[Federal Register Volume 66, Number 92 (Friday, May 11, 2001)]
[Notices]
[Pages 24168-24172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-11895]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24973; File No. 812-12386]


Allstate Life Insurance Company, et al.

May 7, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of Applicant for an order under Section 6(c) of the 
Investment Company Act of 1940 (the ``1940 Act'') granting exemptions 
from the provisions of Sections 2(a)(32) and 27(i)(2)(A) of the 1940 
Act and Rule 22c-1 thereunder to permit the recapture of credits 
applied to contributions made under certain deferred variable annuity 
contracts.

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    Applicants: Allstate Life Insurance Company (``Allstate Life''), 
Allstate Life Insurance Company Separate Account A (``Allstate Life 
Separate Account''), Allstate Life Insurance Company of New York 
(``Allstate Life of New York''), Allstate Life Insurance Company of New 
York Separate Account A (``Allstate Life of New York Separate 
Account''), Glenbrook Life & Annuity Company (``Glenbrook''), Glenbrook 
Life & Annuity Company Variable Annuity Account, Glenbrook Life Multi-
Manager Variable Account, Glenbrook Life & Annuity Company Separate 
Account A

[[Page 24169]]

(``Glenbrook Separate Account A''), Glenbrook scudder Variable Account 
(A), Lincoln Benefit Life Company (``Lincoln Benefit''), Lincoln 
Benefit Life Variable Annuity Account (``Lincoln Separate Account''), 
Northbrook Life Insurance Company (``Northbrook''), Allstate 
Distributors, LLC, (``Allstate Distributors''), ALFS, Inc. (``ALFS'') 
(collectively ``Applicants'').
    Summary of Application: Applicants seek an order under Section 6(c) 
of the 1940 Act to the extent necessary to permit under specified 
circumstances the recapture of credits applied to contributions made 
(i) under certain deferred variable annuity contracts and certificates 
(the ``Contracts'' or, individually, the ``Contract'') described herein 
that Lincoln Benefit, Glenbrook, and Allstate Life will issue through 
the Lincoln Separate Account, Glenbrook Separate Account A, and the 
Allstate Life Separate Account, respectively, and (ii) under other 
deferred variable annuity contracts and certificates (``Future 
Contracts'') that Allstate Life, Allstate Life of New York, Glenbrook, 
Lincoln Benefit and Northbrook (the ``Insurance Company Applicants'') 
may in the future issue through their respective separate accounts 
named as applicants above (the ``Separate Account Applicants'') or 
through other separate accounts that they may establish in the future 
(the ``Future Accounts''), which contracts will be substantially 
similar in all material respects to the Contracts. Applicants request 
that the order being sought extend to any other National Association of 
Securities Dealers, Inc. (``NASD'') member broker-dealer controlling or 
controlled by, or under common control with, Allstate Life whether 
existing or created in the future that serves as a distributor or 
principal underwriter for Contracts or Future Contracts offered through 
the Separate Account Applicants or any Future Account (``Affiliated 
Broker-Dealer(s)'').
    Filing Date: The Application was filed on December 26, 2000, and 
amended on May 3, 2001.
    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 Applicant with a copy of the request, in person or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on June 1, 
2001, and should be accompanied by proof of service on the 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 SEC.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, c/o Lincoln Benefit 
Life Company, 2940 South Eighty-fourth Street, Lincoln, Nebraska 68506, 
Attn: Carol S. Watson, Esq.; copies to Joan E. Boros, Esq., Jorden Burt 
LLP, 1025 Thomas Jefferson Street, NW., Suite 400E Washington, DC 
20007.

FOR FURTHER INFORMATION CONTACT: Patrick Scott, Attorney, or Lorna 
MacLeod, Branch Chief, Office of Insurance Products, Divisions of 
Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 
20549-0102 ((202) 942-8090).

