24970 Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices

such registered company, any security

or other property.

2. Section 2(a)(3)(A) of the Act

provides that any person directly or

indirectly owning, controlling, or

holding with power to vote 5% or more

of the outstanding voting securities of

any other person is an affiliated person

of that person. Section 2(a)(3)(B)

provides that any person 5% or more of

whose outstanding voting securities are

directly or indirectly owned, controlled,

or held with power to vote by another

person is an affiliated person of that

person.

3. Rule 17a–8 exempts from the

prohibitions of section 17(a) mergers,

consolidations, or purchases or sales of

substantially all of the assets of

registered investment companies that

are affiliated persons solely by reason of

having a common investment adviser,

common directors, and/or common

officers, provided that certain

conditions set forth in the rule are

satisfied.

4. As noted above, the Funds have a

common investment adviser. Thus, the

Reorganization would be exempt from

the provisions of section 17(a) by virtue

of rule 17a–8, but for the fact that the

Funds may be affiliated for reasons

other than those set forth in the rule. As

previously stated, Trust I and Trust II

each owns more than 5% of the

outstanding voting securities of each of

the Funds. Because of this greater than

5% holding, Trust I and Trust II each is

an affiliated person of each of the Funds

under section 2(a)(3)(A) and each of the

Funds is an affiliated person of each of

Trust I and Trust II under section

2(a)(3)(B). Therefore, the Acquiring

Fund is an affiliated person of an

affiliated person of the Acquired Fund

and vice versa.

5. Section 17(b) provides that the SEC

may exempt a transaction from the

provisions of section 17(a) if evidence

establishes that the terms of the

proposed transaction, including the

consideration to be paid, are reasonable

and fair and do not involve

overreaching on the part of any person

concerned, and that the proposed

transaction is consistent with the policy

of the registered investment company

concerned and with the general

purposes of the Act.

6. Applicants submit that the

Reorganization meets the standards for

relief under section 17(b), in that the

terms of the Reorganization, including

the consideration to be paid or received,

are reasonable and fair and do not

involve overreaching on the part of any

person concerned; the Reorganization is

consistent with the investment policy of

the Funds; and the Reorganization is

consistent with the general purposes of

the Act. In addition, applicants submit

that each board made the

determinations under rule 17a–8 that

the Reorganization is in the best

interests of its registered investment

company and that the interests of

existing shareholders of its registered

investment company will not be diluted

as a result of its effecting the

Reorganization.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12386 Filed 5–16–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–21951; No. 812–9978]

John Hancock Mutual Life Insurance

Company, et al.

May 10, 1996.

AGENCY: Securities and Exchange

Commission (‘‘Commission’’).

ACTION: Notice of Application for an

Order pursuant to the Investment

Company Act of 1940 (the ‘‘Act’’).

APPLICANTS: John Hancock Mutual Life

Insurance Company (‘‘John Hancock

Mutual’’), John Hancock Variable Life

Insurance Company (‘‘John Hancock

Variable,’’ together with John Hancock

Mutual, the ‘‘Companies’’), John

Hancock Variable Annuity Account JF

(the ‘‘Account’’), and John Hancock

Funds, Inc. (‘‘JHFI’’).

RELEVANT ACT SECTIONS: Order requested

pursuant to Section 6(c) of the Act

granting exemptions from the provisions

of Sections 26(a)(2)(C) and 27(c)(2)

thereof.

SUMMARY OF APPLICATION: Applicants

seek an order permitting the deduction

of mortality and expense risk and

certain optional benefit rider charges

from the assets of: (a) the Account in

connection with the offer and sale of

certain variable annuity contracts

(‘‘Existing Contracts’’); (b) the Account

in connection with the issuance of

variable annuity contracts that are

materially similar to the Existing

Contracts (‘‘Future Contracts,’’ together

with Existing Contracts, the

‘‘Contracts’’); and (c) any other separate

account established in the future by the

Companies (‘‘Future Account’’) in

connection with the issuance of

Contracts, for which JHFI or certain

other broker-dealers may act as

distributor and principal underwriter.

To the extent the Contracts are issued

on a group basis, the term ‘‘Contract,’’

when used herein, includes any

individual certificates or other

participations thereunder.

FILING DATE: The application was filed

on February 5, 1996.

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 must be

received by the Commission by 5:30

p.m. on June 4, 1996, and must 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 Secretary of

the Commission.

