[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]



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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'').

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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 
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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.
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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