[Federal Register Volume 60, Number 127 (Monday, July 3, 1995)]
[Notices]
[Pages 34568-34570]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16211]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21164; 812-9508]
Kansas City Life Insurance Company, et al.
June 26, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Kansas City Life Insurance Company (``Kansas City Life''),
Kansas City Life Variable Annuity Separate Account (the ``Separate
Account''), and Sunset Financial Services, Inc. (``Sunset Financial'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
that would exempt applicants from sections 26(a)(2)(C) and 27(c)(2) of
the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit them to
deduct a mortality and expense risk charge from the assets of the
Separate Account or any other separate account (``Other Accounts'')
that Kansas City Life may establish in the future to support certain
individual flexible premium payment deferred variable annuity contracts
(``Contracts'') as well as other variable annuity contracts offered in
the future that are similar in all material respects to the Contracts
(``Future Contracts'').
FILING DATES: The application was filed on March 3, 1995, and amended
on June 8, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC 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 18, 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 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, SEC, 450 5th Street NW., Washington, D.C. 20549.
Applicants, Kansas City Life Insurance
[[Page 34569]]
Company, Kansas City Life Variable Annuity Separate Account, 3520
Broadway, Kansas City, Missouri 64141-6139, Sunset Financial Services,
Inc. 3200 Capital Boulevard South, Olympia, Washington 98501-3396.
FOR FURTHER INFORMATION CONTACT: Sarah A. Buescher, Staff Attorney, at
(202) 942-0573, or C. David Messman, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. Kansas City Life is a stock life insurance company organized in
Missouri and licensed to do business in 45 states and the District of
Columbia.
2. The Separate Account is a separate investment account
established by Kansas City Life to fund variable annuity contracts.
Kansas City Life is the depositor and sponsor of the Separate Account.
The Separate Account is registered as a unit investment trust under the
Act. Units of interest in the Separate Account will be registered under
the Securities Act of 1933. The Separate Account is currently divided
into eleven subaccounts. Each subaccount will invest exclusively in the
shares of an investment portfolio of one of three registered investment
companies.
3. Sunset Financial, an indirect wholly-owned subsidiary of Kansas
City Life, will serve as the distributor and principal underwriter for
the Contracts. Sunset Financial is registered under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc.
4. The Contracts are individual flexible premium deferred variable
annuity contracts. They may be purchased on a non-tax qualified basis
or in connection with retirement plans entitled to special federal
income tax treatment. The Contracts require a minimum initial premium
of $5,000 or annualized payments of $600. The minimum subsequent
premium payment is $50. Contract owners may allocate premium payments
to one or more subaccounts of the Separate Account and to the Fixed
Account, which is part of Kansas City Life's General Account. Premium
payments allocated to the Fixed Account will be credited with a
predetermined rate of interest. The value of a Contract (``Contract
Value'') is the sum of the value of the Contract's investments in the
Separate Account and the Fixed Account.
5. The Contracts provide for a death benefit if the annuitant dies
before the maturity date. The death benefit is equal to the greater of:
(i) the guaranteed death benefit less any indebtedness; and (ii) the
Contract Value less any indebtedness on the date applicants receive
proof of the annuitant's death. The guaranteed death benefit is equal
to the initial premium payment plus any subsequent premium payments.
Any partial surrender will decrease the guaranteed death benefit by the
same percentage that the surrender decreases the Contract Value.
6. Before the maturity date, the owner may request a transfer of
all or part of the amount in a subaccount or the Fixed Account to
another subaccount or to the Fixed Account. The total amount
transferred each time must be at least $250, or the entire amount in
the subaccount or the Fixed Account, if less than $250. Only one
transfer from the Fixed Account may be made in each 12-month period
beginning on the date the Contract is issued (``Contract Year''), and
that transfer may not be for more than 25% of the unloaned value of the
Fixed Account. The first six transfers each Contract Year are free.
Kansas City Life will assess a $25 transfer processing fee for
subsequent transfers. Kansas City Life does not expect a profit from
this fee, which is guaranteed and cannot be increased. Applicants rely
on rule 26a-1 to deduct this fee.\1\
\1\ Rule 26a-1 allows for payment of a fee for bookkeeping and
other administrative expenses provided that the fee is no greater
than the cost of the services provided, without profit.
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7. Applicants will charge a contingent deferred sales charge
(``Surrender Charge'') for certain withdrawals. The amount of the
Surrender Charge is as follows:
------------------------------------------------------------------------
Charge as
percentage
Contract year in which surrender occurs of amount
surrendered
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1.......................................................... 7
2.......................................................... 7
3.......................................................... 7
4.......................................................... 6
5.......................................................... 5
6.......................................................... 4
7.......................................................... 2
8 and after................................................ 0
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If the owner surrenders the entire Contract, the Surrender Charge
will be deducted from the Contract Value. If the owner surrenders part
to the Contract, the Surrender Charge will be deducted from the amount
surrendered or from the remaining Contract Value, according to the
owner's instructions.
8. An owner may participate in a systemic partial surrender plan
whereby the owner instructs Kansas City Life to surrender a requested
dollar amount on a periodic basis. If an owner does not participate in
the plan, the first partial surrender during a Contract Year will not
be subject to a Surrender Charge if it does not exceed 10% of the
Contract Value at the time of the surrender. This free partial
surrender is limited to the first partial surrender of the Contract
Year, even if the amount surrendered is less than 10% of the Contract
Value. Upon a full surrender, if the owner has not elected to
participate in the systemic partial surrender plan and has not received
any partial surrenders during a Contract Year, only 90% of the Contract
Value will be subject to a Surrender Charge. If the owner participates
in the systemic partial surrender plan, up to 10% of the Contract Value
may be surrendered each Contract Year without a Surrender Charge. Once
the amount of the surrender exceeds the 10% limit, the applicable
Surrender Charge will be deducted from the remaining Contract Value.