ADDRESSES: Secretary, Securities and

Exchange Commission, 450 5th Street,

N.W., Washington, D.C. 20549.

Applicants, c/o Sandra M. DaDalt,

Associate Counsel, John Hancock

Mutual Life Insurance Company, John

Hancock Place, Post Office Box 111,

Boston, Massachusetts 02117.

FOR FURTHER INFORMATION CONTACT:

Kevin M. Kirchoff, Senior Counsel, or

Patrice M. Pitts, Special Counsel, Office

of Insurance Products (Division of

Investment Management), at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application; the

complete application is available for a

fee from the public Reference Branch of

the Commission.

Applicants’ Representations

1. John Hancock Variable, a stock life

insurance company incorporated under

the laws of the Commonwealth of

Massachusetts, is a wholly-owned

subsidiary of John Hancock Mutual, a

mutual life insurance company

organized under the laws of the

Commonwealth of Massachusetts.

2. John Hancock Variable is the

depositor of the Account, and will serve

as depositor for Future Accounts.

3. The Account was established as a

separate investment account under the

laws of the Commonwealth of

Massachusetts on November 13, 1995,

pursuant to a resolution of the Board of

Directors of John Hancock Variable. The

Future Accounts will be separate

accounts of either John Hancock Mutual

or John Hancock Variable and will be

registered with the Commission under

the Act.

4. JHFI, an indirect, wholly-owned

subsidiary of John Hancock Mutual, is
Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices 24971

registered as a broker-dealer under the

Securities Exchange Act of 1934 (‘‘1934

Act’’), and is a member of the National

Association of Securities Dealers, Inc.

(‘‘NASD’’). JHFI will serve as the

distributor and principal underwriter of

the Existing Contracts and may also

serve as the distributor and principal

underwriter of Future Contracts.

5. Broker-dealers other than JHFI may

also serve as distributors or principal

underwriters of Existing Contracts as

well as Future Contracts to the extent

that Existing Contracts or Future

Contracts are sold through alternate

distribution channels. Any such other

broker-dealer will be registered under

the 1934 Act as a broker-dealer and will

be a member of the NASD.

6. The Accounts, which will have a

number of subaccounts

(‘‘Subaccounts’’), will invest premium

payments received under the Contracts

in shares of one or more of the

corresponding funds of the John

Hancock Declaration Trust and/or such

other registered investment companies

as the Companies may make available

under the Contracts from time to time

(each, a ‘‘Series Trust’’), or any

combination thereof. Each Series Trust

will be a diversified, open-end

management investment company

registered under the Act, and may have

a number of classes or series.

7. The Contracts are flexible premium

deferred annuity contracts that may be

issued in group or individual form.

Premium payments are subject to

certain limits that may be waived by the

Companies. The owner of a Contract

(‘‘Owner’’) can allocate premium

payments, less any applicable premium

taxes, to one or more of the Subaccounts

of the Account, and to one or more of

the guarantee periods (‘‘Guarantee

Periods’’) of a market value adjustment

fixed account (‘‘MVA Fixed Account’’).

8. Prior to the date on which annuity

payments commence (‘‘Date of

Maturity’’), an Owner may surrender all

or a portion of the Surrender Value

(defined below), or transfer all or a

portion of the accumulated value of the

Contract (the total value of the Owner’s

interest in all Subaccounts and

Guarantee Periods under a Contract, the

‘‘Accumulated Value’’), (a) from one

Subaccount to another Subaccount or to

a Guarantee Period, or (b) from one

Guarantee Period to another Guarantee

Period or to a Subaccount. After the

Date of Maturity, only transfers among

Subaccounts are permitted. ‘‘Surrender

Value’’ is the Accumulated Value,

adjusted by any applicable market value

adjustment (‘‘Market Value

Adjustment’’), less any applicable

contingent deferred sales load

(‘‘CDSL’’), any applicable Contract fee,

any applicable deduction for income

taxes withheld, and any applicable

premium or similar taxes.

9. The Contract provides for a series

of annuity payments beginning on the

Date of Maturity. The Owner may select

from several annuity options which

provide periodic annuity payments on a

fixed or variable basis.

10. In the event that the Annuitant

dies prior to the Date of Maturity, a

death benefit is payable under the

Contract. The standard death benefit is

equal to the greater of:

(a) The Accumulated Value, adjusted

by any Market Value Adjustment, next

determined following receipt by the

servicing agent of the Companies of due

proof of death, together with any

required instructions as to the method

of settlement, and

(b) the aggregate amount of the

premium payments made under the

Contract, less any partial withdrawals

and CDSL.

