[Federal Register Volume 59, Number 48 (Friday, March 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5676]
[[Page Unknown]]
[Federal Register: March 11, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20115; No. 812-8718]
Northwestern National Life Insurance Company, et al.
March 7, 1994.
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: Nothwestern National Life Insurance Company
(``Northwestern''), Northstar/NWNL Variable Account (``Variable
Account''), and NWNL Northstar Distributors, Inc. (``Northstar
Distributors'') (collectively, ``Applicants'').
RELEVANT 1940 ACT SECTIONS: Order requested under section 6(c) of the
Investment Company Act of 1940 (``1940 Act'') granting exemptions from
the provisions of sections 26(a)(2) and 27(c)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order permitting the
deduction from the assets of the Variable Account of mortality and
expense risk charges in connection with the offer and sale of certain
flexible premium individual deferred variable annuity contracts.
FILING DATES: The application was filed on December 13, 1993.
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 April 1, 1994, 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, Northwestern National Life Insurance Company, 20 Washington
Avenue South, Minneapolis, Minnesota 55401.
FOR FURTHER INFORMATION CONTACT: Yvonne Hunold, Senior Counsel (202)
272-2676, or Wendell M. Faria, Deputy Chief, (202) 272-2060, 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. Northwestern, a wholly-owned subsidiary of The NWNL Companies,
Inc., a holding company, sells life insurance and annuities, employee
benefits, and retirement contracts in the District of Columbia and all
states except New York. As of December 31, 1992, on a consolidated
basis, Northwestern had $108 billion of life insurance in force and its
assets exceeded $9 billion.
2. The Variable Account is a separate account established by
Northwestern to fund variable annuity contracts, including the
Northstar/NWNL Annuity (``Northstar Annuity''). A notification of
registration on Form N-8A to register the Variable Account as a unit
investment trust under the 1940 Act, and a registration statement on
Form N-4 under the Securities Act of 1933 to register the Variable
Account and the flexible premium individual deferred retirement annuity
contracts (``Northstar/NWNL Annuity''), have been filed with the
Commission. The Variable Account has a subaccount (``Subaccount'') for
each investment option offered under the Contracts. Each Subaccount
will invest solely in a corresponding investment portfolio
(``Portfolio'') of the Northstar/NWNL Trust (``Northstar Fund''). Other
funds and portfolios may be made available in the future.
Variable Account assets are owned by Northwestern but are held
separately from its other assets. The portion of Variable Account
assets equal to the reserves and other contract liabilities of the
Variable Account are not chargeable with liabilities incurred in any
other business Northwestern may conduct. Income, if any, and gains and
losses, realized or unrealized, on the Variable Account are credited to
or charged against the amount allocated to the Variable Account,
without regard to other income, gains or losses of Northwestern.
3. Northstar/NWNL Trust has filed with the Commission a
registration statement on Form N-1A. The Northstar Fund will be a
diversified, open-end, management investment company with a series of
Portfolios, as defined in Rule 18f-2 under the 1940 Act. The assets of
each Portfolio are separate from the assets of other Portfolios. Each
Portfolio has separate investment objectives and policies and, thus,
operates as a separate investment fund. Consequently, the investment
performance of one Portfolio has no effect on the investment
performance of any other Portfolio. Shares of the various Portfolios of
the Northstar Fund will be sold to the Variable Account at net asset
value.
4. Northstar Distributors will serve as the distributor and
principal underwriter of the Contracts. Northstar Distributors is
registered under the Securities Exchange Act of 1934 as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc.
5. The Northstar Annuity will be offered in connection with non-tax
qualified plans (``Nonqualified Contracts'') or retirement plans that
qualify for favorable federal income tax treatment (``Qualified
Contracts''). The Northstar Annunity requires certain minimum initial
payments. Contractowners may allocate premium payments, and later
transfer accumulated Contract Value, among and between the different
Subaccounts or to the Fixed Account prior to the Annunity Commencement
Date. A Guaranteed Death Benefit will be payable.
6. Various fees and expenses are deducted from each Contract. An
annual contract charge of $35 per Contract Year will be deducted pro
rata from the Fixed Account and each Subaccount in which a Contract is
invested prior to the Annuity Commencement Date, after which it will be
deducted in equal installments from each annuity payment. This charge
is guaranteed not to increase and will compensate Northwestern for
administrative services provided under the Contracts. A daily
administration charge, equal to an annual rate of .15%, is deducted
from the assets of the Variable Account to reimburse Northwestern for
administrative services it provides with respect to the Variable
Account. Currently, there are no transfer charges or processing fees
for partial surrenders. Northwestern, however, reserves the right to
impose a charge of up to $25 per transfer, and a charge not to exceed
the lesser of 1% of the partial surrender amount or $25. These
administrative charges will be deducted in reliance on Rule 26a-1 under
the 1940 Act. Each charge represents reimbursement only for
administrative costs expected to be incurred over the life of the
Contract. Northwestern does not anticipate any profit from any of these
charges.