9. An annual administration fee of $30 will be deducted from the
Contract Value for administrative expenses at the beginning of each
Contract Year. Applicants will waive this fee for Contracts with
Contract Values of $50,000 or more at the beginning of the Contract
Year. No annual administration fee is payable after the maturity date
of the Contract. Prior to the maturity date of a Contract, Kansas City
Life also will deduct a daily asset-based administration charge from
the assets of the Separate Account at an annual rate of .15%.
Applicants represent that the annual administration fee and the asset-
based administration charge are guaranteed and will not increase. In
addition, applicants represent that they do not expect to make a profit
from these charges. Applicants will rely on rule 26a-1 to deduct these
fees.
10. Prior to the maturity date, Kansas City Life proposes to deduct
a daily mortality and expense risk charge from the assets of the
Separate Account. The aggregate mortality and expense risk charge will
be equal to an annual rate of 1.25%. Of that amount, approximately .70%
is for mortality risk and .55% is for expense risk. Kansas City Life
assumes the mortality risk that annuitants may live for a longer period
than estimated when the guarantees in the Contract were established,
thus
[[Page 34570]]
requiring Kansas City Life to pay out more in annuity income than it
had planned. Kansas City Life also assumes a mortality risk in that it
may be obligated to pay a death benefit in excess of the Contract
Value. The expense risk assumed by Kansas City Life is that the other
fees may be insufficient to cover actual expenses.
11. If the mortality and expense risk charge is insufficient to
cover the actual cost of the risks, Kansas City Life will bear the
shortfall. Conversely, if the charge is more than sufficient, the
excess will be profit to Kansas City Life and will be available for any
proper corporate purpose.
12. If premium taxes are applicable to a Contract, they will be
deducted upon surrender of the Contract or upon application of the
Contract proceeds to an annuity payment option or lump sum payment at
the maturity date.
Applicants' Legal Analysis
1. Applicants request an exemption pursuant to section 6(c) from
sections 26(a)(2)(C) and 27(c)(2) to the extent necessary to permit the
deduction from the Separate Account and Other Accounts that Kansas City
Life may establish in the future of the 1.25% Mortality and Expense
Risk Charge. Sections 26(a)(2)(C) and 27(c)(2) of the 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. Section 6(c) of the Act authorizes the Commission to exempt any
person from any provision of the Act or any rule or regulation
thereunder, if and to the extent that such 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 Act.
3. Applicants also request relief with respect to Future Contracts
that may be issued from the Separate Account and Other Accounts.
Applicants represent that the terms of the relief requested with
respect to any Future Contracts are consistent with the standards of
section 6(c) of the Act. Without the requested relief, applicants
represent that they would have to request and obtain exemptive relief
for Future Contracts and any Other Account. Applicants represent that
these additional requests for exemptive relief would present no issues
under the Act not already addressed in this application, and that
investors would not receive any benefit or additional protections
thereby.
4. Applicants represent that the requested relief is appropriate in
the public interest, because it would promote competitiveness in the
variable annuity contract market by eliminating the need for applicants
to file redundant exemptive applications, thereby reducing their
administrative expenses and maximizing the efficient use of resources.
Elimination of the delay and expense involved in repeatedly seeking
exemptive relief would enhance applicants' ability effectively to take
advantage of business opportunities as they arise. Applicants further
represent that their requested relief is consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act.
5. Applicants represent that the 1.25% per annum mortality and
expense risk charge is within the range of industry practice for
comparable variable annuity contracts. This representation is based on
an analysis of publicly available information regarding similar
contracts of other companies, taking into consideration such features
as current charge levels, death benefit guarantees, and investment
options under the Contracts. Kansas City Life will maintain at its home
office, and make available to the SEC upon request, a memorandum
setting forth in detail the products analyzed and the methodology and
results of applicants' comparative review.
6. Prior to relying on any exemptive relief granted herein with
respect to Future Contracts issued by the Separate Account or Other
Accounts, applicants will determine that the mortality and expense risk
charge will be within the range of industry practice for comparable
contracts. Kansas City Life will maintain at its home office a
memorandum, available to the Commission upon request, setting forth the
methodology used in making these determinations.
7. Kansas City Life acknowledges that distribution expenses may be
paid from profits derived from the mortality and expense risk charges.
Kansas City Life has concluded that there is a reasonable likelihood
that the proposed distribution financing arrangement will benefit the
Separate Account and the Contract owners. Kansas City Life will
maintain and make available to the Commission upon request a memorandum
at its home office setting forth the basis of such conclusion.
8. Prior to relying on any exemptive relief granted herein with
respect to Future Contracts issued by the Separate Account or Other
Accounts, applicants will determine that there is a reasonable
likelihood that the distribution financing arrangement will benefit the
Separate Account, Other Accounts, and their investors. Kansas City Life
will maintain and make available to the Commission upon request a
memorandum at its home office setting forth the basis of such
conclusion.
9. The Separate Account will invest in a management investment
company that has adopted a plan pursuant to rule 12b-1 under the Act
only if that company has undertaken to have such plan formulated and
approved by its board of directors, a majority of whom are not
``interested persons'' of the company within the meaning of section
2(a)(19) of the Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-16211 Filed 6-30-95; 8:45 am]
BILLING CODE 8010-01-M
