[Federal Register Volume 69, Number 198 (Thursday, October 14, 2004)]
[Notices]
[Pages 61060-61065]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E4-2597]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-26628; File No. 812-13114]
Security Benefit Life Insurance Company, et al.; Notice of
Application
October 7, 2004.
AGENCY: Securities and Exchange Commission (the ``Commission'' or
``SEC'').
ACTION: Notice of application for amended order pursuant to Section
6(c) of the Investment Company Act of 1940 (the ``1940 Act'' or
``Act'') granting exemptions from the provisions of Sections 2(a)(32),
22(c) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder to permit,
under specified circumstances, the recapture of certain credit
enhancements (``Credit Enhancements'').
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Applicants: Security Benefit Life Insurance Company (``Security
Benefit''); First Security Benefit Life Insurance and Annuity Company
of New York (``First Security Benefit,'' and collectively with Security
Benefit, the ``SBL Insurers''); SBL Variable Annuity Account XVII
(``Variable Account XVII''); and Security Distributors, Inc. (``SDI'').
Summary of Application: On December 11, 2001, the Commission issued an
order pursuant to Section 6(c) of the 1940 Act granting exemptions from
Sections 2(a)(32), 22(c), and 27(i)(2)(A) of the 1940 Act and Rule 22c-
1 thereunder to permit, under specified circumstances, the recapture of
certain Credit Enhancements applied to the contract value of
contractholders under certain contracts (the ``Current Order''). See In
the Matter of Security Benefit Life Insurance Company, et al.,
Investment Company Act Release No. 25317 (Dec. 11, 2001) (order).
[[Page 61061]]
Applicants seek an amendment to the Current Order pursuant to Section
6(c) of the 1940 Act granting exemptions from Sections 2(a)(32), 22(c),
and 27(i)(2)(A) of the 1940 Act and Rule 22c-1 thereunder to permit the
recapture of certain Credit Enhancements applied to the contract value
of contractholders under circumstances not contemplated by the Current
Order under: (i) The new flexible premium deferred variable annuity
contract that Security Benefit issues through Variable Account XVII
(the ``New Contract''), and (ii) any future variable annuity contracts
that would be funded by any other separate account of the SBL Insurers
supporting variable annuity contracts (collectively with Variable
Account XVII, the ``Separate Accounts'') or any other separate accounts
that will be established in the future by the SBL Insurers to support
variable annuity contracts (a ``Future Account'') and offered by any of
the SBL Insurers (``Future Contracts''), provided that any such Future
Contract is substantially similar in all material respects to the New
Contract. Applicants also request relief under the order extend to any
Separate Accounts or Future Accounts which may support Future Contracts
that are substantially similar in all material respects to the New
Contract described in the application.
Filing Dates: The application was filed on August 3, 2004, and amended
and restated on September 10, 2004, and September 28, 2004.
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 Secretary of the
Commission 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 November 1, 2004, 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 who wish to be notified of a hearing may request
notification by writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Applicants, c/o Amy J. Lee,
Esq., Associate General Counsel, Security Benefit Life Insurance
Company, One Security Benefit Place, Topeka, Kansas 66636-0001.
FOR FURTHER INFORMATION CONTACT: Sonny Oh, Staff Attorney, or Zandra Y.
Bailes, Branch Chief, Office of Insurance Products, Division of
Investment Management, at (202) 942-0670.
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 at 450 Fifth Street, NW., Washington, DC
20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. Security Benefit is a life insurance company organized under the
laws of the State of Kansas. Security Benefit offers life insurance
policies and annuity contracts, as well as financial and retirement
services. It is authorized to conduct life insurance and annuity
business in the District of Columbia and all states except New York.
Together with its subsidiaries, Security Benefit has total funds under
management of approximately $12.5 billion.
2. First Security Benefit is a stock life insurance company
organized under the laws of the State of New York on November 8, 1994.
First Security Benefit offers variable annuity contracts in New York
and is admitted to do business in that state. First Security Benefit is
a wholly-owned subsidiary of Security Benefit Group, Inc., a financial
services holding company that is ultimately controlled by Security
Benefit Mutual Holding Company.
3. Variable Account XVII was established on November 24, 2003, as a
segregated asset account of Security Benefit. Variable Account XVII is
registered with the Commission as a unit investment trust (File No.
