[Federal Register Volume 60, Number 54 (Tuesday, March 21, 1995)]
[Notices]
[Pages 14996-14997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6935]
[[Page 14996]]
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20958; File No. 812-9308]
The Paul Revere Variable Annuity Insurance Company, et al.
March 15, 1995.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: The Paul Revere Variable Annuity Insurance Company (``Paul
Revere''), Paul Revere Separate Account One (the ``Account''), certain
separate accounts that may be established by Paul Revere in the future
to support certain variable deferred annuity contracts issued by Paul
Revere (the ``Other Accounts'', collectively, with the Account, the
``Accounts'') and Marsh & McLennan Securities Corporation (``Marsh
McLennan'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act for exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the
1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order permitting Paul Revere
to deduct from the assets of the Accounts the mortality and expense
risk charge imposed under certain variable annuity contracts issued by
Paul Revere (the ``Existing Contracts'') and under any other variable
annuity contracts issued by Paul Revere which are materially similar to
the Existing Contracts (the ``Other Contracts'', together, with the
Existing Contracts, the ``Contracts''.
FILING DATE: The application was filed on October 26, 1994 and amended
and restated on January 23, 1995. Applicants represent that an
amendment to the application will be filed during the notice period.
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 on this application by writing to the
Secretary of the SEC 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 April 10, 1995 and should be accompanied by
proof of service on Applicants in the form of an affidavit or, for
lawyers, by certificate of service. Hearing requests should state the
nature of the interest, the reason for the request and the issues
contested. Persons may request notification of the date of a hearing by
writing to the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants: Judith A. Hasenauer, Blazzard, Grodd & Hasenauer, P.C., 943
Post Road East, P.O. Box 5108, Westport, Connecticut 06881.
FOR FURTHER INFORMATION CONTACT:Barbara J. Whisler, Senior Attorney, or
Wendy F. Friedlander, Deputy Chief, both 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 Public
Reference Branch of the SEC.
Applicants' Representations
1. Paul Revere, a stock life insurance company organized under
Massachusetts law, is a wholly owned subsidiary of The Paul Revere Life
Insurance Company, a Massachusetts corporation. The Paul Revere Life
Insurance Company is wholly owned by the Paul Revere Corporation (the
``Corporation''), also a Massachusetts corporation. The application
states that, prior to October 26, 1993, the Corporation was wholly
owned by Textron, Inc., a Delaware corporation. On that date, Textron,
Inc. sold 17% of the Corporation to the public and retained 83% of the
outstanding shares of the Corporation. The Account, established August
18, 1994 under Massachusetts law, is registered with the Commission as
a unit investment trust. The Account will fund the Existing Contracts
issued by Paul Revere. Applicants incorporate the registration
statement on Form N-4 for the Account and the Existing Contracts (File
No. 33-83320) into the application by reference. The Account is divided
into a number of subaccounts, each of which invests in an underlying
investment option. All of the investment options are registered with
the Commission under the 1940 Act as open end management investment
companies.
2. Marsh McLennan, a wholly owned subsidiary of Seabury & Smith,
Inc., which his, in turn, a wholly owned subsidiary of Marsh & McLennan
Companies, Inc., is a broker dealer registered under the Securities
Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. Marsh McLennan will serve as the distributor
of the Contracts.
3. The Existing Contracts are individual flexible premium variable
annuity deferred contracts which provide for a guaranteed death benefit
during the accumulation phase. Paul Revere proposes to market the
Existing Contracts to members of various associations that sponsors
benefit programs. The minimum initial premium is $2,500 and the minimum
for subsequent premiums is $500. If the owner of an Existing Contract
has elected the automatic premium option, a minimum payment of $200
will be accepted. The maximum total premium payments which Paul Revere
will accept is $1,000,000. The application states that there are no
charges for sales load. Therefore, neither premiums nor amounts
withdrawn are subject to a charge for sales load.\1\
\1\Applicants represent that an amendment to the application
will be filed during the notice period and that the amendment will
include the representation that the Contracts are not subject to a
charge for sales load.
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4. Applicants state that the current practice of Paul Revere is to
deduct for premium taxes when those taxes become due and payable to the
states. Thus, premium taxes relating to a Contract may be deducted from
either the premium payments made or the value of the Contract. The
application states that premium taxes generally range from 0% to 4%.
5. Paul Revere presently permits unlimited transfers. The owner of
an Existing Contract may transfer all or part of the interest in a
subaccount to another subaccount; or, during annuitization, from a
subaccount to the general account of Paul Revere. These transfers are
permitted without charge so long as the designated number of transfers
has not been exceeded. If transfers are made in excess of the free
number of transfers, presently unlimited, Paul Revere will deduct a
transfer fee from the amount transferred equal to the lesser of $25 or
2% of the amount transferred. The minimum amount which may be
transferred is $500 (from one or multiple subaccounts); however, the
entire interest in the subaccount must be transferred, if, prior to or
as a result of the transfer, the interest in the subaccount is less
than $500.\2\
\2\Applicants represent that an amendment to the application
will be filed during the notice period and that the amendment will
indicate the requirements for transfers from one or more
subaccounts.
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6. On each Contract anniversary, Paul Revere deducts a Contract
maintenance charge of $25 from Contracts with a Contract value of less
than $25,000. During annuitization, the Contract maintenance charge is
$2.00 per month for all Contracts and is deducted from annuity
payments. The application states that the fee is to reimburse Paul
Revere for its administrative expenses. Applicants further state that
the charge has been set at a level so that, when [[Page 14997]] taken
together with the annual administrative charge, Paul Revere will not
make a profit from the two charges assessed for administration.