11. In addition, certain optional

benefit riders are available at an

additional charge under the Contracts.

These optional benefit riders must be

elected at the time the Contract is

applied for, and none are available after

a Contract has been issued.

12. The Owner may elect a one year

stepped-up death benefit rider (the

‘‘Enhanced Death Benefit rider’’),

designed to enhance the standard death

benefit payable to the beneficiary.

Under this rider, upon the death of the

Annuitant prior to the Date of Maturity,

the death benefit payable will be the

greater of: (a) The standard death

benefit, and (b) the highest

Accumulated Value, as adjusted by any

Market Value Adjustment, as of any

Contract anniversary preceding the date

of receipt of due proof of death, together

with any required settlement

instructions, and preceding the Contract

anniversary nearest the Annuitant’s 81st

birthday, plus any premium payments,

less any prior partial withdrawals and

related CDSL, since such Contract

anniversary. The minimum described in

clause (b) of the preceding sentence is

initially established on the first Contract

anniversary and may increase on any

future Contract anniversary as a result of

additional premium payments or

favorable investment performance, but it

will never decrease unless partial

withdrawals are made. This benefit

cannot be purchased by applicants 80

years of age or older

13. An Accidental Death Benefit rider

(the ‘‘ADB rider’’) may be elected.

Under this rider, upon the accidental

death (as defined in the rider) of the

Annuitant prior to the Date of Maturity,

the beneficiary will receive, in addition

to any other death benefit, an amount

equal to the Accumulated Value, as of

the date of the accident that results in

Annuitant’s death, up to a maximum of

$200,000. This benefit cannot be

purchased by applicants 80 years of age

or older and ceases, along with

applicable charges, at age 80.

14. The Owner may elect a Nursing

Home Waiver of CDSL rider (the

‘‘Nursing Home rider’’), under which

the CDSL, if otherwise applicable, will

be waived on any withdrawals if,

beginning at least 90 days after the date

of issue, the Owner becomes confined to

a nursing home facility for at least 90

consecutive days, subject to certain

conditions. This benefit cannot be

purchased by applicants 75 years of age

or older, or applicants who were

confined to a nursing home within the

prior two years.

15. The Contracts and optional benefit

riders provide for certain charges

described below. Except for the

Companies’ reservation of right to

increase the annual Contract Fee

(described below), none of such charges

may be increased during the life of a

Contract. The Companies may waive or

reduce any of the charges under the

Contracts, in accordance with their

rules, as permitted by the Act, rules

thereunder, and applicable Commission

orders or staff positions.

16. The Companies deduct an annual

fee of $30 per Contract year (‘‘Contract

Fee’’) on all Contracts having an

Accumulated Value of less than

$10,000. The Contract Fee will be

deducted at the beginning of each

Contract year after the first and at a full

surrender during a Contract year

(‘‘Contract Year’’). The Companies

reserve the right to increase the Contract

Fee up to a maximum of $50.

17. The Companies also deduct a

daily administrative charge from the

assets of the Accounts. This charge is

equal to an annual rate of 0.35 percent

of the net assets of Contracts with an

initial premium payment of less than

$250,000, and 0.10 percent of the net

assets of Contracts with an initial

premium payment of $250,000 or more.

The difference between these rates

reflects the cost of administering larger

Contracts, which is lower in proportion

to their Accumulated Value than that of

relatively smaller Contracts. The

Companies do not anticipate deriving

any profit from these administrative

charges, and will deduct them in

reliance upon, and in compliance with,

Rule 26a–1 under the Act.

18. Several states and local

governments impose a premium or

similar tax on annuities. Currently, such
24972 Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices

taxes range up to 5 percent of the

Accumulated Value applied to an

annuity option. Ordinarily, any stateimposed premium or similar tax will be

deducted from the Accumulated Value

only at the time of annuitization. The

Companies will deduct a charge for

these taxes from the Accumulated Value

at the time of annuitization, death,

surrender, or withdrawal. For Contracts

issued in South Dakota, the Companies

pay a tax on each premium payment

and deduct the charge therefor at the

time the payment is made.