Applicant's Representations

    1. Allstate Life is a stock life insurance company organized under 
the laws of the State of Illinois. The Allstate Life Separate Account 
is a segregated asset account of Allstate Life, which is registered 
with the Commission as a unit investment trust under the 1940 Act. 
Allstate Life serves as depositor of the Allstate Life Separate 
Account.
    2. Allstate Life of New York is a stock life insurance company 
organized under the laws of the State of New York. The Allstate Life of 
New York Separate Account is a segregated asset account of Allstate 
Life of New York, which is registered with the Commission as a unit 
investment trust under the 1940 Act. Allstate Life of New York serves 
as depositor of the Allstate Life of New York Separate Account.
    3. Glenbrook is a stock life insurance company organized under the 
laws of the State of Illinois, and re-domesticated under the laws of 
the State of Arizona in 1998. Glenbrook Life & Annuity Company Variable 
Annuity Account, Glenbrook Life Multi-Manager Variable Account, 
Glenbrook Separate Account A, Glenbrook Scudder Variable Account (A), 
and Allstate Life of New York Separate Account A (the ``Glenbrook 
Separate Accounts'') are segregated asset accounts of Glenbrook, which 
are registered with the Commission as unit investment trusts under the 
1940 Act. Glenbrook serves as depositor of the Glenbrook Separate 
Accounts.
    4. Lincoln Benefit is a stock life insurance company organized 
under the laws of the State of Nebraska. The Lincoln Separate Account 
is a segregated asset account of Lincoln Benefit, which is registered 
with the Commission as unit investment trust under the 1940 Act. 
Lincoln Benefit serves as depositor of the Lincoln Separate Account.
    5. Northbrook is a stock life insurance company organized under the 
laws of the State of Illinois in 1978.
    6. Allstate Distributors is an affiliate of Lincoln Benefit and 
serves as distributor of certain deferred variable annuity contracts, 
including certain Contracts, issued by the Insurance Company Applicants 
through the Separate Account Applicants. Allstate Distributors is 
registered with the Commission as a broker-dealer under the Securities 
Exchange Act of 1934 (the ``1934 Act'') and is a member of the National 
Association of Securities Dealers (``NASD''). The Contracts issued by 
Allstate Life will be offered through registered representatives of 
broker-dealers, which are registered under the 1934 Act and members of 
the NASD, that have selling agreements with Allstate Distributors.
    7. ALFS is an affiliate of Lincoln Benefit and serves as 
distributor of certain deferred variable annuity contracts, including 
certain Contracts, issued by the Insurance Company Applicants through 
the Separate Account Applicants. ALFS is registered with the Commission 
as a broker-dealer under the 1934 Act, and is a member of the NASD. The 
Contracts (other than the Contracts issued by Allstate Life) will be 
offered through registered representatives of broker-dealers, which are 
registered under the 1934 Act and members of the NASD, that have 
selling agreements with ALFS.
    8. All of the Insurance Company Applicants, Allstate Distributors, 
and ALFS are direct or indirect wholly-owned subsidiaries of Allstate 
Insurance Company.
    9. The variable portions of the Contracts issued by Lincoln 
Benefit, Glenbrook, and Allstate Life are registered under the 
Securities Act of 1933 (the ``1933 Act''). The variable portion of 
Future Contracts also will be registered under the 1933 Act. That 
portion of the assets of each Separate Account Applicant that is equal 
to the reserves and other contract liabilities with respect to 
Contracts is not chargeable with liabilities arising out of any other 
business of the corresponding Insurance Company Applicant. Any income, 
gains or losses, realized or unrealized, from assets allocated to a 
Separate Account Applicant will be, in accordance with such Account's

[[Page 24170]]