7. A contingent deferred sales charge (``CDSC'') may be assessed
for partial withdrawals, surrenders, or if the Annuity Commencement
Date is less than two years from the date a Contract is issued. The
CDSC applies to each purchase payment for a period of up to six years
after receipt of that payment, after which the payment may be withdrawn
without a CDSC. Contract Value in excess of accululated purchase
payments also may be withdrawn without a CDSC. The CDSC schedule is as
follows:
------------------------------------------------------------------------
CDSC as
percentage
Years since payment received of each
purchase
payment
------------------------------------------------------------------------
0.......................................................... 7
1.......................................................... 7
2.......................................................... 5
3.......................................................... 5
4.......................................................... 4
5.......................................................... 3
6.......................................................... 2
7.......................................................... 0
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After the first Contract Year, up to 10 of total purchase payments
to which the CDSC would otherwise apply may be withdrawn once each year
without incurring the CDSC. The CDSC will apply to subsequent
withdrawals. After the annual free surrender each year, purchase
payments are considered to be withdrawn on a first-in first-out basis,
and before earnings thereon. A CDSC is not imposed in event of
annuitization after the first two Contract years or upon payment of the
Death Benefit.
Northwestern does not currently anticipate that the CDSC will
generate sufficient funds to pay the cost of distributing the
Contracts. If the CDSC is insufficient to pay the cost of distributing
the Contracts, the deficiency will be met from Fixed Account assets,
which may include amounts derived from the mortality and expense risks
charge discussed below.
8. An annual charge of 1.25% of the Variable Account's assets will
be deducted for mortality and expense risks assumed by Northwestern, of
which approximately .85% is for mortality risks and .40% for expense
risks. The 1.25% rate is guaranteed not to increase. If the charge is
insufficient to cover the assumed risks, the loss will be assumed by
Northwestern. Conversely, the charge may be a source of profit for
Northwestern which will be added to its surplus. Northwestern currently
anticipates a profit from this charge. Any profits which may result
from this charge may be used by Northwestern for, among other things,
the payment of distribution, sales and other expenses.
The mortality risk assumed by Northwestern under the Contracts
arises from its contractual obligation to make periodic annuity
payments in accordance with annuity tables and other contract
provisions regardless of how long all Annuitants or any one Annuitant
may live. Thus, it is assured that neither an Annuitant's longevity nor
an improvement in life expectancy, generally, will adversely affect
monthly annuity payments.
Northwestern also incurs a mortality risk in connection with the
Guaranteed Death Benefit. Prior to age 85, and during the first seven
Contract Years, the Death Benefit is the greatest of (a) all purchase
payments less any withdrawals, or (b) the Contract Value. Prior to age
85 and after the seventh Contract Year, the Guaranteed Death Benefit is
the greatest of (a) all purchase payments less any withdrawals, (b) the
Contract Value, or (c) the Contract Value on the most recent Contract
Anniversary, plus any purchase payments since that anniversary and
minus any withdrawals since that anniversary. There is no extra charge
for this guarantee.
The expense risk assumed by Northwestern is that its actual
administrative expenses will exceed the amounts recovered through the
administration charges.
9. Northwestern will pay premium taxes, if any, when due and
reserves the right to deduct the amount of the tax either from purchase
payments or at a later date. No other charges currently are made
against the Variable Account for federal, state or local taxes, but
these charges for taxes, or the economic burden resulting from such
taxes, may be imposed in the future.
10. The Fund will pay its investment adviser a fee for managing its
investments and business affairs. Each portfolio of the Fund is
responsible for all its operating expenses.
Applicants' Legal Analysis
1. 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.''
2. 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 performing
bookkeeping and other administrative duties is normally performed by
the bank itself.
3. Applicants request exemptions from sections 26(a)(2) and
27(c)(2) of the 1940 Act to the extent necessary to permit the
deduction from the assets of the Variable Account of the 1.25% charge
for the assumption of mortality and expense risks. Applicants represent
that the charge is consistent with the protection of investors because
it is a reasonable and proper insurance charge to compensate
Northwestern for assuming the mortality and expense risks. Northwestern
represents that the 1.25% per annum mortality and expense risks charge
is within the range of industry practice for comparable annuity
products. This representation is based upon an analysis of publicly
available information about similar industry products, taking into
consideration such factors as the current charge levels, existence of
charge level guarantees, and guaranteed annuity rates. Northwestern
will maintain at its administrative offices, available to the
Commission, a memorandum setting forth in detail the products analyzed
in the course of, and the methodology and results of, its comparative
survey.
4. The charge for mortality and expense risks may be a source of
profit which would increase Northwestern's general assets available to
pay distribution expenses not reimbursed by a sales charge. There is a
reasonable likelihood that the proposed distribution financing
arrangements will benefit the Variable Account and the Contractowners.
The basis for that conclusion will be set forth in a memorandum which
will be maintained by Northwestern at its administrative offices and
made available to the Commission upon request.
5. The Variable Account will only invest in management investment
companies which undertake, in the event any such company adopts 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,
formulate and approve any such plan.
Conclusion
For the reasons set forth above, Applicants represent that the
exceptions 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. 94-5676 Filed 3-10-94; 8:45 am]
BILLING CODE 8010-01-M