19. No sales charge is deducted from

any premium payment. However, a

CDSL may be assessed on premium

payments whenever any amount is

withdrawn from a Contract prior to the

Date of Maturity. This charge is used to

cover expenses relating to the offer and

sale of the Contracts, including

commissions and other distribution

costs and sales-related expenses. The

CDSL percentage charge depends upon

the number of years that have elapsed

from the date of the premium payment

to the date of its withdrawal, as follows:

Years from date of premium payment to date of withdrawal or

surrender

CDSL

(percent)

7 or more ...................................... 0

6 but less than 7 ........................... 2

5 but less than 6 ........................... 3

4 but less than 5 ........................... 4

3 but less than 4 ........................... 5

2 but less than 3 ........................... 5

Less than 2 ................................... 6

20. Whenever a CDSL is imposed, it

is deducted from each Subaccount of

the Accounts and each Guarantee Period

of the MVA Fixed Account in the

proportion that the amount subject to

the CDSL in each bears to the total

amount subject to the CDSL. In

calculating the CDSL, all amounts

withdrawn plus all Contract Fees and

CDSL are assumed to be deducted first

from the earliest purchase payment, and

then from the next earliest purchase

payment, and so forth until all

payments have been exhausted,

satisfying the first-in/first-out method of

accounting.

21. No CDSL is assessed on amounts

applied to provide an annuity or to pay

a death benefit. Amounts withdrawn to

satisfy the minimum distribution

requirements for tax qualified plans also

are not subject to a CDSL. In addition,

no CDSL will apply to certain

withdrawals if an Owner has elected the

Nursing Home rider.

22. In any Contract Year, an Owner

may withdraw up to 10 percent of the

Accumulated Value as of the beginning

of the Contract Year without the

assessment of any CSDL. If, in any

Contract Year, the Owner withdraws an

aggregate amount in excess of 10

percent of the Accumulated Value as of

the beginning of the Contract Year, the

excess amount withdrawn is subject to

a CDSL, to the extent it is attributable

to premium payments made within

seven years of the date of withdrawal or

surrender.

23. The Companies do not anticipate

that the CDSL will generate sufficient

revenues to pay the cost of distributing

the Contracts. If the CDSL is insufficient

to cover such costs, the deficiency will

be met from the general account assets

of John Hancock Mutual or John

Hancock Variable, as the case may be,

which may include profits, if any,

derived from the charge for mortality

and expense risks.

24. The Companies bear a mortality

risk that arises from their contractual

obligation to make annuity payments

(determined in accordance with the

guaranteed annuity tables and other

provisions contained in the Contract)

regardless of how long all Annuitants or

any individual Annuitant may live. This

undertaking assures that neither an

Annuitant’s own longevity, nor an

improvement in general life expectancy,

will adversely affect the periodic

guaranteed annuity payments that the

Annuitant will receive under the

Contract. The Companies also incur a

mortality risk inherent in the standard

death benefit, because the benefit

payable could be more than the

Accumulated Value. The Companies

assume an additional mortality risk,

since no CDSL is imposed on the

payment of the standard death benefit.

25. The expense risk assumed by the

Companies is the risk that their actual

administrative costs will exceed the

amount recovered through the

administrative charges. The

administrative services to be provided

by the Companies, directly or through

their affiliates, include: processing

applications and issuing the Contracts,

processing premium payments, transfers

and surrenders, processing purchases

and redemptions of fund shares,

furnishing confirmations and reports,

maintaining records, administering

annuity payments, providing account

and valuation services, and providing

actuarial, financial accounting,

regulatory and reporting services.

26. The Companies impose a daily

charge to compensate them for bearing

mortality and expense risks in

connection with the Contracts. This

charge is equal to an effective annual

rate of 0.90 percent of the value of the

net assets in the Account, and is

guaranteed not to increase. Of that

amount, approximately 0.45 percent is

attributable to expense risks and

approximately 0.45 percent is

attributable to mortality risks. The

Companies reserve the right to revise

the allocation of the charge between

mortality and expense risks.

27. If the administrative charges and

the mortality and expense risk charge

are insufficient to cover actual expenses

and costs assumed, the loss will be

borne by the Companies. Conversely, if

the charges are more than sufficient, the

excess will be profit to the Companies.

The Companies currently anticipate that

they will derive a profit from the

mortality and expense risk charge.