Contracts, credited to or charged against such Separate Account 
Applicant, without regard to other income, gains or losses of the 
corresponding Insurance Company Applicant.
    10. Each of the Separate Accounts Applicants are divided into 
multiple subaccounts; each subaccount invests in shares of a 
corresponding portfolio (``Portfolio''), that serves as an investment 
option under Contracts issued through the separate account.
    11. Each time Lincoln Benefit receives a Purchase Payment from an 
owner of a Lincoln Benefit Contract, it will add to the owner's 
contract value a Credit Enhancement of 4% of the Purchase Payment 
amount. Lincoln Benefit will allocate Credit Enhancements among the 
available Portfolios, according to the allocation instructions in 
effect for the Purchase Payments. Lincoln Benefit will fund Credit 
Enhancements from its general account assets.
    12. The Lincoln Benefit Contract provides for various surrender 
options, annuity benefits and annuity payout options, as well as 
transfer privileges among Sub-accounts, dollar cost averaging, and 
other features. The Lincoln Benefit Contract contains the following 
charges: (i) A contingent deferred sales charge as a percentage of 
Purchase Payments surrendered, which is 8% in year one, 7% in years two 
and three, 6% in years four and five, 5% in year six, 4% in year seven, 
3% in year eight, and 0% thereafter; (ii) a $35 annual administrative 
charge (which is waived if total Purchase Payments exceed $50,000; 
(iii) a mortality and expense risk fee of 1.30% annually; (iv) an 
administrative charge of 0.10% annually; and (v) a transfer fee of $10 
per transfer with certain exceptions, which currently is being waived. 
Lincoln Benefit also deducts any applicable state or local premium 
taxes up to 4.0%, depending on the owner's state of residence or the 
state in which the Contract was sold. In addition, assets invested in 
the Sub-accounts are charged with the operating expenses of the 
Portfolios.
    13. Each time Glenbrook receives a Purchase Payment from an owner 
of a Glenbrook Contract, it will add to the owner's contract value a 
Credit Enhancement. There are two Credit Enhancement options available 
under the Glenbrook Contract:
    <bullet> Under option 1, Glenbrook will add to the owner's contract 
value a Credit Enhancement equal to 4% of the Purchase Payment amount.
    <bullet> Under option 2, Glenbrook will add to the owner's contract 
value a Credit Enhancement equal to 2% of the Purchase Payment amount. 
In addition, on every 5th contract anniversary during the accumulation 
phase, Glenbrook will add to the owner's contract value a Credit 
Enhancement equal to 2% of the owner's contract value as of such 
contract anniversary.
    Glenbrook will allocate Credit Enhancements among the available 
Portfolios, according to the allocation instructions in effect for the 
Purchase Payments. Glenbrook will fund Credit Enhancements from its 
general account assets.
    14. The Glenbrook Contract provides for various surrender options, 
annuity benefits and annuity payout options, as well as transfer 
privileges among Sub-accounts, dollar cost averaging, and other 
features. The Contract contains the following charges: (i) A withdrawal 
charge as a percentage of Purchase Payment surrendered, which is 8% in 
years one and two, 7% in years three and four, 6% in year five, 5% in 
year six, 4% in year seven, 3% in year eight, and 0% thereafter; (ii) a 
$35 annual administrative charge (which is waived if total Purchase 
Payments exceed $50,000); (iii) a mortality and expense risk fee of 
1.40% annually; and (iv) a transfer fee of $10 on transfers in excess 
of twelve in any Contract year, which currently is being waived. 
Glenbrook also deducts any applicable state or local premium taxes up 
