[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