[Federal Register Volume 59, Number 140 (Friday, July 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17865]
[[Page Unknown]]
[Federal Register: July 22, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20408; File No. 812-9026]
Minnesota Mutual Life Insurance Company, et al.
July 18, 1994.
AGENCY: Securities and Exchange Commission (the ``Commission'' or the
``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Minnesota Mutual Life Insurance Company (the ``Company''),
Minnesota Mutual Group Variable Annuity Account (the ``Separate
Account''), and MIMLIC Sales Corporation.
RELEVANT 1940 ACT SECTIONS: Order requested under section 6(c) for
exemptions from sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order to permit the
deduction from the assets of the Separate Account of a mortality and
expense risk charge under certain variable annuity contracts
(``Contracts'').
FILING DATE: An application was filed on May 31, 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 SEC's Secretary 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 August
12, 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 SEC's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW., Washington, DC 20549. Applicants, 400 Robert Street North,
St. Paul, MN 55101-2098.
FOR FURTHER INFORMATION CONTACT:
Wendy Finck Friedlander, Senior Attorney, or Michael V. Wible, Special
Counsel 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.
Applicant's Representations
1. The Company is a mutual life insurance company organized under
the laws of Minnesota. It is licensed to do business in all States
except New York (where it is an authorized reinsurer), the District of
Columbia, Canada and Puerto Rico.
2. The Separate Account, registered as a unit investment trust
under the 1940 Act, is a segregated investment account of the Company
that funds the Contracts and other variable annuities contracts. The
Separate Account is divided into sub-accounts, each of which invests
solely in the shares of one of the following management investment
companies: The Index 500 and Money Market Portfolios of MIMLIC Series
Fund, Inc., Vanguard Wellington Fund, the Vanguard Long Term
Corporation Bond Portfolio of Vanguard Fixed Income Securities Fund,
Inc., Scudder International Fund, Inc., Fidelity Contrafund, Inc., and
Janus Twenty Fund.
3. The Contracts are group deferred variable annuity contracts
designed to provide benefits under deferred compensation plans of State
and local governments and other tax-exempt organizations as provided in
section 457 of the Internal Revenue Code of 1986, as amended. In a
typical plan, the sponsor or eligible governmental unit is the owner of
the Contract and will designate individuals eligible to become
participants in the Contracts. The Contracts and all interests under
them are subject to the general interests of creditors of the owners of
the Contracts.
4. MIMLIC Sales Corporation, registered as a broker-dealer under
the Securities Exchange Act of 1934 and as an investment adviser under
the Investment Advisers Act of 1940, is the principal underwriter of
the Contracts.
5. There is an annual Contract administration charge of 0.15 that
is deducted in reliance on Rule 26a-1. This charge may be increased to
0.40% provided the charge could continue to be deducted in reliance on
Rule 26a-1.
6. The Contracts do not provide for a front-end sales charge to be
deducted from purchase payments. Instead, a contingent deferred sales
charge (``CDSC'') of up to 6% of the amount withdrawn or surrendered is
charged. Applicants represent that the sum of the CDSC charges deducted
will not exceed 9% of purchase payments made by or on behalf of a
participant. The following table shows the applicable percentage for
withdrawals or surrenders in the first month of each of the first seven
participation years:
------------------------------------------------------------------------
Deferred
sales
During participation month charge
(percent)
------------------------------------------------------------------------
1............................................................ 6
13........................................................... 5
25........................................................... 4
37........................................................... 3
49........................................................... 2
61........................................................... 1
73 and thereafter............................................ 0
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7. The Company will deduct a mortality and expense risk charge that
is equal, on an annual basis, to 1.25% of the average daily net asset
value of the Separate Account: approximately .60% for mortality risks
and .85% for expense risks. The current level of the proposed charge is
0.85%, of which 0.40% is for mortality risks and 0.45% is for expense
risks.
The mortality risks assumed by the Company arise from its
guarantees to make annuity payments as provided in the Contracts
regardless of how long a participant lives and regardless of any
improvement in life expectancy of participants as a class. Also, the
Company bears mortality risks associated with the Contract's death
benefit provision. The expense risk assumed by the Company arise in
connection with the Company's guarantees to make annuity payments in
accordance with annuity tables provided in the Contracts regardless of
whether the Company's estimates of expenses is correct over the life of
the Contracts.
Applicants' Legal Analysis and Conditions
1. Sections 26(a)(2) and 27(c)(2) of the 1940 Act prohibit a
registered unit investment trust and any depositor or underwriter
thereof from selling periodic payment plan certificates unless the
proceeds of all payments are deposited with a qualified trustee or
custodian and held under arrangements which prohibit any payment to the
depositor or principal underwriter except a fee, not exceeding such
reasonable amounts as the Commission may prescribe, for performing
bookkeeping and other administrative services.
2. Applicants request an order under section 6(c) exempting them
from sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act to the extent
necessary to permit the deduction of the mortality and expense risk
charge from the assets of the Separate Account under the Contracts.
3. Applicants represent that the mortality and expense risk charge
is within the range of industry practice with respect to comparable
annuity products. Applicants base this representation on an analysis of
publicly available information about comparable products, taking into
consideration such factors as any contractual right to increase charges
above current levels, the existence of other charges, the number of
transfers permitted without charge and the ability to make free
withdrawals. The Company represents that it will maintain at its home
office a memorandum, available to the Commission, setting forth in
detail this analysis.
4. To the extent the CDSC is insufficient to cover the actual cost
of distribution, the excess distribution costs will be paid from the
Company's general assets, including the profits, if any, from the
mortality and expense risk charges. The Company represents that there
is a reasonable likelihood that the proposed distribution financing
arrangements will benefit the Separate Account and Contract owners. The
basis for such conclusion will be set forth in a memorandum maintained
by the Company at its service office and available to the Commission
upon request.
5. The Company represents that the Separate Account will invest
only in management investment companies that undertake, in the event
the company adopts a plan to finance distribution expenses under Rule
12b-1 under the 1940 Act, to have a board of directors, a majority of
whom are not interested persons of the company within the meaning of
section 2(a)(19) of the 1940 Act, formulate and approve any such plan.
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 to deduct the mortality and expense risk
charge from the assets of the Separate Account under the Contracts meet
the standards in section 6(c) of the 1940 Act. Applicants assert 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 policies 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. 94-17865 Filed 7-21-94; 8:45 am]
BILLING CODE 8010-01-M