to 4.0%, depending on the owner's state of residence or the state in 
which the Contract was sold. In addition, assets invested in the Sub-
accounts are charged with the annual operating expenses of the 
Portfolios.
    15. Each time Allstate Life receives a Purchase Payment from an 
owner of an Allstate Life Contract, it will add to the owner's contract 
value a Credit Enhancement of 4% of the Purchase Payment amount. 
Allstate Life will allocate Credit Enhancements among the available 
Portfolios, according to the allocation instructions in effect for the 
Purchase Payments. Allstate Life will fund Credit Enhancements from its 
general account assets.
    16. The Allstate Life Contract provides for various surrender 
options, annuity benefits and annuity payout options, as well as 
transfer privileges among Sub-accounts, dollar cost averaging, and 
other features. The Contract contains the following charges: (i) A 
withdrawal charge as a percentage of Purchase Payments surrendered, 
which is 8% in years one, two, and three, 7% in year four, 6% in year 
five, 5% in year six, 4% in year seven, 3% in year eight, and 0% 
thereafter; (ii) a mortality and expense risk fee of 1.60% annually; 
and (iii) a transfer fee of .50% of the amount transferred on transfers 
in excess of twelve within a calendar year. (The Allstate Life Contract 
does not assess an annual contract maintenance charge or annual 
administrative fees.) Allstate Life also deducts any applicable state 
or local premium taxes up to 4.0%, depending on the owner's state of 
residence or the state in which the Contract was sold. In addition, 
assets invested in the Sub-accounts are charged with the annual 
operating expenses of the Portfolios.
    17. Each Insurance Company Applicant will recapture Credit 
Enhancements if the owner returns the Contract for a refund during the 
free look period. The free look period is 20 days or such longer period 
as may be required under state law. The Insurance Company Applicants 
will not seek to recapture Credit Enhancements under any other 
circumstance.
    18. The free look period is the period during which an owner may 
return a Contract after it has been delivered and receive a full refund 
of the contract value, less any Credit Enhancements. No other charges 
will apply to the refund, but the owner bears the investment risk from 
the time of purchase until he or she returns the Contract. The owner 
also will bear any expenses charged with respect to the Credit 
Enhancement amount incurred prior to return of the Contract, e.g., any 
mortality and expense risk charge. The refund amount may be more or 
less than the Purchase Payment the owner made, unless state insurance 
law requires that the full amount of the Purchase Payment be refunded.
    19. Applicants seek relief pursuant to Section 6(c) from Sections 
2(a)(32) and 27(i)(2)(A) of the 1940 Act and Rule 22c-1 thereunder to 
the extent necessary (i) to permit Lincoln Benefit, Glenbrook, and 
Allstate Life to recapture an amount equal to the Credit Enhancements 
when an owner returns a Contract or Future Contract for a refund during 
the ``free look'' period, in which case the issuing Insurance Company 
Applicant will recover the amount of any Credit Enhancement applicable 
to such contribution, and (ii) to permit all of the Insurance Company 
Applicants to recapture Credit Enhancements under Future Contracts 
Insurance Company Applicants may issue through the Separate Accounts 
Applicants or through Future Accounts that contain Credit Enhancement 
features, including recapture provisions, that are substantially 
similar in all material respects to the Contracts. Applicants also 
request that the order being sought extend to any Affiliated Broker-
Dealer that serves as a distributor or principal underwriter for 
Contracts or Future

