[Federal Register Volume 60, Number 23 (Friday, February 3, 1995)]
[Notices]
[Pages 6749-6751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2655]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20866; No. 812-9336]
State Mutual Life Assurance Company of America, et al.
January 27, 1995.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``1940 Act'').
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APPLICANTS: State Mutual Life Assurance Company of America (``State
Mutual''), Separate Account VA-P of State Mutual Life Assurance Company
of America (``State Mutual Account''), SMA Life Assurance Company
(``SMA Life,'' together with State Mutual, the ``Insurance
Companies''), Separate Account VA-P of SMA Life Assurance Company
(``SMA Life Account'') and other separate accounts established by the
Insurance Companies in the future to support certain deferred variable
annuity contracts issued by the Insurance Companies (``Other
Accounts,'' together with the State Mutual Account and the SMA Life
Account, the ``Accounts'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) granting
exemptions from the provisions of Sections 26(a)(2)(C) and 27(c)(2).
SUMMARY OF APPLICATION: Applicants seek an order permitting the
deduction of a mortality and expense risk charge from the assets of:
(a) The Accounts in connection with the offer and sale of certain
variable annuity contracts (``Annuity Contracts''); (b) the Accounts in
connection with the issuance of variable annuity contracts that are
substantially similar in all material respects to the Contracts
(``Future Contracts,'' together with Annuity Contracts, the
``Contracts''); and (c) any other separate account established in the
future by the Insurance Companies in connection with the issuance of
Contracts.
FILING DATE: The application was filed on November 22, 1994.
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 Commission's Secretary
and serving the Applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on February 21, 1995, and should be accompanied by proof of
service on Applicants in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons may request notification of a hearing by writing to
the Commission's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants, c/o Joseph W. MacDougall, Jr., State Mutual Life Assurance
Company of America, 440 Lincoln Street, Worcester, Massachusetts,
01653.
FOR FURTHER INFORMATION CONTACT:
Kevin Kirchoff, Senior Attorney, or Wendy Friedlander, Deputy Chief, at
(202) 942-0670, Office of Insurance Products (Division of Investment
Management).
SUPPLEMENTARY INFORMATION: Following is a summary of the application;
the complete application is available for a fee from the Commission's
Public Reference Branch.
Applicants' Representations
1. State Mutual is a mutual life insurance company incorporated
under the laws of Massachusetts. SMA Life, a wholly-owned subsidiary of
State Mutual, is a stock life insurance company organized under the
provisions of the Delaware Insurance Code. SMA Life is 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
(``NASD''). State Mutual is authorized to conduct business as an
insurance company in all states and in the District of Columbia, Puerto
Rico, and the U.S. Virgin Islands.
2. The Accounts are separate investment accounts established by the
Insurance Companies for the purpose of investing purchase payments
received under the Contracts. Each of the Accounts is a unit investment
trust which has filed a registration statement on Form N-4 under the
Securities Act of 1933 to register the offering of the Contracts, and
the Applicants incorporate such registration statements into the
application by reference.
Each Account presently consists of seven Subaccounts, each of which
will invest solely in the shares of one of the portfolios of the
Pioneer Variable Contracts Trust. Contract owners may invest in any one
or more of the Subaccounts, and may also invest in the fixed account,
part of the general account of the respective Insurance Companies. The
Insurance Companies may, in the future, issue through the Accounts, and
through other separate accounts that they may establish in the future,
other variable annuity contracts that are substantially similar in all
material respects to the Annuity Contracts. [[Page 6750]]
3. Pioneer Variable Contracts Trust is a diversified open-end
management investment company which consists of various investment
series or portfolios (collectively, ``Portfolios'') with different
investment objectives and policies. Shares of the Portfolios are
purchased by the Insurance Companies for the corresponding Subaccounts
at the net asset value. Shares of the Portfolios also are offered to
other affiliated or unaffiliated separate accounts of the Insurance
Companies or of other insurance companies offering variable annuity or
variable life insurance contracts.
4. Allmerica Investments, Inc., an indirect wholly-owned subsidiary
of State Mutual, is registered as a broker-dealer under the 1934 Act
and is a member of the NASD. Allmerica Investments, Inc. is the
principal underwriter for the Contracts.