7. Paul Revere deducts an annual administrative charge equal to
.15% of the average daily net asset value of the Account. Applicants
represent that this charge, together with the Contract maintenance
charge, is to reimburse Paul Revere for expenses incurred in
establishing and maintaining both the Account and the Contracts.
Applicants also state that Paul Revere does not intend to profit from
this charge and that Paul Revere will monitor the charge to ensure that
it does not exceed expenses. Applicants state that they will rely upon
Rule 265a-1 under the 1940 Act in deducting both the Contract
maintenance charge and the annual administrative charge.
Paul Revere will impose a daily charge equal to an annual effective
rate of .80% of the value of the net assets of the Account to
compensate Paul Revere for assuming certain mortality and expense risks
in connection with the Contracts. Applicants state that approximately
.50% of the .80% charge is attributable to mortality risk while
approximately .30% is attributable to expense risk. The application
states that Paul Revere reserves the right to increase the charge to a
maximum of 1.25%. If the mortality and expense risk charge is
insufficient to cover actual costs of the risks undertaken, Paul Revere
will bear the loss. Conversely, if the charge exceeds costs, this
excess will be profit to Paul Revere and will be available for any
corporate purpose, including payment of expenses relating to the
distribution of the Contracts. The application states that Paul Revere
expects a profit from the mortality and expense risk charge.
9. Applicants state that the mortality risk borne by Paul Revere
consists of: (a) The risk of guaranteeing to make monthly annuity
payments in accordance with the annuity option selected by the Contract
owner regardless of how long the annuitant may live; (b) the risk of
guaranteeing the annuity purchase rates, for either a fixed or a
variable annuity, for the annuity options under the Contracts; and (c)
the risk of guaranteeing a death benefit.
10. Applicants state that Paul Revere assumes an expense risk under
the Contracts. According to Applicants, this is the risk that the
charges for administrative services under the Contracts will be
insufficient to cover actual administrative expenses.
Applicants' Legal Analysis and Conditions
1. Applicants request that the Commission, pursuant to Section 6(c)
of the 1940 Act, grant the exemptions from Sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act in connection with Applicants' assessment of
the daily charge for the mortality and expense risks under the
Contracts. Applicants state that the requested extension of relief to
the Other Accounts and the Other Contracts is appropriate in the public
interest. Applicants opine that the relief will promote competitiveness
in the variable annuity market by eliminating the need to file
redundant exemptive applications and will, therefore, reduce
administrative expenses and maximize efficient use of resources.
Applicants assert that the delay and expense involved in having to
repeatedly seek exemptive relief would impair the ability of Paul
Revere to take advantage effectively of business opportunities as those
opportunities arise. Applicants posit that the requested relief is
consistent with the purposes of the 1940 Act and the protection of
investors for the same reasons. Finally, Applicants state that were
Paul Revere required to seek repeated exemptive relief with respect to
the issues addressed in the application, no additional benefit or
protection would be provided to investors through the redundant
filings.
2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in pertinent
part, prohibit a registered unit investment trust and any depositor
thereof or underwriter therefor from selling periodic payment plan
certificates unless the proceeds of all payments (other than sales
load) are deposited with a qualified bank as trustee or custodian and
held under arrangements which prohibit any payment to the depositor or
principal underwriter except a fee, not exceeding such reasonable
amount as the Commission may prescribe, for performing bookkeeping and
other administrative services of a character normally performed by the
bank itself.
3. Applicants assert that the charge for morality and expense risks
is reasonable compensation for the risks assumed.
4. Applicants represent that the proposed charge of .80% and the
maximum charge of 1.25% for the mortality and expense risks assumed by
Paul Revere is within the range of industry practice with respect to
comparable annuity products. Applicants state that this representation
is based upon an analysis of publicly available information regarding
mortality risks, taking into consideration such factors as: the
guaranteed annuity purchase rates; the expense risks, the estimated
costs for product features; and the industry practice with respect to
comparable contracts. Applicants represent that Paul Revere will
maintain at its principal office, available to the Commission, a
memorandum setting forth in detail the products analyzed and the
methodology and results of the analysis by Paul Revere.
5. Applicants assess no charge for sales load. To the extent that
distribution costs are not covered, Paul Revere will recover its
distribution costs from the assets of the general account. These assets
may include that portion of the mortality and expense risk charge which
is profit to Paul Revere. Applicants represent that Paul Revere has
concluded that there is a reasonable likelihood that the proposed
distribution financing arrangement will benefit the Account and the
owners of the Contracts. The basis for this conclusion is set forth in
a memorandum which will be maintained by Paul Revere at its principal
office and will be made available to the Commission.\3\
\3\Applicants represent that an amendment to the application
will be filed during the notice period and that such amendment will
include the representations contained in paragraph 5 of this notice.
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6. Paul Revere also represents that the Accounts will invest only
in management investment companies which undertake, in the event such
company adopts a plan under Rule 12b-1 of the 1940 Act to finance
distribution expenses, to have such plan formulated and approved by
either the company's board of directors of the board of trustees, as
applicable, a majority of whom are not interested persons of such
company within the meaning of the 1940 Act.
Conclusion
Applicants assert that for the reasons and upon the facts set forth
above, the requested exemptions from Sections 26(a)(2)(C) and 27(c)(2)
of the 1940 Act 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. 95-6935 Filed 3-20-95; 8:45 am]
BILLING CODE 8010-01-M
