life insurance policies.
4. The Contract is a flexible premium payment contract that is
intended to be used either in connection with a retirement plan
qualified under Section 401(a), 403(b), 408, and 457 of the Internal
Revenue Code (``Qualified Contract'') or by other purchasers (``Non-
Qualified contract''). A Contract owner may allocate purchase payments
and/or the accumulation value to the general account of National Home
and/or the subaccounts of the Separate Account. The Contract owner may
select among annuity payment options that include variable or fixed
annuity options. Capital Values Securities Corporation, a wholly-owned
subsidiary of Providian Corporation, is the principal underwriter of
the Contracts.
5. The minimum initial purchase payment for a Non-Qualified
Contract is $5,000. A Qualified Contract may be purchased with a
minimum initial purchase payment of $2,000 or with $50 monthly
investments pursuant to a systematic payment plan.
6. The Contract is available in two forms, A Unit Contracts and B
Units Contracts.
A Unit Contracts have a maximum front-end sales load of 5.75%
deducted from each purchase payment. There are no withdrawal or
surrender charges for A Unit Contracts. For contracts offered in the
future that are substantially similar in all material respects to A
Unit Contracts, the front-end sales load will not exceed 5.75% and
there will be no surrender charges.\1\
---------------------------------------------------------------------------
\1\Applications represent that, during the Notice Period, the
application will be amended to reflect this representation.
---------------------------------------------------------------------------
B Unit Contracts have no front-end sales load deducted from
purchase payments. Up to 10% of the Contract's accumulated value as of
the Contract date or, if more recent, the last Contract anniversary,
can be withdrawn once per year without a surrender charge. Additional
withdrawals are subject to a contingent deferred sales load of 6%. The
applicable contingent deferred sales load decreases by 1% per year
until after the sixth Contract year there is no contingent deferred
sales load. For contracts offered in the future that are substantially
similar in all material respects to B Unit Contracts, there will be no
front-end sales load and the maximum surrender charge will be 6% of the
amount surrendered.\2\
---------------------------------------------------------------------------
\2\Applicants represent that, during the Notice Period, the
application will be amended to reflect this representation.
---------------------------------------------------------------------------
7. The total contingent deferred sales loads assessed for current
and future Contracts will not exceed 8.5% of the purchase payments
under the Contract. Applicants are relying on Rule 6c-8 under the 1940
Act to deduct the contingent deferred sales load.\3\
---------------------------------------------------------------------------
\3\Applicants represent that, during the Notice Period, the
application will be amended to reflect this representation.
---------------------------------------------------------------------------
8. Contract owners may make unlimited exchanges among the
Portfolios, provided a minimum balance of $1,000 is maintained in each
subaccount or general account option to which a Contract owner has
allocated a portion of accumulated value. No fee is imposed for such
exchanges; however, National Home has reserved the right to charge $15
for each exchange in excess of twelve per Contract year.
9. The Contracts are subject to an annual policy fee of $30 which
will be deducted on each Contract anniversary and upon surrender, on a
pro rata basis, from each subaccount.
10. An administrative charge which is guaranteed for the life of
the Contracts to be an amount equal to .15% annually of the net asset
value of the Separate Account is assessed daily.\4\ The administrative
fee is intended to cover National Home's ongoing administrative
expenses, and will not exceed the cost of services to be provided over
the life of the Contract in accordance with the applicable standards in
Rule 26a-1 under the 1940 Act.
---------------------------------------------------------------------------
\4\Applicants represent that, during the Notice Period, the
application will be amended to reflect this representation.
---------------------------------------------------------------------------
11. National Home makes a deduction fro the accumulated value or
purchase payments from premium taxes, imposed by state law, as the
taxes are incurred. Currently these taxes range up to 3.5%
12. National Home imposes a charge as compensation for bearing
certain mortality and expense risks under the Contract. The annual
charge is assessed daily based on the net asset value of the Separate
Account. The annual mortality and expense risk charge is .65% of the
net asset value of the Separate Account attributable to A Unit
Contracts, and 1.25% of the net asset value of the Separate Account
attributable to B Unit Contracts. For contracts offered in the future
similar to either the A Unit Contracts or the B Unit Contracts, the
annual mortality and expense risk charge will not exceed 1.25% of the
net asset value of the Separate Account attributable to such contracts.
For A Unit Contracts, .45% is allocated to the mortality risk and
.20% is allocated to the expense risk. For B Unit Contracts and future
contracts, .80% is allocated to the mortality risk and .45% is
allocated to the expense risk.\5\
---------------------------------------------------------------------------
\5\Applicants represent that, during the Notice Period, the
application will be amended to reflect this representation.
