[Federal Register: April 15, 2003 (Volume 68, Number 72)]
[Notices]
[Page 18302-18306]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15ap03-126]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-25998; File No. 812-11760]
Pacific Life Insurance Company, et al.; Notice of Application
April 9, 2003.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of an application for exemption pursuant to section 6(c)
of the Investment Company Act of 1940 (the ``1940 Act'') granting
exemptions from the provisions of section 2(a)(32), 22(c) and
27(i)(2)(A) of the 1940 Act and rule 22c-1 thereunder.
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Applicants: Pacific Life Insurance Company (``Pacific Life''); Separate
Account A of Pacific Life (``Pacific Separate Account A''); Pacific
Select Variable Annuity Separate Account of Pacific Life Insurance
Company (``PSVA Separate Account''); Pacific Life and Annuity Company
(``PL&A'') (together with Pacific Life the ``PL Insurers''); Separate
Account A of Pacific Life and Annuity Company (``PL&A Separate Account
A'') (together with Pacific Separate Account A, PSVA Separate Account,
and any other separate account of Pacific Life, PL&A or any life
insurance company that is a successor in interest to PL Insurers, the
``Separate Accounts''); and Pacific Select Distributors, Inc. (``PSD'')
(collectively referred to herein as ``Applicants'').
Summary of Application: Applicants seek an order to permit, when
contracts are returned during the free look period, (i) the recapture
of certain credit enhancements (``Credit Enhancements'') applied to the
``Contract Value'' (as defined herein) of Contractholders \1\ under:
(a) Pacific Value variable annuity, a flexible premium deferred
variable annuity contract that Pacific Life issues through Pacific
Separate Account A (``Pacific Value''), and (b) other Variable
Contracts and any Future Variable Contracts offered by a Future
Account, provided that any such Variable Contract or Future Variable
Contract is substantially similar in all material respects to Pacific
Value; and (ii) the recapture of any amounts credited under Pacific
Portfolios variable annuity (``Pacific Portfolios''), Pacific
Innovations Select variable annuity (``Pacific Innovations Select''),
and Pacific One variable annuity (``Pacific One''), each a flexible
premium deferred variable annuity contract funded by Pacific Separate
Account A; Pacific Select Variable Annuity, a flexible premium deferred
annuity and variable accumulation contract funded by Pacific Select
Variable Annuity Separate Account (``PSVA''), Pacific Innovations
Select variable annuity, a flexible premium deferred variable annuity
contract funded by PL&A Separate Account A (``PL&A Innovations
Select''), or any Variable Contract or Future Variable Contract that is
sold to Contractholders in situations where selling and/or maintenance
costs associated with the Variable Contracts are reduced (``Cost
Reduction Credit'') or to Contractholders who meet certain criteria as
established by the relevant PL Insurer (``Eligible Person Credit''),
provided that any such Variable Contract or Future Variable Contract is
substantially similar in all material respects to PSVA, Pacific
Portfolios, Pacific One, Pacific Innovations Select or PL&A Innovations
Select.
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\1\ The term ``Contractholder'' refers to contractholders of any
variable annuity contract funded by a Separate Account (each, a
``Variable Contract'' and collectively, ``Variable Contracts''), and
also to contractholders of any variable annuity contract funded in
the future by a Separate Account or a separate account that will be
established in the future by a PL Insurer to support variable
annuity contracts issued by a PL Insurer (``Future Account'')
(collectively, ``Future Variable Contracts'').
Filing Dates: The Application was filed with the SEC on August 24, 1999
and amended and restated on March 28, 2000, April 30, 2002, November
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25, 2002 and April 8, 2003.
Hearing or Notification of Hearing: An order granting the Application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m., on May 1, 2003,
and should be accompanied by proof of service on Applicants, in the
form of an affidavit, or, for lawyers, a certificate of service.
