[Federal Register Volume 60, Number 170 (Friday, September 1, 1995)]
[Notices]
[Pages 45759-45761]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21700]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21321; File No. 812-9614]
Glenbrook Life and Annuity Company, et al.
August 25, 1995.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (``1940 Act'').
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APPLICANTS: Glenbrook Life and Annuity Company (``Company''); Glenbrook
Life and Annuity Company Variable Annuity Account (``Variable
Account''); and Allstate Life Financial Services, Inc. (``ALFS'').
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) thereof.
SUMMARY OF APPLICATION: Applicants seek an order permitting the
deduction of a mortality and expense risk charge imposed under certain
variable annuity contracts (``Contracts'') and any other variable
annuity contracts that the Company may issue that are substantially
similar in all material respects to the Contracts (``Materially Similar
Contracts''), from the assets of the Variable Account or any other
separate account established in the future by the Company in connection
with the offering of Materially Similar Contracts. Applicants also
request that the exemptions apply to registered broker-dealers other
than ALFS, in the event of change in the identity of the principal
underwriter for the relevant contracts.
FILING DATES: The application was filed on May 22, 1995.
HEARING AND 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 Secretary of the
Commission and serving Applicants with a copy of the request,
personally or by mail. However requests should be received by the
Commission by 5:30 p.m., on September 19, 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 Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Applicants, c/o Michael J.
Velotta, Vice President, Secretary and General Counsel, Glenbrook Life
and Annuity Company, 3100 Sanders Road, J5B, Northbrook, Illinois
60062.
FOR FURTHER INFORMATION CONTACT: Joyce Merrick Pickholz, Senior
Counsel, or Wendy Finck Friedlander, Deputy Chief, Office of Insurance
Products, Division of Investment Management, at (202) 942-0670.
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 incorporated under
Illinois law, is a wholly owned subsidiary of Allstate Life Insurance
Company (``Allstate Life''). Allstate Life is a wholly owned subsidiary
of Allstate Insurance Company which is an indirect subsidiary of Sears,
Roebuck and Co.
2. On December 15, 1992, the Company established the Variable
Account as a segregated investment account to fund variable annuity
contracts to be issued by the Company. The Variable Account is
registered as a unit investment trust under the 1940 Act.
3. ALFS, a wholly owned subsidiary of Allstate Life, is the
principal underwriter for the Contracts. It is registered as a broker-
dealer under the Securities Exchange Act of 1934, and is a member of
the National Association of Securities Dealers, Inc.
4. Purchase payments under the Contracts may be allocated,
according to a Contractowner's instructions, to one or more of the Sub-
Accounts of the Variable Account (or to one of the fixed accumulation
options under the Contracts). The initial purchase payment must be at
least $3,000 ($2,000 for qualified contracts). Subsequent purchase
payments must be $50 or more. Each Sub-Account will invest
[[Page 45760]]
solely in shares of a registered open-end management investment company
(or series thereof).
5. If the Contractowner (Annuitant, if the Contractowner is not a
natural person) dies before annuity payments begin, a death benefit is
payable under the Contracts. The death benefit is based on the largest
of the following amounts: the Contract value on the date the Company
receives a proper request for payment, and the Contract values on the
issue date and every seventh anniversary of that date, plus purchase
payments and less withdrawals subsequent to such anniversary. The death
benefit will never be less than the total purchase payments made, less
withdrawals.
6. The Company will deduct a Contract Maintenance Charge of $30.00
per year from each Contractowner's Contract value to reimburse the
Company for its costs in maintaining the Contract and the Variable
Account. This charge is waived if the total purchase payments are
$25,000 or more or if the entire Contract value is allocated to the
fixed options under the Contract. The Company does not expect to
realize a profit from this charge. The amount of the charge is
guaranteed not to increase over the life of the Contract.
7. The Company will also deduct an Administrative Expense Charge
which is an amount equal on an annual basis to .10% of the daily net
assets in the Variable Account. This charge is designed to cover actual
administrative expenses which exceed the revenues from the Contract
Maintenance Charge. The Company does not intend to profit from this
charge. The Company believes that the Administrative Expense Charge and
Contract Maintenance Charge have been set at a level that will recover
no more than the actual costs associated with administering the
Contract. The Company guarantees that the rate of the Administrative
Expense Charge will not increase over the life of the Contract.
