[Federal Register Volume 59, Number 60 (Tuesday, March 29, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-7286] [[Page Unknown]] [Federal Register: March 29, 1994] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Rel. No. IC-20152; File No. 812-8896] Allianz Life Insurance Company of North America, et al., Applications March 22, 1994. AGENCY: Securities and Exchange Commission (the ``Commission'' or the ``SEC''). ACTION: Notice of application for exemption under the Investment Company Act of 1940 (the ``1940 Act''). ----------------------------------------------------------------------- APPLICANTS: Allianz Life Insurance Company of North America (the ``Company''), Allianz Life Variable Account B (the ``Variable Account''), and NALAC Financial Plans, Inc. Relevant 1940 Act Sections: Amended order requested under section 6(c) for exemptions from sections 26(a)(2) and 27(c)(2) of the 1940 Act. SUMMARY OF APPLICATION: Applicants seek an amended order to permit the deduction of a mortality and expense risk charge under certain variable annuity contracts from the assets of the Variable Account, or any other separate account established by the Company in the future to support materially similar variable annuity contracts. FILING DATE: An application was initially filed on July 18, 1988, and amended on September 8 and September 19, 1988. Notice of the Application for Exemption was published on November 2, 1988 (File No. 812-7070, Release No. IC-16620) and an Order Granting Exemptions was issued November 30, 1988 (Release No. 16664). This Application for an Amended Order was filed on March 17, 1994. HEARING OR NOTIFICATION OF HEARING: An amended order granting the application and superseding the existing order will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the SEC's Secretary and serving Applicants with a copy of the request, personally or by mail. Hearing requests should be received by the SEC by 5:30 p.m. on April 18, 1994, and should be accompanied by proof of service on Applicants in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons may request notification of a hearing by writing to the SEC's Secretary. ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. Applicants, 1750 Hennepin Avenue, Minneapolis, Minnesota 55403. FOR FURTHER INFORMATION CONTACT: Wendy Finck Friedlander, Senior Attorney, at (202) 272-3045, or Wendell M. Faria, Deputy Chief, at (202) 272-2060, Office of Insurance Products (Division of Investment Management). SUPPLEMENTARY INFORMATION: Following is a summary of the application. The complete application is available for a fee from the Commission's Public Reference Branch. Applicant's Representations 1. The Company is a stock life insurance company organized under the laws of Minnesota. 2. The Variable Account is a segregated investment account of the Company and is registered as a unit investment trust under the 1940 Act. The Variable Account was established to act as the funding entity for certain variable annuity contracts (the ``Contracts'') issued by the Company. The Variable Account is divided into sub-accounts, each of which invests solely in the shares of one of the Funds of Franklin Valuemark Funds, a Massachusetts business trust registered under the 1940 Act as an open-end management investment company. 3. NALAC Financial Plans, Inc., a broker-dealer registered under the Securities Exchange Act of 1934, is the distributor of the Contracts. 4. The Contracts are individual flexible payment deferred variable annuity contracts (``Deferred Contracts'') or individual immediate variable annuity contracts (``Immediate Contracts''). The Contracts are available in connection with retirement plans that qualify for Federal tax advantages and for plans that do not so qualify. 5. Premium taxes, or other taxes payable to a state or other government entity, paid by the Company are charged against Contract values either when due or at a later time, at the Company's discretion. 6. Owners of Deferred Contracts may transfer all or a part of their interest in a sub-account to another sub-account. The Company reserves the right to charge, per transfer, the lesser of $25 or 2% of the amount transferred. Prior to the date annuity payments begin (the ``Annuity Date''), there is no charge for the first three transfers per Contract year. Currently the Company permits 12 transfers per Contract year without a transfer fee. Owners of Immediate Contracts may transfer all or part of their interest in a sub-account to another sub-account without the imposition of any transfer fee. 7. For Deferred Contracts, there is an annual $30 Contract Maintenance Charge. Applicants represent that this charge has not been set at a level greater than its cost and contains no element of profit. There is no Contract Maintenance Charge for Immediate Contracts. 8. The Company deducts an Administrative Expense Charge that is equal on an annual basis to .15% of the average daily net assets of the Variable Account. This charge, together with the Contract Maintenance Charge, is designed to reimburse the Company for the expenses it incurs in the establishment and maintenance of the Contracts and the Variable Account. The Company does not intend to profit from this charge. Should this charge be insufficient, the Company will not increase this charge and will incur the loss. Applicants rely on rule 26a-1 with respect to the deduction of the Contract Maintenance Charge and the Administrative Expense Charge. Applicants represent that the Administrative Expense Charge will be reduced in the future to the extent that the amount of this charge is in excess of that necessary to reimburse the Company for its administrative expenses. 9. The Contracts do not provide for a front-end sales charge to be deducted from purchase payments. Some Deferred Contracts charge a Contingent Deferred Sales Charge (``CDSC'') on full or partial surrenders to reimburse the Company for expenses incurred in connection with the promotion, sale and distribution of the Contracts. The CDSC applies only to purchases payments received within five years of the date of surrender. No CDSC is imposed on distributions made as annuity payments. In calculating the CDSC, purchase payments are allocated to the amount surrendered on a first-in first-out basis. The amount of the CDSC is calculated by (i) allocating purchase payments to the amount surrenders; (ii) multiplying each allocated purchase payment that has been held under certain of the Contracts for the period shown below by the charge shown below: ------------------------------------------------------------------------ In percent-- ----------------------- Years since payment Certain Other contracts contracts ------------------------------------------------------------------------ 0-1............................................. 