[[Page 18303]]
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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants: Robin S. Yonis, Esq., Pacific Life Insurance Company,
700 Newport Center Drive, Newport Beach, California 92660.
FOR FURTHER INFORMATION CONTACT: Mark Cowan, Senior Counsel, or Zandra
Y. Bailes, Branch Chief, at (202) 942-0670 (Division of Investment
Management, Office of Insurance Products).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
Public Reference Branch of the SEC, 450 Fifth Street, NW., Washington,
DC, 20549-0102 (tel. (202) 942-8090).
Applicants' Representations
1. Pacific Life is a life insurance company that is domiciled in
California. Along with subsidiaries and affiliates, Pacific Life's
operations include life insurance, annuities, pension and institutional
products, group employee benefits, broker/dealer operations and
investment advisory services. Pacific Life is authorized to conduct
life insurance and annuity business in the District of Columbia and all
states except New York. Its principal offices are located at 700
Newport Center Drive, Newport Beach, California 92660.
2. Pacific Separate Account A was established on September 7, 1994
as a segregated asset account of Pacific Life and is registered with
the Commission as a unit investment trust. Pacific Life is the legal
owner of the assets in Pacific Separate Account A. Pacific Separate
Account A currently has 37 subaccounts or ``Variable Investment
Options.'' Each Variable Investment Option invests in a corresponding
series of Pacific Select Fund (``Select Fund''), an open-end registered
management investment company for which Pacific Life serves as
investment adviser, or The Prudential Series Fund, Inc., an open-end
registered investment company for which Prudential Investments Fund
Management LLC serves as investment adviser. Pacific Separate Account A
funds the variable benefits available under Pacific Value, Pacific
Innovations Select, Pacific Portfolios, Pacific One, Pacific One Select
variable annuity (``Pacific One Select''), Pacific Innovations variable
annuity (``Pacific Innovations''), and Pacific Odyssey variable annuity
(``Pacific Odyssey''). Interests in Pacific Separate Account A under
Pacific Value, Pacific Innovations Select, Pacific Portfolios, Pacific
One, Pacific One Select, Pacific Innovations, and Pacific Odyssey are
registered under the Securities Act of 1933, as amended (the ``1933
Act'').
3. PSVA Separate Account was established by Pacific Life on
November 30, 1989 as a segregated asset account of Pacific Life and is
registered with the Commission as a unit investment trust. Pacific Life
is the legal owner of the assets in PSVA Separate Account. Each
Variable Investment Option invests in a corresponding series of Select
Fund. PSVA Separate Account currently has 33 Variable Investment
Options. PSVA Separate Account currently funds the variable benefits
available under PSVA. Interests in PSVA Separate Account are registered
under the 1933 Act.
4. PL&A is a life insurance company domiciled in Arizona. PL&A's
operations include life insurance, annuity and institutional products,
group life and health insurance and various other insurance products
and services. At the end of 2002, PL&A's total statutory assets were
$854 million. PL&A is authorized to conduct life insurance and annuity
business in Arizona, New York and certain other states. PL&A's
principal office is located at 700 Newport Center Drive, Newport Beach,
California 92660.
5. PL&A Separate Account A was established by PL&A on January 25,
1999 as a segregated asset account of PL&A and is registered with the
Commission as a unit investment trust. PL&A is the legal owner of the
assets in PL&A Separate Account A. Each Variable Investment Option
invests in a corresponding series of Select Fund. PL&A Separate Account
A currently has 33 Variable Investment Options. PL&A Separate Account A
currently funds the variable benefits available under PL&A Innovations
Select. Interests in PL&A Separate Account A are registered under the
1933 Act.
6. PSD, a wholly-owned subsidiary of Pacific Life, serves as the
principal underwriter for the Variable Contracts issued by the PL
Insurers. It is also anticipated that PSD will serve as the principal
underwriter for any Future Variable Contracts issued by the PL
Insurers. PSD is registered with the Commission as a broker/dealer
under the Securities Exchange Act of 1934, as amended. The PL Insurers
and PSD have entered into selling agreements with various broker/
dealers, under which such broker/dealers act as agents of the relevant
PL Insurer and PSD in the sale of the relevant PL Insurer's Variable
Contracts.