8. The Contractowner may withdraw his or her Contract value at any
time before the earlier of the annuity start date or the
Contractowner's or Annuitant's death. No withdrawal Charges will be
deducted on amounts up to 10% of the Contract value on the date of the
first withdrawal in a Contract year (``Free Withdrawal Amount'').
Amounts surrendered in excess of the Free Withdrawal Amount may be
subject to a Withdrawal Charge. Free Withdrawal Amounts that are not
withdrawn in a Contract Year are not carried over to later Contract
Years for purposes of determining the Free Withdrawal Amount in such
later years. For purposes of calculating the amount of the Withdrawal
Charge, withdrawals are assumed to come from purchase payments first,
beginning with the oldest payment. Withdrawals made after all purchase
payments have been withdrawn will not be subject to a Withdrawal
Charge.
9. Withdrawal Charges will be applied to purchase payments
withdrawn (less any available Free Withdrawal Amount) as set forth
below:
------------------------------------------------------------------------
Applicable
Number of complete years since purchase payment being withdrawal
withdrawn was made charge
percentage
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0 years.................................................... 7
1 year..................................................... 6
2 years.................................................... 5
3 years.................................................... 4
4 years.................................................... 3
5 years.................................................... 2
6 years.................................................... 1
7 years or more............................................ 0
------------------------------------------------------------------------
The Withdrawal Charge may be reduced or waived under circumstances
described in the prospectus for the Contracts.
10. Pursuant to the Contracts, the Company deducts a daily
Mortality and Expense Risk Charge equal at an annual rate of 1.25% of
the assets of each Sub-Account of the Variable Account. The level of
this charge is guaranteed not to increase.
Approximately .85% of this charge is allocated to the Company's
assumption of mortality risk and approximately .40% to the assumption
of expense risk. According to the application, the mortality risk
arises from the Company's guarantee to cover all death benefits and to
make annuity payments in accordance with the tables contained in the
Contracts. The expense risk arises from the possibility that the
Contract Maintenance Charge and the Administrative Expense Charge,
which are guaranteed not to increase, will be insufficient to cover
actual administrative expenses.
11. The Company reserves the right to assess a $10.00 charge on
each transfer among the Sub-Accounts in excess of 12 per Contract year.
However, it is currently not assessing such a charge.
12. The Company also reserves the right to deduct state premium
taxes or other similar policy-holder taxes relative to the Contract
when annuity payments begin or when a total withdrawal occurs.
Applicant's Legal Analysis
1. Section 6(c) of the 1940 Act authorizes the Commission to exempt
any person, security or transaction or any class or classes of persons,
securities or transactions from any provisions of the 1940 Act and the
rules promulgated 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 1940 Act.
2. Sections 26(a) and 27(c)(2) of the 1940 Act, taken together,
provide for the protection of the assets of investment companies that
issue periodic payment plan certificates. Section 27(c)(2) of the 1940
Act prohibits the issuer of a periodic payment plan certificate, and
any depositor or underwriter for such issuer, from selling such
periodic payment plan certificates unless all proceeds of payments
(other than sales load) are deposited with a qualified bank acting as
trustee or custodian, and held under an indenture or agreement
containing specified provisions. Section 26(a) of the 1940 Act requires
that such indenture or custodianship agreement provide, among other
things, that such bank shall not allow as an expense any payment to the
depositor or principal underwriter except a fee, not exceeding such
reasonable amount as the Commission may prescribe, for bookkeeping and
other administrative services of a character normally performed by the
bank itself.
3. Applicants request that an exemption from Sections 26(a)(2)(C)
and 27(c)(2) be granted to the extent necessary to allow the Company to
deduct the Mortality and Expense Risk Charge described above from the
assets of the Variable Account. Applicants further request that such
exemption permit the deduction of a mortality and expense risk charge
under any Materially Similar Contracts that the Company may issue from
the Variable Account or, in the case of Materially Similar Contracts
funded through another separate account established by the Company,
such other separate account. Finally, Applicants requests that such
relief will also be applicable in the event that a registered broker-
dealer other than ALFS serves as the principal underwriter for the
Contracts or Materially Similar Contracts.