5 6 1-2............................................. 5 5 2-3............................................. 4 4 3-4............................................. 3 3 5-5............................................. 1.5 1.5 5+.............................................. 0 0 ------------------------------------------------------------------------ and (iii) adding the products of each multiplication in (ii) above. In no event will the aggregate CDSC exceed 9% of the total purchase payments made. A Contract owner may surrender no more than once annually 15% or purchase payments less prior surrenders without incurring a CDSC. The Company may eliminate or reduce the CDSC under Company procedures then in effect. There is no CDSC imposed on Immediate Contracts. 10. For all Contracts issued in connection with the Variable Account, the Company deducts a Mortality and Expense Risk Charge that is equal, on an annual basis, to 1.25% of the average daily net assets of the Variable Account: Approximately .90% for mortality risks and .35% for expense risks. The mortality risks assumed by the Company arise from its contractual obligation to make annuity payments after the Annuity Date for the life of the annuitant in accordance with the annuity rates guaranteed in the Contracts. The expense risk assumed by the Company is that all actual expenses involved in administering the Contracts, including Contract maintenance costs, administrative costs, mailing costs, data processing costs, legal fees, accounting fees, filing fees and the costs of other services may exceed the amount recovered from the Contract Maintenance Charge and the Administrative Expense Charge. Applicants' Legal Analysis and Conditions 1. Sections 26(a)(2) and 27(c)(2) of the 1940 Act prohibit a registered unit investment trust and any depositor or underwriter thereof from selling periodic payment plan certificates unless the proceeds of all payments are deposited with a qualified trustee or custodian and held under arrangements which prohibit any payment to the depositor or principal underwriter except a fee, not exceeding such reasonable amounts as the Commission may prescribe, for performing bookkeeping and other administrative services. 2. Applicants request an amended order under section 6(c) exempting them from sections 26(a)(2) and 27(c)(2) of the 1940 Act to the extent necessary to permit the deduction of the mortality and expense risk charge from the assets of the Variable Account under the Contracts. Applicants request that the amended order also permit the deduction of the Mortality and Expense Risk Charge from the assets of any other separate account established by the Company in the future to support variable annuity contracts offered on a basis similar in all material respects to the basis on which the Contracts are offered. 3. Applicants submit that their request for an order that applies to the Variable Account and to future separate accounts issuing contracts that are substantially similar to the Contracts is appropriate in the public interest. Such an amended 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. Applicants further submit that the requested relief is consistent with the purposes of the 1940 Act and the protection of investors for the same reasons. Investors would not receive any benefit or additional protection by the Company being required to repeatedly seek exemptive relief with respect to the same issues addressed in this Application. 4. Applicants represent that the mortality and expense risk charge is reasonable in relation to the risks undertaken by the Company and within the range of industry practice with respect to comparable annuity products. Applicants base this representation on an analysis of the mortality risks, taking into consideration such factors as any contractual right to increase charges above current levels, the guaranteed annuity purchase rates, the expense risks taking into consideration the existence of charges against separate account assets for other than mortality and expense risks, and the estimated costs, now and in the future, for certain product features as well as an examination of comparable annuity products. The Company represents that it will maintain at its principal office a memorandum, available to the Commission, setting forth in detail this analysis. 5. 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 CDSC. The Company represents that there is a reasonable likelihood that the proposed distribution financing arrangements will benefit the Variable Account and Contract owners. The basis for such conclusion will be set forth in a memorandum maintained by the Company at its principal office and available to the Commission upon request. 6. The Company represents that the Variable Account will invest only in management investment companies that undertake, in the event the company adopts a plan to finance distribution expenses under rule 12b-1 under the 1940 Act, to have a board of directors, a majority of whom are not interested persons of the company within the meaning of section 2(a)(19) of the 1940 Act, formulate and approve any such plan. Conclusion Applicants assert that, for the reasons and upon the facts set forth above, the requested exemptions from sections 26(a)(2) and 27(c)(2) of the 1940 Act to deduct the mortality and expense risk charge from the assets of the Variable Account under the Contracts meet the standards in section 6(c) of the 1940 Act. Applicants assert that the exemptions requested are necessary and appropriate in the public interest and consistent with the protection of investors and the policies and provisions of the 1940 Act. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-7286 Filed 3-28-94; 8:45 am] BILLING CODE 8010-01-M