28. Separate monthly charges are

made for the Enhanced Death Benefit

rider, the ADB rider, and the Nursing

Home rider. In each case, the charge for

the rider is made through a pro-rata

reduction in Accumulation Units of the

Subaccounts and dollar amounts in the

Guarantee Periods, based on relative

values. The charge, made at the

beginning of each month, is equal to the

Accumulated Value at that time

multiplied by 1/12th of the following

applicable annual percentage rates:

Enhanced Death Benefit rider, 0.15

percent; ADB rider, 0.10 percent;

Nursing Home rider, 0.05 percent.

Applicants represent that the charges for

these optional benefit riders will never

exceed these annual rates.

29. Just as the Companies assume a

mortality risk through their obligation to

make annuity payments and provide the

standard death benefit, they also assume

certain insurance risks associated with

the three optional benefit riders.

30. Under the Enhanced Death Benefit

rider, the Companies assume an

increased mortality risk because the

benefit is potentially greater than that

provided by the standard death benefits.

A mortality risk also is assumed by the

Companies under the Enhanced Death

Benefit rider since, as under the

standard death benefit, no CDSL is

imposed upon the payment of the

benefit.

31. The Companies assume a

traditional life insurance mortality risk

under the ADB rider, and the entire

amount of the benefit is payable from

the general account assets of John

Hancock Mutual or John Hancock

Variable, as the case may be.

32. By waiving the CDSL when an

Owner becomes confined to a nursing

home facility (as provided in the

Nursing Home rider), the Companies

assume an insurance risk to the extent

that any reduced CDSL revenues will

not be available to defray marketing

expenses incurred in the offer and sale

of the Contracts. To compensate the
Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices 24973

Companies for the risk associated with

this potential revenue loss, a charge is

made in connection with the benefit

provided.

33. The charges for the Enhanced

Death Benefit, ADB, and Nursing Home

riders are designed to cover the

anticipated cost of the benefits provided

and the risks assumed, and do not

include an element of profit.

Applicants’ Legal Analysis

1. Section 6(c) of the 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

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 Act.

2. Section 26(a)(2)(C) provides that no

payment to the depositor of, or principal

underwriter for, a registered unit

investment trust shall be allowed the

trustee or custodian as an expense

compensation, exceeding such

reasonable amount as the Commission

may prescribe, for performing

bookkeeping and other administrative

duties normally performed by the

trustee or custodian. Section 27(c)(2)

prohibits a registered investment

company or a depositor or underwriter

for such company from selling periodic

payment plan certificates unless the

proceeds of all payments on such

certificates, other than sales loads, are

deposited with a trustee or custodian

having the qualifications prescribed in

Section 26(a)(1), and are held by such

trustee or custodian under an agreement

containing substantially the provisions

required by Sections 26(a)(2) and

26(a)(3) of the Act.

3. Applicants request an order

pursuant to Section 6(c) of the 1940 Act

exempting them from Sections

26(a)(2)(C) and 27(c)(2) thereof to the

extent necessary to permit the

deduction of the mortality and expense

risk and optional benefit rider charges

from the assets of the Account and any

Future Accounts in connection with the

Contracts, for which JHFI or certain

other broker-dealer may act as

distributor and principal underwriter.

4. The Companies represent that the

0.90 percent mortality and expense

charge assessed under the Contracts is/

will be within the range of industry

practice of comparable annuity

products. This representation is/will be

based upon their analysis of publicly

available information about similar

industry products, taking into

consideration such factors as current

charge levels, existence of charge level

guarantees, guaranteed death benefits

and guaranteed annuity rates. The

Companies will maintain at their home

office and make available to the

Commission memoranda setting forth in

detail the products analyzed in the

course of, and the methology and result

of, their comparative surveys.

5. Applicants submit that the charges

equal to an annual rate of 0.15 percent,

0.10 percent, and 0.05 percent of the

Accumulated Value, taken at the

beginning of the Contract month, for

Contracts issued with the Enhanced

Death Benefit rider, the ADB rider, and/

or the Nursing Home rider, respectively,

are reasonable in relation to the risks

assumed by the Companies under each

of the optional benefit riders. In arriving

at this determination, the Companies

projected their expected costs in

providing these benefits at different

issue ages to determine the expected

cost of the optional benefit riders.

6. For the Enhanced Death Benefit

rider, the Companies conducted a large

number of trials, and hypothetical asset

returns were projected using generallyaccepted actuarial simulation methods.

For each asset return pattern generated,

hypothetical accumulated values were

calculated by applying the projected

asset returns to the initial value in a

hypothetical account. Each accumulated

value so calculated was compared to the

amount of the Enhanced Death Benefit

payable in the event of the hypothetical

annuitant’s death during the year in

question. By analyzing the results of a

statistically valid number of such

simulations, the Companies were able,

actuarially, to reasonably estimate the

level costs of providing the benefits.