---------------------------------------------------------------------------
13. Where a life annuity payment option is selected, the mortality
risk borne by National Home under the two forms of the Contract arises
from the obligation of National Home to make annuity payments
regardless of how long an annuitant may live. The mortality risk is the
risk that annuitants will live longer than National Home's actuarial
projections indicate, resulting in higher than expected annuity
payments. National Home also assumes mortality risk as a result of an
adjusted death benefit which is to be paid to an annuitant's
beneficiary if the adjusted death benefit is greater than the
Contract's accumulated value.
14. The expense risk borne by National Home is the risk that the
charges for administrative expenses which are guaranteed for the life
of the Contract may be insufficient to cover the actual costs of
issuing and administering the Contract.
15. The mortality and expense risk is higher under the B Unit
Contracts than under the A Unit Contracts because B Unit Contracts are
expected to be more attractive to Contract owners purchasing a
Qualified Contract. While both A Unit Contracts and B Unit Contracts
are offered as Qualified Contracts, historically, the Contracts
offering a contingent deferred sales load (like the B Unit Contracts)
have been more appealing to those seeking to purchase Qualified
Contracts than contracts with a front-end sales load (like the A Unit
Contracts). The more complicated regulatory structure surrounding the
offering and maintenance of Qualified Contracts makes these Contracts
more expensive to administer. In addition, it is anticipated that the
utilization of B Unit Contracts for Qualified Contracts will increase
the instances where life annuity payment options are selected by B Unit
Contract owners, in comparison to A Unit Contract owners, thereby
increasing the mortality risk National Home is bearing under B Unit
Contracts.
16. If the charges deducted are insufficient to cover the actual
cost of the mortality and expense risk, the loss will fall on National
Home. If the charges prove more than sufficient, the excess will be
added to National Home's surplus and will be used for any lawful
purpose including any shortfalls in the costs of distributing the
Contracts.
Applicants' Legal Analysis and Conditions
1. Applicants request an exemption from sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act to the extent any relief is necessary to
permit the deduction from the Separate Account of the mortality and
expense risk charges under the Contracts. Applicants request that the
order also permit the deduction of the mortality and expense risk
charges described herein from the assets of the Separate Account
pursuant to other contracts offered in the future through the Separate
Account, to the extent that such contracts are substantially similar to
the Contracts.
2. Applicants submit that their request for an order that applies
to materially similar contracts offered in the future by the Separate
Account is appropriate in the public interest. Such an order would
promote competitiveness in the variable annuity contract market by
eliminating the need for National Home 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 National Home
to repeatedly seek exemptive relief with respect to the same issues
addressed in this Application.
3. Applicants represent that they have reviewed publicly available
information regarding the aggregate level of the mortality and expense
risk charges under variable annuity contracts comparable to the A Unit
Contracts and the B Unit Contracts currently being offered in the
insurance industry taking into consideration such factors as current
charge level, 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. Based upon this review, Applicants represent
that the mortality and expense risk charges under the Contracts are
within the range of industry practice for comparable contracts.
Applicants will maintain and make available to the Commission, upon
request, a memorandum outlining the methodology underlying this
representation. Similarly, prior to making available any substantially
similar contracts through the Separate Account, 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 outlining the methodology
underlying such representation.
4. Applicants represent that the Separate Account will invest only
in underlying funds that have undertaken to have a board of directors/
trustees, a majority of whom are not interested persons of any such
fund, formulate and approve any plan under Rule 12b-1 under the 1940
Act to finance distribution expenses.
5. Applicants do not believe that the front-end sales load or
contingent deferred sales load imposed under the Contracts will
necessarily cover the expected costs of distributing the Contract. Any
shortfall will be made up from National Home's general account assets
which will include amounts derived from the mortality and expense risk
charges. National Home has concluded that there is a reasonable
likelihood that the distribution financing arrangement being used in
connection with the Contracts will benefit the Separate Account and the
Contract owners. National Home will keep and make available to the
Commission, upon request, a memorandum setting forth the basis for this
representation.
Conclusion
Applicants assert that for the reasons and upon the facts set forth
above, the requested exemption from sections 26(a)(2)(C) and 27(c)(2)
of the 1940 Act to deduct the mortality and expense risk charge under
the Contract, or under substantially similar contracts offered in the
future by the Separate Account, meets 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 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. 94-14984 Filed 6-20-94; 8:45 am]
BILLING CODE 8010-01-M
