[Federal Register Volume 59, Number 156 (Monday, August 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19826]


[[Page Unknown]]

[Federal Register: August 15, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20450; No. 812-9078]

 

Minnesota Mutual Life Insurance Company, et al.; Application for 
Order

August 8, 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: Minnesota Mutual Life Insurance Company (``Minnesota 
Mutual''), Minnesota Mutual Variable Annuity Account (``Variable 
Account''), and MIMLIC Sales Corporation (``MIMLIC Sales'') 
(collectively, ``Applicants'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act granting exemptions from the provisions of Sections 
26(a)(2)(C) 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 a mortality and 
expense risk charge in connection with the offer and sale of certain 
variable annuity contracts (``Contracts'').

FILING DATE: The application was filed on June 28, 1994, and Amendment 
No. 1 to the Application was filed on August 4, 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 September 2, 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, c/o Donald F. Gruber, Esq., Senior Counsel, The Minnesota 
Mutual Life Insurance Company, 400 Robert Street North, St. Paul, 
Minnesota 55101-2098.

FOR FURTHER INFORMATION CONTACT:
Yvonne Hunold, Senior Counsel, 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.

Applicants' Representations

    1. Minnesota Mutual is a mutual life insurance company licensed to 
do a life insurance business in the District of Columbia, Canada, 
Puerto Rico, and all states except New York.
    2. The Variable Account is a separate account established by 
Minnesota Mutual and registered with the Commission under the 1940 Act 
as a unit investment trust. The Variable Account currently is divided 
into fourteen subaccounts (``Subaccounts''), each of which will invest 
in a corresponding portfolio of the MIMLIC Series Fund, Inc. (``MIMLIC 
Fund'').
    3. The MIMLIC Fund is a registered, diversified, open-end 
management investment company of the series type. MIMLIC Fund 
portfolios available for investment through the Subaccounts include: 
the Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, 
Index 500, Capital Appreciation, International Stock, Small Company, 
Value Stock Portfolios and four Maturing Government Bond Portfolios. 
Additional portfolios may be added in the future, including portfolios 
other than those of the MIMLIC Fund. Shares of the MIMLIC Fund 
portfolios will be sold to the Separate Account at net asset value. 
Each portfolio of the MIMLIC Fund is responsible for all of its own 
expenses, including applicable investment advisory fees.
    4. MIMLIC Sales will be the principal underwriter of the Contracts. 
MIMLIC Sales is a wholly-owned subsidiary of MIMLIC Corporation, a 
wholly-owned subsidiary of Minnesota Mutual. MIMLIC Sales is a 
registered broker-dealer under the Securities Exchange Act of 1934 and 
an investment adviser under the Investment Advisers Act of 1940.
    5. The Contracts are individual variable annuity contracts designed 
for use in connection with retirement plans that may qualify for 
favorable federal income tax treatment under Sections 401, 403, 408 or 
457 of the Internal Revenue Code of 1986, as amended. A registration 
statement on Form N-4 to register the Contracts under the Securities 
Act of 1933 (``1933 Act'') has been filed with the Commission.
    6. The Contracts provide for the accumulation of Contract Value on 
a variable basis through investments in the MIMLIC Fund Portfolios. No 
general account funding option is offered under the Contracts. The 
Contracts further provide for four annuity payment options, each of 
which may be elected on a variable or fixed basis. The amount and 
timing of purchase payments are determined by the Contract owner, 
subject to certain maximum amounts. The Contracts also will provide for 
the payment of a death benefit, which is equal to the greater of: (a) 
the Contract's accumulation value determined as of the next valuation 
following the date due proof of death is received by Minnesota Mutual; 
or (b) the total of the purchase payments made by or on behalf of the 
deceased Contract owner less any prior withdrawals.
    7. No charge is made under the Contracts for contract 
administration or for premium taxes. Currently, no charge is made for 
transfers among the Portfolios, although the right is reserved to 
impose a charge of up to $25 for each transfer made on a more frequent 
basis than one per month.
    8. No sales charge is deducted from premium payments under the 
Contracts. However, a contingent deferred sales charge (``CDSC'') of up 
to 7% of the amount withdrawn or surrendered will be deducted on a 
decreasing basis over a seven year period. In no event will the sum of 
the CDSC exceed 9% of the purchase payments made under the Contract. 
Under the Contract, withdrawing a premium payment without imposition of 
a CDSC is possible only if seven years have elapsed since the payment 
was made. The CDSC will be applied to pay for Minnesota Mutual's costs 
of distributing the Contracts. Applicants acknowledge that revenues 
from the CDSC may be less than its costs of distributing the Contracts. 
In that event, the excess distribution costs would have to be paid out 
of Minnesota Mutual's general assets, which may include profits, if 
any, from the mortality and expense risk charges assessed under the 
Contracts.
    9. A daily charge equal to an effective annual rate of 1.25% of the 
value of the assets in the Separate Account will be imposed to 
compensate Minnesota Mutual for bearing certain mortality and expense 
risks in connection with the Contracts. Of this amount, 0.80% is for 
mortality and 0.45% is for expense risks. The terms of the Contracts 
permit the mortality and expense risks charge to be increased to 1.40%. 
Applicants acknowledge, however, that any increase to the aggregate 
mortality and expense risks charge to more than 1.25% would require 
exemptive relief under the 1940 Act.
    10. The mortality risk arises from Minnesota Mutual's contractual 
obligation to make Annuity Payments (determined in accordance with the 
annuity tables provided in the Contracts) regardless of how long a 
participant lives and regardless of any improvement in life expectancy 
generally. Thus, Minnesota Mutual assumes the risk that participants, 
as a class, may live longer than has been estimated by its actuaries, 
so that payments will continue for longer than had been anticipated. A 
mortality risk also is assumed in connection with the death benefit 
guarantee because the death benefit payment may exceed Contract Value.
    11. The expense risk assumed by Minnesota Mutual arises primarily 
from Minnesota Mutual's not charging for contract administration and 
from the guarantees in the Contracts to make annuity payments in 
certain instances in accordance with annuity tables provided in the 
Contracts, regardless of whether its estimates of the expenses it 
expects to incur are correct.

