[Federal Register Volume 60, Number 23 (Friday, February 3, 1995)]
[Notices]
[Pages 6749-6751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2655]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20866; No. 812-9336]


State Mutual Life Assurance Company of America, et al.

January 27, 1995.
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: State Mutual Life Assurance Company of America (``State 
Mutual''), Separate Account VA-P of State Mutual Life Assurance Company 
of America (``State Mutual Account''), SMA Life Assurance Company 
(``SMA Life,'' together with State Mutual, the ``Insurance 
Companies''), Separate Account VA-P of SMA Life Assurance Company 
(``SMA Life Account'') and other separate accounts established by the 
Insurance Companies in the future to support certain deferred variable 
annuity contracts issued by the Insurance Companies (``Other 
Accounts,'' together with the State Mutual Account and the SMA Life 
Account, the ``Accounts'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) granting 
exemptions from the provisions of Sections 26(a)(2)(C) and 27(c)(2).

SUMMARY OF APPLICATION: Applicants seek an order permitting the 
deduction of a mortality and expense risk charge from the assets of: 
(a) The Accounts in connection with the offer and sale of certain 
variable annuity contracts (``Annuity Contracts''); (b) the Accounts in 
connection with the issuance of variable annuity contracts that are 
substantially similar in all material respects to the Contracts 
(``Future Contracts,'' together with Annuity Contracts, the 
``Contracts''); and (c) any other separate account established in the 
future by the Insurance Companies in connection with the issuance of 
Contracts.

FILING DATE: The application was filed on November 22, 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 February 21, 1995, 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 Joseph W. MacDougall, Jr., State Mutual Life Assurance 
Company of America, 440 Lincoln Street, Worcester, Massachusetts, 
01653.

FOR FURTHER INFORMATION CONTACT:
Kevin Kirchoff, Senior Attorney, or Wendy Friedlander, Deputy Chief, 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. State Mutual is a mutual life insurance company incorporated 
under the laws of Massachusetts. SMA Life, a wholly-owned subsidiary of 
State Mutual, is a stock life insurance company organized under the 
provisions of the Delaware Insurance Code. SMA Life is registered as a 
broker-dealer under the Securities Exchange Act of 1934 (``1934 Act'') 
and is a member of the National Association of Securities Dealers 
(``NASD''). State Mutual is authorized to conduct business as an 
insurance company in all states and in the District of Columbia, Puerto 
Rico, and the U.S. Virgin Islands.
    2. The Accounts are separate investment accounts established by the 
Insurance Companies for the purpose of investing purchase payments 
received under the Contracts. Each of the Accounts is a unit investment 
trust which has filed a registration statement on Form N-4 under the 
Securities Act of 1933 to register the offering of the Contracts, and 
the Applicants incorporate such registration statements into the 
application by reference.
    Each Account presently consists of seven Subaccounts, each of which 
will invest solely in the shares of one of the portfolios of the 
Pioneer Variable Contracts Trust. Contract owners may invest in any one 
or more of the Subaccounts, and may also invest in the fixed account, 
part of the general account of the respective Insurance Companies. The 
Insurance Companies may, in the future, issue through the Accounts, and 
through other separate accounts that they may establish in the future, 
other variable annuity contracts that are substantially similar in all 
material respects to the Annuity Contracts. [[Page 6750]] 
    3. Pioneer Variable Contracts Trust is a diversified open-end 
management investment company which consists of various investment 
series or portfolios (collectively, ``Portfolios'') with different 
investment objectives and policies. Shares of the Portfolios are 
purchased by the Insurance Companies for the corresponding Subaccounts 
at the net asset value. Shares of the Portfolios also are offered to 
other affiliated or unaffiliated separate accounts of the Insurance 
Companies or of other insurance companies offering variable annuity or 
variable life insurance contracts.
    4. Allmerica Investments, Inc., an indirect wholly-owned subsidiary 
of State Mutual, is registered as a broker-dealer under the 1934 Act 
and is a member of the NASD. Allmerica Investments, Inc. is the 
principal underwriter for the Contracts.
    5. The Contracts are group and individual combination fixed and 
variable contracts designed for use in retirement plans which qualify 
for special federal income tax treatment under sections 401, 403(b), 
408 and 457 of the Internal Revenue Code and in retirement plans which 
do not qualify for special tax treatment under those sections.
    6. The Contracts provide for minimum initial purchase payments and 
permit additional minimum purchase payments and periodic payments, 
subject to certain limitations. The Contracts provide for the 
accumulation of values on a variable basis determined by the investment 
experience of the Portfolios to which the Contract owner allocates 
payments.
    7. The Contracts also provide for the payment of a death benefit. 
The death benefit, payable in a single sum or under an optional method 
of settlement, is provided if the annuitant dies before the maturity, 
surrender, or termination of a Contract. Upon the death of the 
annuitant, the death benefit is equal to the greatest of (a) the 
accumulated value under the Contract next determined following receipt 
of due proof of death at the Insurance Companies' principal office, or 
(b) the total amount of gross payments made under the Contracts reduced 
proportionally to reflect the amount of all prior partial withdrawals, 
or (c) the death benefit that would have been payable on the most 
recent fifth interval policy anniversary, increased for subsequent 
purchase payments and reduced proportionally to reflect withdrawals 
after that date.
    8. Various fees and expenses are deducted under the Contracts. 
Prior to a Contract's maturity, the Insurance Companies assess a 
Contract Fee of $30, at each Contract anniversary and at full surrender 
during a contract year for its costs in maintaining each Contract and 
the Accounts. The Insurance Companies make a daily charge to the 
Subaccounts of the Accounts equal on an annual basis to 0.15% of the 
current value of the Subaccounts (``Administrative Service Charge''). 
The Administrative Service Charge is designed to cover actual 
administrative expenses which exceed the revenue for the Contract Fee. 
Applicants represent that the Administrative Service Charge and the 
Contract Fee have been set at a level that will recover no more that 
the actual costs associated with administering the Contract and the 
Accounts. The Insurance Companies do not expect to realize a profit 
from these charges, and guarantee that the amount of the charges will 
not increase over the life of the Contract.
    9. The Insurance Companies will deduct any premium tax levied by 
any governmental entity as a result of the Contracts or the Accounts. 
Applicants state that, where permitted by state law, the premium taxes 
will be deducted upon annuitization. In all other jurisdictions, the 
taxes will be deducted upon the death of the annuitant, surrender, or 
withdrawal, as may be required by the law of the Contract owner's state 
of residence.
    10. Prior to the Annuity Commencement date, amounts held under the 
Contracts may be transferred among the Subaccounts and the respective 
Insurance Company's general account. The Insurance Companies currently 
make no charge for transfers among the accounts, but reserve the right 
to assess a charge, guaranteed never to exceed $25.
    11. Applicants represent that the Insurance Companies will deduct 
the annual Contract Fee, the annual Administrative Service Charge, and 
any Transfer Charge in reliance upon and in conformity with all of the 
requirements of Rule 26a-I under the 1940 Act.
    12. No sales charges are deducted from premium payments under the 
Contracts. The Contracts assess a Contingent Deferred Sales Charge 
(``CDSC'') which is applied in the case of contract surrender, partial 
redemptions or annuitization under period certain options during the 
seven year period from the date the Insurance Companies receive and 
accept each purchase payment. The CDSC is determined by the number of 
Contract anniversaries that have passed since the purchase payment that 
is being withdrawn was made. The CDSC is computed as follows:

