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
Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices 24975

2 In connection with other sales of SAFECO

Contracts not included in the proposed exchange

offer, Applicants state that SSI may pay its

registered representatives or other distributors up to

5.8% of purchase payments, excluding bonuses and

overrides, in commissions.

3 ‘‘Switching’’ is the practice of inducing security

holders of one investment company to exchange

their securities for those of a different investment

company ‘‘solely for the purpose of exacting

additional selling charges.’’ H. Rep. 2639, 76th

Cong., 3d Sess., 8 (1940).

C, and an annual administration fee,

currently $30, which is deducted only if

contract value is less than $50,000. The

SAFECO Contracts reserve the right to

increase the $30 administration fee to

$35.

9. A transfer charge of the lesser of

$10 or 2% of the amount transferred

applies to each transfer exceeding 12 in

any contract year (not counting

automatic transfers that take place over

a period of six months or more).

10. Portfolio expenses for the

portfolios available under the SAFECO

Contracts range from approximately

0.65% to approximately 1.08% on an

annual basis. State premium taxes are

deducted at annuitization of from

purchase payments, as required by state

law.

The Principal Mutual Contract

11. The Principal Mutual Contracts

are group variable annuity contracts

issued by Separate Account B of

Principal Mutual, a mutual life

insurance company unaffiliated with

SAFECO. Although the Principal

Mutual Contracts have no fixed account

investment option, they permit a

participant to exchange the

participation certificate for an

associated fixed-dollar annuity contract

issued by Principal Mutual

12. The Principal Mutual Contracts

have a CDSL that declines over a ten

year period from 7% to 0% of the

amount withdrawn. The CDSL will

never exceed 9% of purchase payments

relating to the amounts withdrawn.

13. The Principal Mutual contracts

have an administration charge of $25

per year for each participant plus an

asset-based administrative charge which

is 0.50% of the first $50,000 of contract

value of any participant, divided by the

total contract value of the participant. If

purchase payments for a participant

under a Principal Mutual Contract are

made as part of a retirement plan

sponsored by, or program of, a

participant’s employer and Principal

Mutual receives all of that portion of the

purchase payments under such a plan or

program directed to annuity contracts

for all employees participating in the

plan or program, then the percentage of

the asset-based administration charge

will be computed by dividing 0.50% of

the first $50,000 of contract value of a

participant by the total contract value of

all that employer’s participants. In some

cases, employers pay all or a portion of

the administration charges for their

participants.

14. A mortality and expense risk

charge of up to 2% of the assets of

Account B may be deducted under the

Principal Mutual Contracts. Currently

the charge is 1.4965% (1.0001% for

rollover individual retirement

annuities).

15. Although there is no transfer

charge under the Principal Mutual

Contracts, transfers are limited to two

per twelve-month period, absent

Principal Mutual’s consent. State

premium taxes are deducted at

annuitization or from purchase

payments, in accordance with

applicable state law. The respective

total expenses of the three investment

companies in which Separate Account B

assets are invested are .51%, .55%, and

.60% on an annual basis.

The Proposed Exchange Offer

16. Applicants state that Principal

Mutual supports this application

because it no longer intends to offer the

Principal Mutual contracts. SAFECO

Contracts will be offered to holders of

participation certificates issued under

Principal Mutual Contracts in

connection with a 403(b) Plan. Any

exchange pursuant to the offer will be

at relative net asset values, i.e.,

immediately after the exchange, the

cash value of a SAFECO Contract

acquired will be identical to the

participant’s cash value under the

Principal Mutual Contract immediately

prior to the exchange. No administrative

fee, sales charge or any other charge will

be imposed at the time of the exchange.

17. Surrenders of, or partial

withdrawals from, a SAFECO Contract

acquired in exchange for a Principal

Mutual Contract will be subject to the

SAFECO Contract’s CDSL. In calculating

the amount of the CDSL actually

imposed in such a situation, each

purchase payment made under the

Principal Mutual Contract exchanged

will be treated as if it had been made

under the SAFECO Contract at the same

time and in the same amount as actually

made under the Principal Mutual

Contract. Aggregate CDSL deductions

upon surrender of or partial

withdrawals from a SAFECO Contract

acquired by exchange will not exceed

8.5% of the sum of the purchase

payments made for the Principal Mutual

Contract exchanged and the SAFECO

Contract acquired.

18. The proposed exchange offer will

be conveyed to offerees by written

materials and by telephone contact by

registered representatives of Princor.

