[Federal Register Volume 60, Number 19 (Monday, January 30, 1995)]
[Notices]
[Pages 5746-5748]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2137]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20850; File No. 812-9310]
C.M. Life Insurance Company, et al.
January 23, 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'').
-----------------------------------------------------------------------
APPLICANTS: C.M. Life Insurance Company (``C.M. Life''), C.M. Multi-
Account A (the ``Account''), certain separate accounts that may be
established by C.M. Life in the future to support certain variable
annuity contracts issued by C.M. Life (the ``Other Accounts'',
collectively, with the Account, the ``Accounts'') and SEI Financial
Services Company (``SEI'').
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 C.M. Life
to deduct from the assets of the Accounts the mortality and expense
risk charge imposed under certain variable annuity contracts issued by
C.M. Life (the ``Existing Contracts'') and under any other variable
annuity contracts issued by C.M. Life which are materially similar to
the Existing Contracts and are offered through any Account on a basis
that is similar in all material respects to the basis on which the
Existing Contracts are offered (the ``Other [[Page 5747]]
Contracts'', together, with the Existing Contracts, the
``Contracts'').\1\
\1\Applicants represent that the application will be amended
during the notice period to reflect this description of the Other
Contracts.
FILING DATE: The application was filed on October 28, 1994. 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 February 16, 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, N.W., Washington, D.C.
20549. Applicants: Michael A. Chong, Counsel, C.M. Life Insurance
Company, 140 Garden Street, Hartford, Connecticut 06154.
FOR FURTHER INFORMATION CONTACT: Barbara J. Whisler, Senior Attorney 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. C.M. LIfe, a stock life insurance company chartered under
Connecticut law, is a wholly owned subsidiary of Connecticut Mutual
Life Insurance Company. The Account, established August 3, 1994 under
Connecticut law, is registered with the Commission as a unit investment
trust. The Account will fund the Existing Contracts issued by C.M.
Life. Applicants incorporate the registration statement on Form N-4 for
the Existing Contracts (File No. 33-82752) into the application by
reference.
2. SEI, a wholly owned subsidiary of SEI Corporation, is a broker
dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. SEI will
serve as the distributor of the Contracts. SEI is an affiliate of SEI
Financial Management Company, the investment advisor for the Insurance
Investment Products Trust (the ``Trust''). The Trust is registered with
the Commission as an open-end management investment company. Each
subaccount of the Account will invest in a corresponding portfolio of
the Trust.
3. The Existing Contracts are individual variable annuity deferred
contracts. The Existing Contracts will be made available in connection
with retirement plans which may qualify for favorite tax treatment
under the Internal Revenue Code. The minimum initial premium is $10,000
and the minimum for subsequent premiums is $250. If the owner of the
Contract has elected the automatic premium option, a minimum payment of
$100 will be accepted.
4. Applicants state that C.M. Life intends to advance premium taxes
that may be due upon the payment of premiums. C.M. Life would then
deduct these taxes from the value of the Contract upon annuitization or
withdrawal. The application states that C.M. Life may, however, deduct
any premium tax related to the Contracts when the tax is incurred. The
application states that premium taxes generally range from 0% to 4%.
5. The Existing Contracts provide for certain guaranteed death
benefits during the accumulation phase. C.M. Life presented permits
unlimited transfers during the accumulation phase and six transfers
during annuitization. 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 C.M.
Life. 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, C.M. Life will deduct a
transfer fee from the amount transferred equal to the lesser of $20 or
2% of the amount transferred.
6. C.M. Life imposes an annual Contract fee of $30 on Contracts
having a Contract value of less than $100,000. Applicants state that
the annual Contract fee may be increased but represent that this fee
will never exceed $60 per Contract year. The application states that
the fee, together with the annual administrative charge, will reimburse
C.M. Life for expenses incurred in establishing and maintaining the
Contracts and the Account. During annuitization, the annual Contract
fee will be deducted pro rata from annuity payments regardless of
Contract value and will, therefore, reduce each annuity payment.
Applicants represent that the annual Contract fee, together with the
administrative charge, will not result in a profit to C.M. Life.
7. C.M. Life deducts an annual administrative charge equal to .15%
of the average daily net asset value of the Account. Applicants
represent that C.M. Life does not intend to profit from this charge and
that C.M. Life will monitor the charge to ensure that it does not
exceed expenses. Applicants state that they will rely upon Rule 26a-1
under the 1940 Act in deducting both the annual Contract fee and the
annual administrative charge.
8. The application states that no front-end sales charge is
deducted from premiums, nor is a contingent deferred sales charge
deducted upon surrender. For certain of the Other Contracts, however,
applicants state that there may be a contingent deferred sales charge
(the ``Sales Charge'') of up to 7% imposed upon surrender or withdrawal
within the first seven years of the Contract. The Sales Charge is a
percentage of the amount of each purchase payment that is withdrawn.
The percentage declines depending upon how many years have passed since
the withdrawn purchase payment was originally made by the Contract
owner.
9. C.M. Life will imposes a daily charge equal to an annual
effective rate of .53% of the value of the net assets of the Account to
compensate C.M. Life for assuming certain mortality and expense risks
in connection with the Contracts. Applicants state that approximately
.40% of the .53% charge is attributable to mortality risk while
approximately .13% is attributable to expense risk. The application
states that C.M. Life 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, C.M. Life
will bear the loss. Conversely, if the charge exceeds costs, this
excess will be profit to C.M. Life and will be available for any
corporate purpose, including payment of expenses relating to the
distribution of the Contracts. The application states that C.M. Life
expects a profit from the mortality and expense risk charge.
10. Applicants state that the mortality risk borne by C.M. Life
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. [[Page 5748]]
11. Applicants state that C.M. Life 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 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 would promote competitiveness in the
variable annuity market by eliminating the need to file redundant
exemptive applications and would, 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 C.M. Life 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. Applicants finally state that were C.M. Life 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 mortality and expense
risks is reasonable compensation for the risks assumed.
4. Applicants represent that the proposed charge of .53% and the
maximum charge of 1.25% for the mortality and expense risks assumed by
C.M. Life is within the range of industry practice with respect to
comparable annuity products. Applicants state that this representation
is based upon C.M. Life's 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 C.M. Life 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 C.M. Life.
5. Applicants acknowledge that the Sales Charge may be insufficient
to cover all costs relating to the distribution of the Contracts. To
the extent distribution costs are not covered by the Sales Charge, C.M.
Life 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 C.M. Life. Applicants represent
that C.M. Life 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 C.M. Life at
its principal office and will be made available to the Commission.
6. C.M. Life 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 or the board of trustees, as
applicable, a majority of whom are not interested persons of such
company within the meaning of the 1940 Act.\2\
\2\Applicants represent that the application will be amended
during the notice period to include this representation for all of
the Accounts.
---------------------------------------------------------------------------
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. 95-2137 Filed 1-27-95; 8:45 am]
BILLING CODE 8010-01-M