811-21481). Security Benefit is the legal owner of the assets in such
Separate Account. Variable Account XVII is currently divided into 29
subaccounts (``Subaccounts''). Each Subaccount invests exclusively in
shares of a corresponding open-end management investment company
(``Series''), certain of which Series are managed by Security
Management Company, LLC, a wholly-owned subsidiary of Security Benefit.
Variable Account XVII funds the variable benefits available under the
New Contract. Security Benefit has filed a registration statement on
Form N-4 under the 1940 Act and the Securities Act of 1933, as amended
(the ``1933 Act'') to register interests in Variable Account XVII under
the New Contract (File No. 333-111589).
4. SDI serves as the principal underwriter for variable annuity
contracts currently funded by the Separate Accounts (each a
``Contract'' and collectively, the ``Contracts'') issued by the SBL
Insurers, including the New Contract, but does not serve as principal
underwriter for Contracts funded by the T. Rowe Price Variable Annuity
Account of each of the SBL Insurers. SDI is registered as a broker/
dealer with the Commission under the Securities Exchange Act of 1934,
as amended, and is a wholly-owned subsidiary of Security Benefit Group,
Inc., a financial services holding company, which is ultimately
controlled by Security Benefit Mutual Holding Company.
5. Contractholders may allocate amounts paid to Security Benefit as
consideration for the New Contract (``Purchase Payments'') to each of
the Subaccounts. Amounts allocated to the Subaccounts will increase or
decrease in dollar value depending on the investment performance of the
underlying mutual fund in which such Subaccount invests.
Contractholders bear the investment risk for amounts allocated to a
Subaccount. A contractholder's initial Purchase Payment must be at
least $25,000. Thereafter, the contractholder may choose the amount and
frequency of Purchase Payments, except that the minimum subsequent
Purchase Payment is $25.
6. A contractholder may transfer Contract Value among the
Subaccounts, subject to certain restrictions as described in the New
Contract prospectus. At any time before the date when annuity payments
are to begin (``Annuity Start Date''), a contractholder may surrender
the New Contract for its Contract Value less any applicable withdrawal
charges and any uncollected premium taxes (``Withdrawal Value''). A
contractholder may also make partial withdrawals, including systematic
withdrawals, from Contract Value, subject to certain restrictions
described in the New Contract prospectus. The New Contract provides for
several annuity options on either a variable basis, a fixed basis, or
both.
7. A contractholder may return the New Contract within the ``Free-
Look Period,'' which is generally a ten-day period beginning when the
contractholder receives the New Contract. In this event, Security
Benefit will refund any Contract Value allocated to the Subaccounts,
plus any charges deducted from such Contract Value, less the then
current value of any Initial Credit Enhancements (as defined herein).
Contractholders will also receive a refund of any amounts that may have
been deducted to pay for state premium taxes and/or other taxes.
Security Benefit will refund Purchase Payments allocated to the
Subaccounts
[[Page 61062]]
rather than Contract Value in those states where it is required to do
so.
8. If the contractholder dies prior to the Annuity Start Date while
the New Contract is in force, Security Benefit will pay the death
benefit proceeds, less any uncollected premium tax, to the beneficiary
designated by the contractholder (``Designated Beneficiary'') upon
receipt of due proof of the contractholder's death and instructions
regarding payment to the Designated Beneficiary.
9. Security Benefit does not deduct sales load from Purchase
Payments before allocating them to a contractholder's Contract Value.
If a contractholder withdraws Contract Value, Security Benefit may
deduct a contingent deferred sales charge (which may also be referred
to as a withdrawal charge), which varies depending on how long a
contractholder's Purchase Payment has been held under the New Contract.
The withdrawal charge will be waived on withdrawals to the extent that
total withdrawals in any 12-month period, measured from the Contract
Date (as defined in the New Contract prospectus) including systematic
withdrawals, do not exceed the Free Withdrawal amount. The Free
Withdrawal amount is equal in the first Contract Year, to 10 percent of
Purchase Payments made during the year and, in any subsequent Contract
Year, to 10 percent of Contract Value as of the first day of that
Contract Year. The withdrawal charge applies to the portion of any
withdrawal, consisting of Purchase Payments that exceeds the Free
Withdrawal amount.