7. For the ADB rider, a set of mortality

rates was developed for accidental death

at each attained age, based on the 1994

Statistical Abstract of the United States

and using accepted actuarial techniques.

A single weighted average mortality rate

was then developed by applying the

expected sales distribution by age and

premium amount to the accidental

death benefit rates derived above. This

single rate was then converted into a

reasonable charge, again using accepted

actuarial techniques.

8. For the Nursing Home rider, a set

of probabilities of entering a nursing

home based on the 1985 National

Nursing Home Survey was developed

for quinquenal issue ages. These

probabilities were then applied to the

amounts of insurance expected to be in

force during the CDSL period to

calculate the expected loss of CDSL for

those issue ages. An appropriate

weighted average charge for all issue

ages was derived by applying an

expected sales distribution percentage

varying by age to the present value of

the lost CDSLs using accepted actuarial

techniques. The weighted average

charge was divided by the average

premium and the result amortized to

derive a Nursing Home rider charge.

9. Applicants note that the .30 percent

aggregate amount of charges for the

optional benefits, when added to the

0.90 percent mortality and expense risk

charge, results in a total charge of 1.20

percent, which Applicants represent is

within the industry range for mortality

and expense risk charges. Applicants

also state that the unbundling of these

optional benefits provide the Owner

with greater flexibility. The Companies

will maintain at their home office and

make available to the Commission

memoranda setting forth in detail the

methodology used in determining that

each of the three above-described

optional benefit riders is reasonable in

relation to risks assumed by the

Companies under the Contracts.

10. Applicants acknowledge that, to

the extent the mortality experience and

unreimbursed expenses of the

Companies are less than anticipated, the

charge for mortality and expense risks

may be a source of profit, which would

increase the respective general assets of

the Companies available to pay the

distribution expenses that the

Companies must bear. Under such

circumstances, the charge for mortality

and expense risks might be viewed as

being used to pay cost related to

distribution of the Contracts. The

Companies have concluded that there is

a reasonable likelihood that the

proposed distribution financing

arrangements will benefit the Accounts,

the Future Accounts, and Owners of the

Contracts. The basis for this conclusion

will be set forth in memoranda

maintained by the Companies at their

home office and made available to the

Commission.

11. The Companies represent that the

Account and Future Accounts will

invest only in management investment

companies which undertake, in the

event any such company adopts a plan

under Rule 12b–1 of the Act to finance

distribution expenses, to have a board of

directors, a majority of whom are not

‘‘interested persons’’ of the investment

company (as defined under Section

2(a)(19) of the Act), formulate and

approve any such plan.

12. Applicants submit that their

request for exemptive relief would

promote competitiveness in the variable

annuity contract market by eliminating

the need for redundant exemptive
24974 Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices

1Principal Marketing obtained a letter from the

SEC’s Division of Market Regulation agreeing not to

seek enforcement action if Principal Marketing did

not register as a broker-dealer based on certain

representations including, e.g., that all such sales

will be made by insurance agents and brokers of

Principal Mutual who are also registered

representatives of Princor and that Princor will be

responsible for monitoring and controlling the

activities of those registered representatives with

respect to their sales of variable annuity and

variable life insurance contracts. Principal

Marketing Services, Inc. (pub. avail. June 2, 1988).

applications, thereby reducing the

administrative expenses of Applicants

and maximizing the efficient use of their

resources. Applicants further submit

that the delay and expense involved in

having repeatedly to seek exemptive

relief would impair their ability

effectively to take advantage of business

opportunities as they arise. Further, if

Applicants were required repeatedly to

seek exemptive relief with respect to the

same issues addressed in this

application, investors would not receive

any benefit or additional protection.

Conclusion

For the reasons summarized above,

Applicants represent that the

exemptions requested are necessary and

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, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12387 Filed 5–16–96; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–21953; File No. 812–9796]

SAFECO Life Insurance Company, et

al.

May 13, 1996.

AGENCY: U.S. Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for

approval under the Investment

Company Act of 1940 (‘‘1940 Act’’).

APPLICANTS: SAFECO Life Insurance

Company (‘‘SAFECO’’), SAFECO

Separate Account C (‘‘Account C’’),

SAFECO Securities, Inc. (‘‘SSI’’),

Princor Financial Services Corporation

(‘‘Princor’’), and Principal Marketing

Services, Inc. (‘‘Principal Marketing’’).