7. Pacific Value offers a ``Credit Enhancement'' feature under
which Pacific Life automatically adds an amount to each
Contractholder's overall ``Contract Value'' at the time any amount is
paid to Pacific Life by or on behalf of the Contractholder as
consideration of the benefits provided under the Variable Contract
(referred to herein as ``Purchase Payments''). The term ``Contract
Value'' refers to the sum (as calculated at the end of each business
day) of: (i) The aggregate amount of Purchase Payments and any prior
Credit Enhancements, and any earnings or losses thereon, less any fees
and charges, held for a Contractholder's Variable Contract in any
Variable Investment Option; (ii) the aggregate amount of Purchase
Payments and any prior Credit Enhancements, and any interest earned
thereon, less any fees and charges held for a Contractholder's Variable
Contract in any fixed option available under his or her Variable
Contract; (iii) the amount, including any interest accrued, held to
secure the principal amount the Contractholder has on any outstanding
loan under his or her Variable Contract; less (iv) the amount,
including any associated withdrawal charge, of any withdrawal from the
Variable Contract.
8. Credit Enhancements are allocated among a Contractholder's
investment options then in effect in the same proportion that the
applicable Purchase Payment is allocated. The Credit Enhancement with
respect to each Purchase Payment is based on the Contractholder's total
Purchase Payments made into Pacific Value less total withdrawals,
including any withdrawal charges, from Pacific Value as of the date the
Purchase Payment is applied. The Credit Enhancement available under
Pacific Value, expressed as a percentage of the relevant Purchase
Payment is set forth below:
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Credit
Enhancement
(percent)
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Contracts issued on or after April 1, 2000; Total Purchase
Payments Less Total Withdrawals:
Less than $250,000...................................... 4.0
$250,000 or more........................................ 5.0
Contracts issued before April 1, 2000; Total Purchase
Payments Less Total Withdrawals:
Less than $100,000...................................... 3.0
At least $100,000 but less than $2.5 million............ 4.0
$2.5 million or more.................................... 5.0
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[[Page 18304]]
9. PL Insurers may agree to credit a Cost Reduction Credit under
the Variable Contracts (other than Pacific Innovations), in situations
where selling and/or maintenance costs associated with the Variable
Contracts are reduced, such as the sale of several Variable Contracts
to the same Contractholder(s), sales of large Variable Contracts, sales
of Variable Contracts in connection with a group or sponsored
arrangement or mass transactions over multiple Variable Contracts. The
amount of any Cost Reduction Credit will be determined based upon the
amount of reduction in the selling and/or maintenance cost associated
with the sale of that particular Variable Contract. A Cost Reduction
Credit may be applied at the time that a Purchase Payment is made. Any
Cost Reduction Credit applied at that time will not exceed 1.45% of the
amount of such Purchase Payment. Alternatively, Cost Reduction Credits
may be credited on the basis of Contract Value. Any Cost Reduction
Credit credited on the basis of Contract Value will not exceed 1.45% of
Contract Value at the time that it is credited.
10. PL Insurers may agree to credit an Eligible Person Credit under
the Variable Contracts (other than Pacific One Select) owned by persons
who meet criteria established by the relevant PL Insurer. These persons
may include current and retired officers, directors and employees of
Pacific Life and its affiliates, trustees of Pacific Select Fund,
registered representatives and employees of broker/dealers with a
current selling agreement with Pacific Life or PL&A, respectively, and
the affiliates of those broker/dealers, employees of affiliated asset
management firms and certain other service providers, and immediate
family members of such persons (collectively referred to as ``Eligible
Persons''). Under the Eligible Person Credit Program, the relevant PL
Insurer credits additional amounts to Pacific Innovations Select,
Pacific Portfolios, PSVA or PL&A Innovations Select Variable Contracts
owned by Eligible Persons if such Variable Contracts are purchased
directly through PSD. Under these circumstances, Eligible Persons will
not be afforded the benefit of services of any other broker/dealer nor
will any commission be payable to any broker/dealer in connection with
such purchases. Rather, Eligible Persons must contact the relevant PL
Insurer or PSD directly with servicing questions, changes in their
Variable Contracts and related matters. Eligible Persons are currently
credited with a 5% Eligible Person Credit on each Purchase Payment plus
a 0.25% (annualized) Credit of Contract Value, payable quarterly in
advance, from the second Contract Year through the third Contract Year
for Pacific Innocations Select and PL&A Innovations Select and a 1%
(annualized) Credit of Contract Value, payable quarterly in advance
from the fourth Contract Year until annuitization, on an annual basis.