10. The withdrawal charge under a New Contract is calculated
according to the following schedule:
----------------------------------------------------------------------------------------------------------------
``Age'' of payment in years 1 2 3 4 5 6 7 8
----------------------------------------------------------------------------------------------------------------
Withdrawal Charge*..................... 8% 7.45% 6.5% 5.5% 5% 5% 4% 0%
----------------------------------------------------------------------------------------------------------------
* The withdrawal charge applicable to the variable annuity contracts described in the Current Order was deducted
in an identical manner as the withdrawal charge under the New Contract. The withdrawal charge schedule set
forth in the Current Order, however, differed from that of the New Contract and was as follows: Year 1--7%;
Year 2--7%; Year 3--6%; Year 4--5%; Year 5--4%; Year 6--3%; Year 7--2%; and Year 8 and later--0%.
11. Security Benefit deducts a daily charge for mortality and
expense risks assumed by Security Benefit under the New Contract equal
to 0.85% on an annual basis, of each Subaccount's average daily net
assets. During the Annuity Period, the mortality and expense risk
charge may increase to 1.25% under certain annuity options. Security
Benefit deducts a daily charge for the risks it assumes under the
applicable rider equal to an annual rate of 0.95% of each Subaccount's
average daily net assets. Security Benefit will deduct the rider charge
for the life of the New Contract beginning on the Contract Date and
ending on the Annuity Start Date if one of Annuity Options 1 through 4,
7 or 8 is elected. Security Benefit will deduct the rider charge for
the life of the New Contract if Annuity Option 5 or 6 is elected.
Security Benefit deducts a daily administration charge under the New
Contract equal to an annual rate of 0.15% of each Subaccount's average
daily net assets to compensate for the expenses associated with
administration of the New Contract and operation of the Subaccounts.
Because various states and municipalities impose a tax on premiums on
annuity contracts received by insurance companies, Security Benefit
assesses a premium tax charge to reimburse itself for premium taxes
that it incurs in connection with a New Contract.
12. The New Contract makes available three riders as follows: (1)
The Recurring Rewards Rider; (2) the Future Rewards Rider; and (3) the
Flexible Rewards Rider (collectively, the ``Credit Enhancement
Riders''). Each Credit Enhancement Rider makes available a Credit
Enhancement, which is an amount added to Contract Value by Security
Benefit. A Contractholder may purchase one such Rider only at issue.
When purchased, a Credit Enhancement will be added to Contract Value
for each Purchase Payment made in the first Contract Year (an ``Initial
Credit Enhancement'') in an amount equal to 2% of such Purchase
Payments for the Recurring Rewards Rider; 5% of such Purchase Payments
for the Future Rewards Rider; and 4% of such Purchase Payments for the
Flexible Rewards Rider. Any Initial Credit Enhancement will be
allocated among the Subaccounts in the same proportion as the Purchase
Payment is allocated.
13. After the Initial Credit Enhancement, each Credit Enhancement
Rider provides an additional Credit Enhancement, which is a percentage
of Contract Value on the date applied (``Additional Credit
Enhancement''). Additional Credit Enhancements will be allocated among
the Subaccounts in the same proportion as Contract Value on the date of
receipt of the Additional Credit Enhancement. There is no vesting
schedule attached to the Additional Credit Enhancements, which vest
immediately. As a result, there is no recapture of Additional Credit
Enhancements in the event of a full or partial withdrawal or payment of
a death benefit under the New Contract.
14. The Recurring Rewards Rider provides a 2% Additional Credit
Enhancement at every third Contract anniversary that occurs prior to
the Annuity Start Date on the basis of the Contract Value at that time,
as long as the New Contract is in force. The Future Rewards Rider
provides a 2% Additional Credit Enhancement on the tenth Contract
anniversary and on every second Contract anniversary thereafter that
occurs prior to the Annuity Start Date on the basis of the Contract
Value at that time, as long as the New Contract is in force (a ``Future
Credit Enhancement''). The amount of the Future Credit Enhancement will
be paid on the tenth, 12th, and 14th Contract anniversaries, and so on;
provided that any such anniversary occurs prior to the Annuity Start
Date. The Flexible Rewards Rider provides a one-time Additional Credit
Enhancement (the ``Flexible Credit Enhancement'') on the ``Election
Date.'' The ``Election Date'' is the date in which an Owner's request
to elect the Flexible Credit Enhancement is received by Security
Benefit. The Election Date must be after the fifth Contract anniversary
and prior to the Annuity Start Date while the New Contract is in force.
Security Benefit will add the Flexible Credit Enhancement on the
Election Date in an amount equal to 4% of Contract Value on that date.