RELEVANT 1940 ACT SECTION: Section

11(a) of the 1940 Act.

SUMMARY OF APPLICATION: Applicants

seek an order pursuant to Section 11(a)

of the 1940 Act approving the terms of

an offer to exchange interests in certain

variable annuity contracts issued by

Principal Mutual Life Insurance

Company (‘‘Principal Mutual

Contracts’’) for variable annuity

contracts issued by SAFECO (‘‘SAFECO

Contracts’’).

FILING DATE: The application was filed

on October 3, 1995 and amended and

restated on May 6, 1996.

HEARING OR NOTIFICATION OF HEARING: An

order will be issued unless the SEC

orders a hearing. Interested persons may

request a hearing by writing to the

Secretary of the SEC 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 June 7, 1996, 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 SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, N.W., Washington, D.C. 20549;

Applicants: SAFECO, Account C and

SSI, 15411 N.E. 51st Street, Redmond,

Washington 98052; Princor and

Principal Marketing, The Principal

Financial Group, Des Moines, Iowa

50392–0200.

FOR FURTHER INFORMATION CONTACT:

Edward P. Macdonald, Staff Attorney, or

Wendy Friedlander, Deputy Chief

(Office of Insurance Products), Division

of Investment Management at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application. The

complete application is available for a

fee from the Public Reference Branch of

the SEC.

Applicants’ Representations

1. SAFECO is a stock life insurance

company organized under the laws of

the state of Washington. SAFECO is

licensed to sell individual and group

life, accident and health insurance and

annuities in the District of Columbia

and all states except New York.

SAFECO is a wholly-owned subsidiary

of SAFECO Corporation, a holding

company whose subsidiaries are

engaged primarily in insurance and

financial service businesses.

2. Account C is a separate account of

SAFECO established pursuant to

Washington State insurance law and

registered with the SEC as a unit

investment trust. Account C is divided

into sub-accounts, each of which invests

exclusively in one of the available

portfolios of SAFECO Resource Series

Trust or Scudder variable Life

Investment Fund.

3. SSI is a wholly-owned subsidiary of

SAFECO that is registered with the SEC

as a broker-dealer and is a member of

the National Association of Securities

Dealers, Inc. (‘‘NASD’’). SSI is the

principal underwriter for the SAFECO

Contracts.

4. Princor, an indirect wholly-owned

subsidiary of Principal Mutual Life

Insurance Company, is registered with

the SEC as a broker-dealer. Princor is a

member of the NASD and is the

principal underwriter of the Principal

Mutual Contracts. In connection with

the proposed exchange offer and

pursuant to a selling agreement with

SSI, Princor will act as a selling broker

in the sale of the SAFECO Contracts.

5. Principal Marketing, a whollyowned subsidiary of Principal Mutual,

is a licensed general insurance agent in

approximately 34 states. Principal

Marketing is unaffiliated with SAFECO.

Principal Marketing sells variable

annuity and variable life insurance

contracts of insurance companies

unaffiliated with Principal Mutual, but

is not registered as a broker-dealer with

the SEC.1

The SAFECO Contracts

6. The SAFECO Contracts are

individual, flexible purchase payment,

deferred variable annuity contracts that

provide for accumulation of contract

values and payment of monthly annuity

amounts on a fixed and variable basis.

They are designed to be used in

retirement plans qualifying under

Section 403(b) of the Internal Revenue

Code of 1986, as amended, (‘‘Code’’) and

individual retirement programs, such as

individual retirement accounts pursuant

to Section 408 of the code.

7. Under the SAFECO Contracts a

contract holder may withdraw up to

10% of contract value per year without

penalty. The SAFECO Contracts have a

contingent deferred sales load (‘‘CDSL’’)

that declines over an eight year period

from 8% to 0% of the amount

withdrawn, in excess of the 10% free

withdrawal amount. The CDSL

deducted will never exceed 8.5% of the

purchase payments made under that

particular SAFECO Contract. A

withdrawal charge of the lesser of $25

or 2% of the amount withdrawn will

apply to each partial withdrawal after

the first in any contract year.

8. The SAFECO Contracts have a

mortality and expense risk charge of

1.25% of the average daily net asset

value of Account C, an asset-based

administration charge of 0.15% of the

average daily net asset value of Account