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 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 Separate Account of a maximum charge 
of 1.25% for the assumption of mortality and expense risks. 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.
    4. Applicants submit that Minnesota Mutual is entitled to 
reasonable compensation for its assumption of mortality and expense 
risks. Applicants represent that the mortality and expense risk charge 
of 1.25% under the Contracts is consistent with the protection of 
investors because it is a reasonable charge to compensate Banner Life 
for the risks that: (a) Annuitants under the Contract will live longer 
individually or as a group than has been anticipated in setting the 
annuity rates guaranteed in the Contracts; and (b) the Account Value 
will be less than the death benefit.
    5. Applicants represent that the 1.25% mortality and expense risk 
charge is within the range of industry practice for comparable annuity 
contracts. This representation is based upon Minnesota Mutual's 
analysis of publicly available information about similar industry 
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. Minnesota Mutual will maintain at its 
home office, available to the Commission, memoranda setting forth in 
detail the products analyzed in the course of, and the methodology and 
results of, its comparative review.
    6. Applicants acknowledge that, if a profit is realized from the 
mortality and expense risk charge, all or a portion of such profit may 
be available to pay distribution expenses not reimbursed by the CDSC. 
Minnesota Mutual has concluded that there is a reasonable likelihood 
that the proposed distribution financing arrangements will benefit the 
Separate Account and the participants. The basis for that conclusion is 
set forth in a memorandum which will be maintained by Minnesota Mutual 
at its service office and will be available to the Commission.
    7. Minnesota Mutual also represents that the Separate Account will 
only invest in 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 the company, 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. 94-19826 Filed 8-12-94; 8:45 am]
BILLING CODE 8010-01-M