15. Security Benefit will recapture Initial Credit Enhancements on
withdrawals only to the extent that total withdrawals in a Contract
Year, including systematic withdrawals, exceed the Free Withdrawal
amount for that Contract Year. As a result, a contractholder may
withdraw up to the Free Withdrawal amount during each Contract Year
without any recapture of Initial Credit Enhancements that have not yet
vested. Also, the Free Withdrawal amount will reduce the percentage of
unvested Initial Credit Enhancements that is recaptured in the
[[Page 61063]]
event of withdrawals that exceed the Free Withdrawal amount.
16. In the event of a full or partial withdrawal, Security Benefit
will recapture all or part of any Initial Credit Enhancement that has
not yet vested. An amount equal to 1/7 of the Initial Credit
Enhancement will vest as of each anniversary of the New Contract's date
of issue and the Initial Credit Enhancement will be fully vested at the
end of seven years from that date. The percentage of Initial Credit
Enhancements that has vested as of each Contract anniversary is set
forth below:
Contract Anniversary/Percentage of Initial Credit Enhancements Vested as
of Anniversary
[In percent]
------------------------------------------------------------------------
1 2 3 4 5 6 7
------------------------------------------------------------------------
14.28 28.57 42.85 57.14 71.42 85.71 100
------------------------------------------------------------------------
The amount to be forfeited in the event of a withdrawal is equal to
a percentage of the Initial Credit Enhancement that has not yet vested.
The percentage is determined for each withdrawal as of the date of the
withdrawal by dividing: (i) The amount of the withdrawal, including any
withdrawal charges, less any Free Withdrawal amount, by (ii) the
Contract Value immediately prior to the withdrawal. If a contractholder
exercises the right to return the New Contract during the Free-Look
period, Contract Value will be reduced by the then current value of any
Initial Credit Enhancements applied. Additionally, death benefit
proceeds will exclude any Initial Credit Enhancements applied during
the 12 months prior to the date of the contractholder's death.
17. The New Contract provides for a death benefit upon the death of
the contractholder prior to the Annuity Start Date. The death benefit
proceeds will be the death benefit reduced by any uncollected premium
tax. If a contractholder dies before the Annuity Start Date, the amount
of the death benefit will be the greater of: (1) The sum of all
Purchase Payments (not including Initial or Additional Credit
Enhancements), less any reductions caused by previous withdrawals,
including withdrawal charges (``Purchase Payment Death Benefit''); or
(2) the Contract Value on the date due proof of death and instructions
regarding payment are received by Security Benefit (less the amount of
any Initial Credit Enhancements applied during the 12 months prior to
the date of the contractholder's death) (``Contract Value Death
Benefit''). If a contractholder dies prior to the Annuity Start Date
and due proof of death and instructions regarding payment are not
received by Security Benefit at its Home Office within six months of
the date of the contractholder's death, the death benefit will be the
Contract Value Death Benefit. Only Initial Credit Enhancements applied
during the 12 months prior to the date of the contractholder's death
are subject to recapture in the event of the contractholder's death. In
addition, if a contractholder dies prior to the Annuity Start Date and
after the fifth Contract anniversary and no Flexible Credit Enhancement
has been applied, Security Benefit will apply the Flexible Credit
Enhancement to Contract Value as of the date that the death benefit is
processed.
18. The relief sought in the application is intended to permit the
SBL Insurers to: (i) Deduct from any full or partial withdrawal a
proportionate amount of any Initial Credit Enhancement that has not yet
vested; and (ii) deduct from any death benefit, except the Purchase
Payment Death Benefit, the amount of any Initial Credit Enhancement
applied during the 12 months prior to the date of the contractholder's
death. The requested relief would also apply to any Future Contract
funded by the Separate Accounts or Future Accounts that recapture
Initial Credit Enhancements; provided that any such Future Contract is
substantially similar in all material respects to the New Contract.
Applicants' Legal Analysis
1. Applicants seek exemptive relief pursuant to Section 6(c) from
Sections 2(a)(32), 22(c), and 27(i)(2)(A) of the 1940 Act and Rule 22c-
1 thereunder to the extent deemed necessary to permit the SBL Insurers
to recapture under the New Contract or under Future Contracts that are
substantially similar in all material respects to the New Contract: (1)
the amount of any Initial Credit Enhancement that has not yet vested
from the amount of any full or partial withdrawal during the first
seven Contract Years; and (2) the amount of any Initial Credit
Enhancement applied during the 12 months prior to the date of the
contractholder's death from the amount of any death benefit, except the
Purchase Payment Death Benefit.
