95-2655. State Mutual Life Assurance Company of America, et al.  

  • [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) 
    ------------------------------------------------------------------------
    0-3........................................................            7
    4..........................................................            6
    5..........................................................            5
    6..........................................................            4
    7..........................................................            3
    More than 7................................................         None
    ------------------------------------------------------------------------
    
        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
    
    

Document Information

Published:
02/03/1995
Department:
Securities and Exchange Commission
Entry Type:
Notice
Action:
Notice of Application for an Order under the Investment Company Act of 1940 (the ``1940 Act'').
Document Number:
95-2655
Dates:
The application was filed on November 22, 1994.
Pages:
6749-6751 (3 pages)
Docket Numbers:
Rel. No. IC-20866, No. 812-9336
PDF File:
95-2655.pdf