Each offeree who expresses interest in

the exchange offer will be mailed a

prospectus for the SAFECO Contracts.

Accompanying that prospectus will be a

cover letter and sales literature that has

been filed with the NASD. The sales

literature and cover letter will highlight

the differences between the Principal

Mutual Contracts and the SAFECO

Contracts and the terms of the exchange

offer. Interested offerees will then be

contacted again by telephone by

registered representatives of Princor.

Administrative details of effecting

exchanges will be handled by Princor.

19. Pursuant to the terms of a selling

agreement authorizing Principal

Marketing to solicit sales of SAFECO

Contracts in connection with the

proposed exchanges, SSI will pay

Principal Marketing 3% of amounts

exchanged (the SSI Commissions).

Principal Marketing will then pay 1% of

the amounts exchanged to the registered

representatives of Princor responsible

for the exchanges.2

20. Applicants represent that the

exchanges will not have adverse tax

consequences for offerees who accept

the exchange offer.

Applicants’ Legal Analysis

1. Section 11(a) of the 1940 Act makes

it unlawful for any registered open-end

company, or principal underwriter for

such a company, to make or cause to be

made an offer to the holder of a security

of such company, to exchange his

security for a security in the same or

another such company on any basis

other than the relative net asset values

of the respective securities, unless the

terms of the offer have first been

submitted to and approved by the SEC

or are in accordance with SEC rules

adopted under Section 11 of the 1940

Act.

2. Section 11(c) of the 1940 Act

requires that any offer of exchange of

the securities of a registered unit

investment trust for the securities of any

other investment company must be

approved by the Commission or satisfy

applicable rules adopted under Section

11 of the 1940 Act, regardless of the

basis of the exchange.

3. Applicants state that because the

legislative history of Section 11

indicates a concern with ‘‘switching,’’ 3

applications for orders under Section

11(a) have focused on sales loads or

sales load differentials and

administrative fees to be imposed as a

result of a proposed exchange.

4. Rule 11a–2 permits certain types of

exchange offers of one variable annuity
24976 Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices

1 15 U.S.C. 78s(b)(1) (1988).

2 17 CFR 240.19b–4.

3The Amex has clarified that the name of the

index will be the Select Technology Stock Index.

Telephone Conversation between Michael T.

Bickford, Vice President, Capital Markets Group,

Amex, and Matthew S. Morris, Attorney,

Derivatives Regulation, Office of Self-Regulatory

Oversight, Division of Market Regulation

(‘‘Division’’), Commission, on May 3, 1996.

4See Securities Exchange Act Release No. 37122

(April 17, 1996), 61 FR 17931 (April 23, 1996).

5 In Amendment No. 1, the Amex amended its

rule filing to clarify that the Commission will be

notified if: (1) the number of components in the

Index decreases to less than nine; (2) the three

highest weighted components represent more than

60 percent of the weight of the Index; or (3) the

trading volume of any of the components falls

below 500,000 shares for each of the last six

months. In Amendment No. 1, the Amex also

changed the manner in which the value of the Index

will be calculated from a price-weighted to an

equal-dollar weighted methodology. In addition, the

Amex replaced component securities C-Cube

Microsystems, Inc., Computer Sciences

Corporation, and General Motors Corporation (Class

E) with Adaptec Inc., Hewlett Packard Co., and Sun

Microsystems. See letter from Michael T. Bickford,

Vice President, Capital Markets Group, Amex, to

Michael Walinskas, Branch Chief, Derivatives

Regulation, Office of Self-Regulatory Oversight,

Division, Commission, dated May 2, 1996

(‘‘Amendment No. 1’’).

6 In Amendment No. 2, the Amex removed

Applied Materials, Inc. as a component security of

the Index. See letter from Michael T. Bickford, Vice

President, Capital Markets Group, Amex, to Michael

Walinskas, Branch Chief, Derivatives Regulation,

Office of Self-Regulatory Oversight, Division,

Commission, dated May 8, 1996 (‘‘Amendment No.

2’’).

contract for another. Exchanges are

permitted by Rule 11a–2 provided the

only variance from relative net asset

value is an administrative fee disclosed

in the offering account’s registration

statement, and a sales load or sales load

differential calculated according to

methods prescribed in the rule.