2. Subsection (i) of Section 27 of the 1940 Act provides that
Section 27 does not apply to any registered separate account funding
variable insurance contracts, or to the sponsoring insurance company
and principal underwriter of such separate account, except as provided
in paragraph (2) of that subsection. Paragraph (2) provides that it
shall be unlawful for such a separate account or sponsoring insurance
company to sell a contract funded by the registered separate account
unless ``(A) such contract is a redeemable security.''
3. Section 2(a)(32) of the 1940 Act defines ``redeemable security''
as any security, other than short-term paper, under the terms of which
the holder, upon presentation to the issuer, is entitled to receive
approximately his or her proportionate shares of the issuer's current
net assets, or the cash equivalent thereof.
4. Applicants state that the amount paid in the event of a full or
partial withdrawal excludes a proportionate amount of any Initial
Credit Enhancement conditionally applied to the contractholder's New
Contract in the seven years prior to the date of the full or partial
withdrawal. The amount of any death benefit, which is based upon
Contract Value, does not include the amount of any Initial Credit
Enhancement conditionally applied to the contractholder's New Contract
in the 12 months prior to the date of the contractholder's death. In
each instance, the contractholder arguably is not receiving his or her
proportionate share of the applicable Separate Account's then-current
net assets. Applicants submit, however, that the recapture of the
amount of any Initial Credit Enhancement conditionally applied to the
contractholder's New Contract during the seven-year period beginning on
the New Contract's date of issue or the 12-month period prior to the
date of the contractholder's death, as described in the application,
would not deprive a contractholder of his or her proportionate share of
the issuer's current net assets. Until or unless the Initial Credit
Enhancement is vested, Security Benefit retains a right and interest in
the Initial Credit
[[Page 61064]]
Enhancement. Thus, when Security Benefit recaptures any Initial Credit
Enhancement (or any portion thereof) in instances in which it pays a
Withdrawal Value or death benefit, it is simply retrieving its own
assets. Because a beneficiary's interest in the Initial Credit
Enhancement is not vested, the beneficiary is not deprived of a
proportionate share of the net assets of the applicable Separate
Account. Similarly, because a contractholder's interest in the Initial
Credit Enhancement is not unconditionally vested, the contractholder is
not deprived of a proportionate share of the net assets of the
applicable Separate Account if an Initial Credit Enhancement is fully
or partially recaptured in connection with a withdrawal.
5. Applicants submit that annuity contracts, unlike life insurance
contracts, are not intended to insure against the risk of the premature
death of the insured. Instead, annuity contracts are intended to
provide an income stream to the contractholder or a named beneficiary,
for the life of the annuitant or for a period of years. The risk to an
insurer under an annuity contract typically is that the annuitant lives
longer than the insurer's prediction.
6. According to the Applicants, if Initial Credit Enhancements are
applied unconditionally to the death benefit under an annuity contract
before a minimum period of time has elapsed from the time that an
Initial Credit Enhancement has been credited, the insurer runs the risk
of anti-selection. ``Anti-selection'' can generally be described as a
risk that persons obtained coverage based on knowledge that a
contingency that triggers the payment of an insurance benefit is likely
to occur, or is to occur shortly. The insurer runs the risk that, for
example, a terminally ill contractholder will make a large Purchase
Payment in order to leverage the amount of money he or she is able to
transfer to the beneficiary. The Applicants believe that requiring a
year to elapse before an Initial Credit Enhancement may be included in
a death benefit is an appropriate means to ensure that the New Contract
is not used as a risk-free vehicle for persons to leverage the amount
of money they wish to transfer to a beneficiary.
7. Section 22(c) of the 1940 Act authorizes the Commission to make
rules and regulations applicable to registered investment companies and
to principal underwriters of, and dealers in, the redeemable securities
of any registered investment company to accomplish the same purposes as
contemplated by Section 22(a). Rule 22c-1 thereunder prohibits a
registered investment company issuing a redeemable security, a person
designated in such issuer's prospectus as authorized to consummate
transactions in such security, and a principal underwriter of, or
dealer in, such security, from selling, redeeming, or repurchasing any
such security except at a price based on the current net asset value of
such security which is next computed after receipt of a tender of such
security for redemption or of an order to purchase or sell such
security.