[[Page 24171]]

Contracts offered through the Separate Account Applicants or any Future 
Account.

Applicants' Legal Analysis

    1. Section 6(c) the 1940 Act authorizes the Commission to exempt 
any person, security or transaction, or any class or classes of 
persons, securities or transactions from the provisions of the 1940 Act 
and the rules promulgated thereunder, if and to the extent that such 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act. Applicants 
believe that the requested exemptions are appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act.
    2. Applicants represent that it is not administratively feasible to 
track the Credit Enhancement amount in the Sub-accounts after the 
Credit Enhancement is applied. Accordingly, the asset-based charges 
applicable to the Sub-accounts will be assessed against the entire 
amounts held in the Sub-accounts, including the Credit Enhancement 
amount, during the ``free look'' period. As a result, during such 
period, the aggregate asset-based charges assessed against an owner's 
annuity account value will be higher than those that would be charged 
if the owner's contract value did not include the Credit Enhancements.
    3. Subsection (i) of Section 27 provides that Section 27 does not 
apply to any registered separate account funding variable insurance 
contracts, or the sponsoring insurance company and principal 
underwriter of such account, except as provided in paragraph (2) of the 
subsection. Paragraph (2) provides that it shall be unlawful for any 
registered separate account funding variable insurance contracts or a 
sponsoring insurance company of such account to sell a contract funded 
by the registered separate account unless, among other things, such 
contract is a redeemable security. Section 2(a)(32) 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 proportionate share of the 
issuer's current net assets, or the cash equivalent thereof.
    4. Applicants submit that the Credit Enhancement recapture 
provisions of the Contracts would not deprive an owner of his or her 
proportionate share of the issuer's current net assets. Applicants 
state that an owner's interest in the Credit Enhancement amount 
allocated to his or her contract value upon receipt of an initial 
Purchase Payment is not vested until the applicable free-look period 
has expired without return of the Contract. Until the free look period 
has expired and any Credit Enhancement amount is vested, Applicants 
submit that the issuing Insurance Company Applicant retains the right 
and interest in the Credit Enhancement amount, although not in the 
earnings attributable to that amount. Thus, Applicants argue that when 
an Insurance Company Applicant recaptures any Credit Enhancement, it is 
merely retrieving its own assets, and the owner has not been deprived 
of a proportionate share of the Separate Account's assets.
    5. In addition, Applicants state that permitting an owner to retain 
a Credit Enhancement under a contract upon the exercise of the free 
look period would not only be unfair, but would also encourage 
individuals to purchase a Contract with no intention of keeping it, but 
simply to return it for a quick profit.
    6. Applicants state that the Credit Enhancement will be attractive 
to and in the interest of investors because it will permit owners to 
put either 102% (under Credit Enhancement option 2 of Glenbrook's 
Contracts) or 104% (under Lincoln's and Allstate Life's Contracts and 
Credit Enhancement option 1 of Glenbrook's Contract) of their Purchase 
Payments to work for them in the selected Sub-accounts. In addition, 
the owner will retain any earnings attributable to the Credit 
Enhancement, as well as the principal amount of the Credit Enhancement 
if he or she does not cancel the Contract.
    7. Applicants submit that the provisions for recapture of any 
Credit Enhancement under the Contracts do not, and any such Future 
Contract provisions will not, violate Section 2(a)(32) and 27(i)(2)(A) 
of the 1940 Act. Nevertheless, to avoid any uncertainties, Applicants 
request an exemption from those Sections, to the extent deemed 
necessary, to permit the recapture of any Credit Enhancements under the 
circumstances described herein with respect to the Contracts and any 
Future Contracts, without the loss of the relief from Section 27 
provided by Section 27(i).
    8. 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, whether or not members of any 
securities association, to the same extent, covering the same subject 
matter, and for the accomplishment of the same ends as are prescribed 
in Section 22(a). Rule 22c-1 thereunder prohibits a registered 
investment company issuing any redeemable security, a person designated 
in such issuer's prospectus as authorized to consummate transactions in 
any 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.
    9. Arguably, the recapture of a Credit Enhancement might 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 Separate 
Account. Applicants contend, however, that recapture does not involve 
either of the evils that Rule 22c-1 was intended to eliminate or 
reduce, 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. To effect a recapture of a Credit Enhancement the 
issuing Insurance Company Applicant will redeem an owner's interest in 
a Sub-account at a price determined on the basis of current net asset 
value of the Sub-account. The amount recaptured will equal the amount 
of the Credit Enhancements paid out of its general account assets. 
Although the owner will be entitled to retain any investment gain 
attributable to the Credit Enhancement, the amount of such gain will be 
determined on the basis of the current net asset value of the relevant 
Sub-accounts. Thus, no dilution will occur upon the recapture of the 
Credit Enhancement. Applicants also submit that the second harm 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. However, to avoid any 
uncertainty as to full compliance with the 1940 Act, Applicants request 
an exemption from the provisions of Rule 22c-1 to the extent deemed 
necessary to permit them to recapture the Credit Enhancements

[[Page 24172]]

under the Contracts and Future Contracts.
    10. Applicants submit that their request for an order, which 
applies to Future Accounts established by the Insurance Company 
Applicants, and Future Contracts that are substantially similar in all 
material respects to the Contracts described herein, is appropriate in 
the public interest. Applicants state that such an order would promote 
competitiveness in the variable annuity market by eliminating the need 
to file redundant exemptive applications in the future, thereby 
reducing administrative expenses and maximizing the efficient use of 
Applicants' resources. Applicants state that requiring them to file 
additional Applications would impair their ability effectively to take 
advantage of business opportunities as they arise, and that 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 this 
Application.

 Conclusion

    Applicants submit that their exemptive request meets the standards 
set out in Section 6(c) of the 1940 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 1940 Act, and that, 
therefore, the Commission should grant the requested order.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-11895 Filed 5-10-01; 8:45 am]
BILLING CODE 8010-01-M