5. Applicants assert that the terms of

the proposed exchange offer would

satisfy all of the requirements of Rule

11a–2, except that SAFECO and

Principal Mutual are not affiliated and

Rule 11a–2 is limited by paragraph (b)

to affiliated offerors. The proposed

exchange would be made on the basis of

relative net asset values, i.e.,

immediately after the exchange the cash

value of a SAFECO Contract acquired

will be identical to the participant’s

cash value under the Principal Mutual

Contract immediately prior to the

exchange. No administrative fees or

sales load would be deducted at the

time of the exchange; and any CDSL

subsequently deducted upon surrender

of, or partial withdrawal from, a

SAFECO Contract acquired in an

exchange would be calculated as if: (i)

the contract holder of that SAFECO

Contract had been a contract holder

from the date on which he became a

participant under the Principal Mutual

Contract exchanged; and (ii) each

purchase payment for the Principal

Mutual Contract exchanged had been

made under the Principal Mutual

Contract. The total CDSL deducted

under a SAFECO Contract acquired by

exchange would not exceed 8.5% of the

sum of the purchase payments made for

the Principal Mutual Contract

exchanged and the SAFECO Contract

acquired.

6. Applicants assert that the proposed

exchange offer would be permitted

under Rule 11a–2 if SAFECO and

Principal Mutual were affiliated with

one another. Applicants also assert that

the staff of the SEC in a no-action letter

granted to Alexander Hamilton Funds

(pub. avail. July 20, 1994) has, in

interpreting Section 11(a), stated that

the lack of affiliation between two

investment companies and their

depositors creates fewer Section 11

concerns than the presence of affiliation

between two investment companies and

their depositors. Therefore, Applicants

argue that the lack of affiliation between

SAFECO and Principal Mutual does not

create any additional concerns under

Section 11 and the exchange offer

would be permitted under Rule 11a–2

were it not for their lack of affiliation.

7. Applicants argue that while the

CDSL for the SAFECO Contracts is

nominally higher than that of the

Principal Mutual Contracts for the first

four contract years, the SAFECO

Contracts permit up to 10% of contract

value to be withdrawn without the

imposition of a CDSL. Accordingly, the

CDSL actually imposed upon a full

surrender would be slightly greater for

the SAFECO Contracts only during the

first contract year, and even then it

might be less for the SAFECO Contracts

if investment performance were

sufficient to affect the guaranteed

maximum CDSLs of the two contracts.

Moreover, the CDSL for the SAFECO

Contracts endures for only eight years as

opposed to ten years for the CDSL of the

Principal Mutual Contracts.

8. Applicants also argue that the

expenses of the underlying investment

company portfolios to which Principal

Mutual Contract assets may be allocated

are somewhat lower than those to which

SAFECO Contracts assets may be

allocated, but the SAFECO Contracts

offer seven investment alternatives as

compared to only three for the Principal

Mutual Contracts. Accordingly,

individuals may differ in whether they

prefer the lower expenses of the funds

available under the Principal Mutual

Contracts or the broader range of

investment options of the funds

available under the SAFECO Contracts.

9. Applicants state that permitting

investors to evaluate the relative merits

of the two contracts and to select the

one that best suits their circumstances

and preferences is consistent with the

public interest and the protection of

investors. Therefore, Applicants assert

that the terms of the proposed offer of

exchange do not offer any of the

‘‘switching’’ abuses that led to the

adoption of Section 11 of the 1940 Act

and that approving the exchange offer

would be consistent with the precedent

established by the SEC’s adoption of

Rule 11a–2 thereunder.

Conclusion

For the reasons set forth above,

Applicants represent that approval of

the exchange offer 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.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12466 Filed 5–16–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37195; File No. SR–Amex–

96–12]

Self-Regulatory Organizations; Order

Granting Accelerated Approval To

Proposed Rule Change and Notice of

Filing and Order Granting Accelerated

Approval to Amendments Nos. 1 and 2

To Proposed Rule Change by the

American Stock Exchange, Inc.,

Relating to Listing and Trading of

Warrants Based on the Select

Technology Stock Index

May 10, 1996.

I. Introduction

On April 9, 1996, the American Stock

Exchange, Inc. (‘‘Amex’’ or ‘‘Exchange’’)

submitted to the Securities and

Exchange Commission (‘‘Commission’’),

pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a

proposed rule change to list and trade

warrants based on the Select

Technology Stock Index (‘‘Index’’).3

The proposed rule change appeared in

the Federal Register on April 23, 1996.4

No comments were received on the

proposed rule change. The Amex

subsequently filed Amendment No. 1 to

the proposed rule change on May 2,

1996 5 and Amendment No. 2 on May 8,

1996.6 The Amex has requested