Eligible Person who are Pacific Portfolios or PSVA Contractholders are
currently credited with a 5% Eligible Person Credit on each Purchase
Payment plus a 0.25% (annualized) Eligible Person Credit on Contract
Value from the second Contract Year through the fifth Contract Year for
PSVA (sixth Contract Year for Pacific Portfolios) on a quarterly basis,
and a 1% (annualized) Eligible Person Credit on Contract Value from the
sixth Contract Year for PSVA (seventh Contract Year for Pacific
Portfolios) until annuitization, payable quarterly. The amount
currently credited to Variable Contracts owned by Eligible Persons will
approximate the reduction in expenses realized by the relevant PL
Insurer by not incurring brokerage commission in selling such Variable
Contracts, with the determination of the expense reduction and of such
crediting being made in accordance with administrative procedures
established by the relevant PL Insurer.
11. In the future, PL Insurers may credit Contracts issued to
Eligible Persons with Eligible Person Credits greater than 5% of each
Purchase Payment, except that with respect to Purchase Payments made
during: (i) The relevant free look period; and (ii) after the relevant
free look period has expired, but during the first Contract month, the
amount of any Eligible Person Credit will be limited to no more than 9%
of such Purchase Payment.
12. Although the PL Insurers are seeking to offer Credit
Enhancements, Eligible Person Credits and Cost Reduction Credits
(collectively, ``Credits'') through Variable Contracts and Future
Variable Contracts, no PL Insurer will apply more than one Credit to
the Contract Value of a Contractholder's Variable Contract or Future
Variable Contract. Thus, if a PL Insurer applies the Credit Enhancement
to the Contract Value of a particular Variable Contract or Future
Variable Contract, it will not also apply an Eligible Person Credit or
a Cost Reduction Credit. Similarly, if a PL Insurer applies the
Eligible Person Credit to the Contract Value of a particular Variable
Contract or Future Variable Contract, it will not also apply a Cost
Reduction Credit or a Credit Enhancement. If a PL Insurer offers a Cost
Reduction Credit to the Contract Value of a particular Variable
Contract or Future Variable Contract, it will not also apply an
Eligible Person Credit or a Credit Enhancement.
13. The Variable Contracts issued by the PL Insurers permit
Contractholders to cancel their Variable Contracts and to receive a
refund during the ``free look'' period, which is mandated by state law.
The free look period for Variable Contracts issued by the PL Insurers
generally is a 10-day period beginning on the day a Contractholder
receives his or her Variable Contract.\2\ Where a Contractholder
returns a Variable Contract during the free look period, the Variable
Contract will be canceled and treated as void from the Contract Date.
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\2\ Certain states require longer free look periods with respect
to variable annuity contracts.
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14. In most instances, a Contractholder who returns a Variable
Contract during the free look period is entitled to a refund of his or
her Contract Value, as of the end of the business day on which the PL
Insurer received a Contractholder's Variable Contract for
cancellation.\3\ Contractholders for all Variable Contracts issued by
PL Insurers (other than PSVA) generally will also receive a refund of
any amounts that may have been deducted to pay for state premium taxes
and/or other taxes. PSVA Contractholders who exercise their free-look
rights are entitled to, in addition to a refund of Contract Value, a
refund of any Variable Contract charges and fees deducted from the
portion of their Contract Value allocated to Variable Investment
Options.