8. Applicants state that Security Benefit's recapture of the
Initial Credit Enhancement (or portion thereof) with respect to the New
Contract in instances in which: (i) A withdrawal is made and fewer than
seven years have elapsed since the issue date of the New Contract, or
(ii) a death benefit is paid, other than a Purchase Payment Death
Benefit, and fewer than 12 months have elapsed between the time that
the Initial Credit Enhancement has been applied to the New Contract and
the death of the contractholder, might arguably be viewed as resulting
in the redemption of redeemable securities for a price other than one
based on the current net asset value of the applicable Subaccount of a
Separate Account. In other words, because any such Initial Credit
Enhancement paid by Security Benefit is immediately added, on a
conditional basis, to the Contract Value of certain contractholders,
and further because these amounts are allocated to certain Subaccounts
for the benefit of the participating contractholder, the net asset
value of each Subaccount arguably is affected by these credits.
9. Applicants contend, however, that the recapture of the Initial
Credit Enhancement under the circumstances described in the application
should not be deemed to be a violation of Section 22(c) and Rule 22c-1.
To the extent that the recapture practices described in the application
are considered to be technical violations of these provisions,
Applicants request relief from Section 22(c) and Rule 22c-1 in order to
recapture Initial Credit Enhancements as discussed above for the New
Contract and substantially similar Future Contracts to the extent that
a SBL Insurer has provided Initial Credit Enhancements to a
Contractholder within (i) seven years of a full or partial withdrawal;
or (ii) 12 months of the Contractholder's death before the Annuity
Start Date where the death benefit is not a Purchase Payment Death
Benefit.
10. Applicants represent that it is not administratively feasible
to track the Initial Credit Enhancements in the Separate Accounts after
the Initial Credit Enhancements are applied. Accordingly, the asset-
based charges applicable to the Separate Accounts will be assessed
against the entire amounts held in the Separate Accounts, including any
Initial Credit Enhancements. As a result, the aggregate asset-based
charges assessed will be higher than those that would be charged if the
contractholder's Contract Value did not include any Initial Credit
Enhancement. Security Benefit nonetheless represents that the New
Contract's fees and charges, in the aggregate, are reasonable in
relation to services rendered, the expenses expected to be incurred,
and the risks assumed by Security Benefit.
11. Applicants assert that the recapture of the Initial Credit
Enhancement does not involve either of the practices that Rule 22c-1
was intended to eliminate or reduce as far as reasonably practicable,
namely: (i) The dilution of the value of outstanding redeemable
securities of registered investment companies through their sale at a
price below net asset value or their redemption or repurchase at a
price above it, and (ii) other unfair results, including speculative
trading practices.
12. Applicants submit that the proposed recapture of the Initial
Credit Enhancement poses no such threat of dilution. To effect a
recapture of an Initial Credit Enhancement, Security Benefit redeems
(and First Security Benefit will redeem) interests in a
contractholder's Subaccount(s) at a price determined on the basis of
the current accumulation unit value of each of the Subaccounts of the
Separate Account in which the contractholder's Contract Value is
allocated. The amount recaptured in the event of a full or partial
withdrawal or death benefit, will be equal to the amount of the Initial
Credit Enhancement paid out of the General Account assets of Security
Benefit. That amount will be redeemed at the current accumulation unit
value of the applicable Subaccount(s) as of the date of receipt of the
death claim, or withdrawal request, in proper order. Thus, no dilution
will occur upon the recapture of an Initial Credit Enhancement.
13. Applicants also submit that the second practice that Rule 22c-1
was designed to address, namely, speculative trading practices
calculated to take advantage of backward pricing, will not occur as a
result of the recapture of the Credit Enhancement.
[[Page 61065]]
14. Applicants submit that their request for an order for the
exemptive relief described above is 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. An order that
would be applicable to Future Accounts created by SBL Insurers would
reduce administrative expenses and maximize the efficient use of
Applicants' resources. Investors would not receive any benefit or
additional protection by requiring Applicants to repeatedly seek
exemptive relief that would present no issue under the 1940 Act that
has not already been addressed in the application. Having Applicants
file additional exemptive applications would impair Applicants' ability
to effectively take advantage of business opportunities that may arise.
Further, Applicants undertake that Future Contracts funded by the
Separate Accounts, or by Future Accounts, which seek to rely on the
order issued pursuant to the application will be substantially similar
in all material respects to the New Contract.
15. Applicants further submit, for the reasons stated herein, that
their exemptive request meets the standards set out in Section 6(c) of
the Act, namely, that the exemptions requested are 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.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-2597 Filed 10-13-04; 8:45 am]
BILLING CODE 8010-01-P