4. Applicants submit that the requested 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. The delay and expense involved in
having repeatedly to seek exemptive relief would impair the Company's
ability effectively to take
[[Page 45761]]
advantage of business opportunities as these opportunities arise.
Applicants further submit that the requested relief is consistent with
the purposes of the Act and the protection of investors for the same
reasons. Applicants assert that if the Company were required repeatedly
to seek exemptive relief with respect to the same issues addressed in
this application, investors would not receive any benefit or additional
protection thereby.
5. Applicants represent that the mortality risk is assumed by
virtue of the annuity rates which cannot be changed after issuance of
the Contract and the death benefit guaranteed in the Contract. Also,
because the Contract Maintenance Charge and the Administrative Expense
Charge will not increase regardless of the actual costs incurred, the
Company assumes an expense risk. If the Mortality or Expense Risk
Charge is insufficient to cover the actual costs, the Company will bear
the loss. To the extent that the charge is in excess of actual costs,
the Company, at its discretion, may use the excess to offset losses
when the charge is not sufficient to cover expenses.
6. Applicants assert that the Mortality and Expense Risk Charge is
reasonable in relation to the risks assumed by the Company under the
Contracts, and is consistent with the protection of investors insofar
as it is designed to be competitive while not exposing the Company to
undue risk of loss. Applicants also represent that the Mortality and
Expense Risk Charge is reasonable in amount as determined by industry
practice with respect to comparable annuity products. Applicants state
that this representation is based on their analysis of publicly
available information about similar industry products, taking into
consideration such factors as current charge levels, existence of
charge level guarantees, and guaranteed annuity rates. The Company will
maintain at its home office, available to the Commission, a memorandum
setting forth in detail the products analyzed in the course of, and the
methodology and results of, the Company's comparative survey.
Similarly, prior to relying on the exemptive relief requested herein
with respect to any Materially Similar Contracts funded by the Variable
Account or other separate account established by the Company,
Applicants will determine that the mortality and expense risk charge
under such Materially Similar Contracts will be reasonable in relation
to the risks assumed by the Company and reasonable in amount as
determined by industry practice with respect to comparable annuity
products. The Company will maintain at its home office a memorandum,
available to the Commission upon request, setting forth in detail the
methodology used in making these determinations.
7. Applicants acknowledge that the Withdrawal Charge may be
insufficient to cover all costs relating to the distribution of the
Contracts. Applicants also acknowledge that if a profit is realized
from the Mortality and Expense Risk Charge, all or a portion of such
profit may be viewed as being offset by distribution expenses not
reimbursed by the Withdrawal Charge. The Company has concluded,
however, that there is a reasonable likelihood that the proposed
distribution financing arrangements will benefit the Variable Account
and the Contractowners. The basis for such conclusion is set forth in a
memorandum which will be maintained by the Company at its
administrative offices and will be available to the Commission.
Similarly, prior to relying on any exemptive relief granted herein with
respect to any Materially Similar Contracts issued by the Variable
Account or other separate accounts established by the Company,
Applicants will determined that there is a reasonable likelihood that
the distribution financing arrangement will benefit the Variable
Account (or such other separate account) and its investors. The Company
will maintain and make available to the Commission upon request a
memorandum setting forth the basis of such determination.
8. The Company represents that the Variable Account (and any other
separate account of the Company that relies on the relief sought in
this application) will invest only in management investment companies
which undertake, in the event such company adopts a plan pursuant to
Rule 12b-1 adopted under the 1940 Act to finance distribution expenses,
to have their board of directors (or trustees), a majority of whom are
not interested persons of such company, formulate and approve any such
plan under Rule 12b-1.
Conclusion
Based upon the facts and for the reasons set forth above,
Applicants submit 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. 95-21700 Filed 8-31-95; 8:45 am]
BILLING CODE 8010-01-M