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\3\ Under the laws of a number of states, if free look rights
are exercised within the allotted time, the sponsoring insurance
company is required to refund a Contractholder's Purchase Payment
allocated to the Variable Investment Options available under the
Separate Account, instead of the value of the Variable Investment
Options on the date the Variable Contract is returned. In those
states, if a Contractholder exercises his free look rights when his
Contract Value is less than the amount of his Purchase Payments,
Pacific Life bears the risk of loss. Pacific Life currently
allocates Purchase Payments during the free-look period to the
investment options selected by the Contractholder, in accordance
with the Contractholder application or the Contractholder's most
recent allocation instructions, regardless of whether Pacific Life
is required to refund a Contractholder's Purchase Payment or the
value of the Variable Investment Options if a Contractholder
exercises his free look rights.
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15. There are two circumstances under which the Contract Value
returned to a Contractholder who returns his or her Variable Contract
during the free look period will be subject to certain additional
deductions. First, the amount of any Credit Enhancement added to the
Contract Value of a Pacific Value Contractholder
[[Page 18305]]
will be deducted if the Contractholder returns the Variable Contract
during the free look period. Second, any Cost Reduction Credit or
Eligible Person Credit that is added to the Contract Value of a Pacific
One, Pacific Portfolios, PSVA, Pacific Innovations Select and PL&A
Innovations Select Contractholder who returns his or her Variable
Contract during the free look period will also be deducted from the
amount ultimately returned to the Contractholder.
16. The relief sought in the Application is intended to permit PL
Insurers to deduct the amounts of any Credit Enhancement, Cost
Reduction Credit or Eligible Person Credit added to the Contract Value
of any Variable Contract or Future Variable Contract, funded by a
Separate Account or a Future Account, offering such credits in cases
where Contractholders return their Variable Contract or Future Variable
Contract during the free look period.
17. Under the current practice in effect for each applicable
Variable Contract, the amount of the Credit Enhancement or the Eligible
Person Credit added to a Contractholder's Contract Value is returned to
a PL Insurer where free look rights are exercised, together with any
gains or losses on the amount credited.\4\ In addition, PSVA
Contractholders receive any Contract fees and charges that Pacific Life
may have deducted from the credited amounts.
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\4\ However, if the amount of a Credit Enhancement, Cost
Reduction Credit or Eligible Person Credit, together with any gains
on such credits, exceed the withdrawal charge percentage applicable
for a particular Variable Contract, the PL Insurer will refund the
amount of the excess.
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18. If the relief sought in the Application is granted, Applicants
would change the amount that Contractholders with any Credit
Enhancement, Cost Reduction Credit or Eligible Person Credit would
receive if they exercised their rights under the applicable free look
policy. If the relief applied for in the Application is granted,
Contractholders exercising their free look rights would not receive the
amounts added to their Contract Value in the form of Credit
Enhancements, Cost Reduction Credits or Eligible Person Credits, but
such Contractholders would realize the gains or incur the losses on the
credit amounts.
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 PL Insurers:
(1) To recapture any Credit Enhancement when a Contractholder returns a
Variable Contract and/or Future Variable Contract during the free look
period; and (2) to recapture any Cost Reduction Credits and Eligible
Person Credits when a Contractholder returns a Variable Contract or
Future Variable Contract during the free look period.
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. Because the amount returned to a Contractholder who cancels a
Variable Contract during the free look period does not include the
amount of any Credit Enhancement, Cost Reduction Credit or Eligible
Person Credit conditionally added to the Contractholder's Contract
Value, the Contractholder arguably is not receiving his or her
proportionate share of the applicable Separate Account's then-current
net assets. Applicants assert, however, that the recapture of the
Credit Enhancement offered under Pacific Value or the Cost Reduction
Credit and the Eligible Person Credit offered under the Variable
Contracts, as described in the Application, would not deprive a
Contractholder of his or her proportionate share of the issuer's
current net assets. Any Credit Enhancements, Cost Reduction Credits or
Eligible Person Credits added to the Contract Value of a Contractholder
are expressly conditioned on the Contractholder's decision to keep the
Variable Contract beyond the free look period. Further, Applicants
assert that a Contractholder's interest in the amount of a Credit
Enhancement, Cost Reduction Credit or an Eligible Person Credit
allocated to his or her Contract Value is not vested until the
applicable free look period has expired without return of the Variable
Contract in question. Unless and until the amount of the Credit
Enhancement, Cost Reduction Credit or Eligible Person Credit is vested
(i.e., at the end of the free look period), Applicants believe that the
relevant PL Insurer retains the right and interest in the amount of the
Credit Enhancement, Cost Reduction Credit or the Eligible Person
Credit.