5. The Contracts are group and individual combination fixed and
variable contracts designed for use in retirement plans which qualify
for special federal income tax treatment under sections 401, 403(b),
408 and 457 of the Internal Revenue Code and in retirement plans which
do not qualify for special tax treatment under those sections.
6. The Contracts provide for minimum initial purchase payments and
permit additional minimum purchase payments and periodic payments,
subject to certain limitations. The Contracts provide for the
accumulation of values on a variable basis determined by the investment
experience of the Portfolios to which the Contract owner allocates
payments.
7. The Contracts also provide for the payment of a death benefit.
The death benefit, payable in a single sum or under an optional method
of settlement, is provided if the annuitant dies before the maturity,
surrender, or termination of a Contract. Upon the death of the
annuitant, the death benefit is equal to the greatest of (a) the
accumulated value under the Contract next determined following receipt
of due proof of death at the Insurance Companies' principal office, or
(b) the total amount of gross payments made under the Contracts reduced
proportionally to reflect the amount of all prior partial withdrawals,
or (c) the death benefit that would have been payable on the most
recent fifth interval policy anniversary, increased for subsequent
purchase payments and reduced proportionally to reflect withdrawals
after that date.
8. Various fees and expenses are deducted under the Contracts.
Prior to a Contract's maturity, the Insurance Companies assess a
Contract Fee of $30, at each Contract anniversary and at full surrender
during a contract year for its costs in maintaining each Contract and
the Accounts. The Insurance Companies make a daily charge to the
Subaccounts of the Accounts equal on an annual basis to 0.15% of the
current value of the Subaccounts (``Administrative Service Charge'').
The Administrative Service Charge is designed to cover actual
administrative expenses which exceed the revenue for the Contract Fee.
Applicants represent that the Administrative Service Charge and the
Contract Fee have been set at a level that will recover no more that
the actual costs associated with administering the Contract and the
Accounts. The Insurance Companies do not expect to realize a profit
from these charges, and guarantee that the amount of the charges will
not increase over the life of the Contract.
9. The Insurance Companies will deduct any premium tax levied by
any governmental entity as a result of the Contracts or the Accounts.
Applicants state that, where permitted by state law, the premium taxes
will be deducted upon annuitization. In all other jurisdictions, the
taxes will be deducted upon the death of the annuitant, surrender, or
withdrawal, as may be required by the law of the Contract owner's state
of residence.
10. Prior to the Annuity Commencement date, amounts held under the
Contracts may be transferred among the Subaccounts and the respective
Insurance Company's general account. The Insurance Companies currently
make no charge for transfers among the accounts, but reserve the right
to assess a charge, guaranteed never to exceed $25.
11. Applicants represent that the Insurance Companies will deduct
the annual Contract Fee, the annual Administrative Service Charge, and
any Transfer Charge in reliance upon and in conformity with all of the
requirements of Rule 26a-I under the 1940 Act.
12. No sales charges are deducted from premium payments under the
Contracts. The Contracts assess a Contingent Deferred Sales Charge
(``CDSC'') which is applied in the case of contract surrender, partial
redemptions or annuitization under period certain options during the
seven year period from the date the Insurance Companies receive and
accept each purchase payment. The CDSC is determined by the number of
Contract anniversaries that have passed since the purchase payment that
is being withdrawn was made. The CDSC is computed as follows:
------------------------------------------------------------------------
Withdrawal
Years from date of payment to date of withdrawal charge
(percent)
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0-3........................................................ 7
4.......................................................... 6
5.......................................................... 5
6.......................................................... 4
7.......................................................... 3
More than 7................................................ None
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In no event will the Contingent Deferred Sales Charges assessed
against a Contract exceed 8% of the gross purchase payments.
The Insurance Companies do not anticipate that the CDSC will
generate sufficient revenues to pay the cost of distributing the
Contracts. If this charge is insufficient to cover the expenses, the
deficiency will be met from the Insurance Companies' general account
assets, which may include amounts derived from the charge for mortality
and expenses risks, discussed below.