5. Applicants further contend that it would be patently unfair to
allow a Contractholder exercising his or her free look right to retain
the Credit Enhancement or the Cost Reduction Credit or the Eligible
Person Credit under a Variable Contract that has been returned for a
refund after a period of only a few days. If PL Insurers could not
recapture the amounts of such credits, individuals could purchase a
Variable Contract, and simply return it for a quick profit. This could
deter PL Insurers from offering the Credit Enhancement, the Cost
Reduction Credit and Eligible Credit under Variable Contracts or Future
Variable Contracts.
6. Moreover, because the amount of the Credit Enhancement, Cost
Reduction Credit or Eligible Person Credit is not vested during the
free look period, Applicants state that it is arguable that any
earnings or losses attributable to these credits should also be
returned to the relevant PL Insurer as the sponsoring insurance
company. PL Insurers have taken and will continue to take this approach
unless and until the relief requested under the Application is granted.
However, if and when the Commission grants the relief requested in the
Application, any gains or losses attributable to the amount of the
Credit Enhancement, Cost Reduction Credit or the Eligible Person Credit
will be allocated to the Contractholders.
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.
[[Page 18306]]
8. PL Insurers' recapture of the Credit Enhancement, the Cost
Reduction Credit and the Eligible Person Credit in instances where a
Contractholder returns a Variable Contract during the free look period
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 Variable Investment Option of a Separate
Account. In other words, because any such Credit Enhancements, Cost
Reduction Credits and Eligible Person Credits credited by a PL Insurer
are immediately added, on a conditional basis, to the Contract Value of
certain Contractholders, and further because these amounts are
allocated by the Contractholder to certain Variable Investment Options
for the benefit of the participating Contractholder, the net asset
value of each Variable Investment Option arguably is affected by these
credits.
9. Applicants contend, however, that the recapture of the Credit
Enhancement, Cost Reduction Credit and Eligible Person Credit under the
circumstances described in this 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 respectfully
request relief from section 22(c) and rule 22c-1 in order to recapture
Credit Enhancements, Cost Reduction Credits and Eligible Person Credits
as discussed above for Variable Contracts and Future Variable Contracts
cancelled during the free look period.
10. Applicants claim that the recapture of the Credit Enhancement,
Cost Reduction Credit and the Eligible Person Credit 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.
11. Applicants submit that the proposed recapture of the Credit
Enhancement, Cost Reduction Credit and the Eligible Person Credit poses
no such threat of dilution. To effect a recapture of a Credit
Enhancement, Cost Reduction Credit or an Eligible Person Credit, PL
Insurers redeem interests in a Contractholder's Variable Investment
Option at a price determined on the basis of the current net asset
value of each of the Variable Investment Options of the Separate
Account in which the Contractholder's Contract Value is allocated. The
amount recaptured will be equal to the amount of the Credit
Enhancement, Cost Reduction Credit or the Eligible Person Credit paid
out of the general account assets of the relevant PL Insurer. In those
instances where applicable state law does not require the return of
Purchase Payments, and thus permits Contractholders to retain any
investment gain or to realize any investment loss, in the event of the
exercise of a free look right, the amount refunded will be determined
on the basis of the current net asset value of the various Variable
Investment Options of the applicable Separate Accounts including gain
or loss. Thus, Applicants believe that no dilution will occur upon the
recapture of a Credit Enhancement, Cost Reduction Credit or an Eligible
Person Credit.
12. 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, Cost Reduction
Credit or the Eligible Person Credit.
Conclusion
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 policies and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-9158 Filed 4-14-03; 8:45 am]
BILLING CODE 8010-01-P