13. A daily charge equal to an effective annual rate of 1.25% of
the net asset value of the Accounts will be imposed to compensate the
Insurance Companies for bearing certain mortality and expenses risks in
connection with the Contracts. Of this amount, approximately 0.80% is
allocable to mortality risks and approximately 0.45% is allocable to
expense risks. The mortality and expense risk charge is guaranteed
never to exceed 1.25%. This charge may be a source of profit for the
Insurance Companies which will be added to their surplus and may be
used for, among other things, the payment of distribution expenses.
14. The mortality risk arises from the Insurance Companies' (1)
Guarantee that they will make annuity payments, in accordance with
annuity rate provisions established at the time a Contract is issued
for the life of the annuitant or in accordance with the annuity option
selected, no matter how long the annuitant or other payee lives and no
matter how long all annuitants as a class live, and (2) death benefit
guarantees under the Contracts.
15. The expense risk borne by the Insurance Companies is the risk
that the charges for administrative expenses, which are guaranteed not
to increase for the life of the Contracts, may be insufficient to cover
the actual costs of issuing and administering the Contracts.
Applicants' Legal Analysis and Conditions
1. Applicants request an order of the Commission under Section 6(c)
for exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act
to the extent necessary to permit the deduction of a maximum charge of
[[Page 6751]] 1.25% for the assumption of mortality and expense risks
from the assets of: (a) The Accounts in connection with the issuance of
the Annuity Contracts; (b) the Accounts in connection with the issuance
of any Future Contracts; and (c) any other separate account established
in the future by the Insurance Companies in connection with the
issuance of Future Contracts. Applicants believe that the requested
exemptions 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 1940 Act.
2. Applicants submit that their request for exemptive relief for
deduction of the 1.25% mortality and expense risk charge from the
assets of the Accounts, or any other separate account established by
the Insurance Companies in the future, in connection with the issuance
of Future Contracts, would promote competitiveness in the variable
annuity contract market by eliminating the need for the Insurance
Companies to file redundant exemptive applications, thereby reducing
the Insurance Companies' administrative expenses 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 the Insurance Companies' ability effectively to
take advantage of business opportunities as they arise. Further, if the
Insurance Companies 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
thereby. Thus, Applicants believe that the requested exemptions are
appropriate in the public interest and consistent with the protection
of investors and purposes fairly intended by the policy and provisions
of the 1940 Act.
3. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally grant an
exemption from any provision, rule or regulation of the 1940 Act to the
extent that the 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.
4. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant
part, prohibit a registered unit investment trust, its depositor or
principal underwriter, from selling periodic payment plan certificates
unless the proceeds of all payments, other than sales loads, are
deposited with a qualified bank and held under arrangements which
prohibit any payment to the depositor or principal underwriter except a
reasonable fee, as the Commission may prescribe, for preforming
bookkeeping and other administrative duties normally performed by the
bank itself.
5. Applicants represent that the 1.25% mortality and expense risk
charge under the Contracts is within the range of industry practice for
comparable annuity contracts. This representation is based upon
Applicants' analysis of similar industry products, taking into account
such factors as current change levels, existence of charge level
guarantees, and guaranteed annuity rates. Applicants represent that the
Insurance Companies will maintain at their home offices, available to
the Commission, a memorandum setting forth in detail the products
analyzed in the course of, and the methodology and results of, their
comparative survey.
6. Applicants acknowledge that, if a profit is realized from the
mortality and expense risk charge under the Contracts, all or a portion
of such profit may be available to pay distribution expenses not
reimbursed by the CDSC. The Insurance Companies have concluded that
there is a reasonable likelihood that the proposed distribution
financing arrangements will benefit the Accounts and the Contract
owners. The basis for that conclusion is set forth in a memorandum
which will be maintained by the Insurance Companies at their
administrative offices and will be made available to the Commission.
7. Applicants also represent that the Accounts will invest only in
underlying open-end management investment companies which undertake, in
the event they should adopt a plan under Rule 12b-1 to finance
distribution expenses, to have a board of directors or trustees, a
majority of whom are not ``interested persons'' of such company within
the meaning of Section 2(a)(19) of the 1940 Act, formulate and approve
any such plan.
Conclusion
For the reasons set forth 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 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2655 Filed 2-2-95; 8:45 am]
BILLING CODE 8010-01-M