------------------------------------------------------------------------
                                                              Withdrawal
      Years from date of payment to date of withdrawal          charge  
                                                              (percent) 
------------------------------------------------------------------------
0-3........................................................            7
4..........................................................            6
5..........................................................            5
6..........................................................            4
7..........................................................            3
More than 7................................................         None
------------------------------------------------------------------------

    In no event will the Contingent Deferred Sales Charges assessed 
against a Contract exceed 8% of the gross purchase payments.
    The Insurance Companies do not anticipate that the CDSC will 
generate sufficient revenues to pay the cost of distributing the 
Contracts. If this charge is insufficient to cover the expenses, the 
deficiency will be met from the Insurance Companies' general account 
assets, which may include amounts derived from the charge for mortality 
and expenses risks, discussed below.
    13. A daily charge equal to an effective annual rate of 1.25% of 
the net asset value of the Accounts will be imposed to compensate the 
Insurance Companies for bearing certain mortality and expenses risks in 
connection with the Contracts. Of this amount, approximately 0.80% is 
allocable to mortality risks and approximately 0.45% is allocable to 
expense risks. The mortality and expense risk charge is guaranteed 
never to exceed 1.25%. This charge may be a source of profit for the 
Insurance Companies which will be added to their surplus and may be 
used for, among other things, the payment of distribution expenses.
    14. The mortality risk arises from the Insurance Companies' (1) 
Guarantee that they will make annuity payments, in accordance with 
annuity rate provisions established at the time a Contract is issued 
for the life of the annuitant or in accordance with the annuity option 
selected, no matter how long the annuitant or other payee lives and no 
matter how long all annuitants as a class live, and (2) death benefit 
guarantees under the Contracts.
    15. The expense risk borne by the Insurance Companies is the risk 
that the charges for administrative expenses, which are guaranteed not 
to increase for the life of the Contracts, may be insufficient to cover 
the actual costs of issuing and administering the Contracts.

Applicants' Legal Analysis and Conditions

    1. Applicants request an order of the Commission under Section 6(c) 
for exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act 
to the extent necessary to permit the deduction of a maximum charge of 
[[Page 6751]] 1.25% for the assumption of mortality and expense risks 
from the assets of: (a) The Accounts in connection with the issuance of 
the Annuity Contracts; (b) the Accounts in connection with the issuance 
of any Future Contracts; and (c) any other separate account established 
in the future by the Insurance Companies in connection with the 
issuance of Future Contracts. 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.
    2. Applicants submit that their request for exemptive relief for 
deduction of the 1.25% mortality and expense risk charge from the 
assets of the Accounts, or any other separate account established by 
the Insurance Companies in the future, in connection with the issuance 
of Future Contracts, would promote competitiveness in the variable 
annuity contract market by eliminating the need for the Insurance 
Companies to file redundant exemptive applications, thereby reducing 
the Insurance Companies' administrative expenses and maximizing the 
efficient use of their resources. Applicants further submit that the 
delay and expense involved in having repeatedly to seek exemptive 
relief would impair the Insurance Companies' ability effectively to 
take advantage of business opportunities as they arise. Further, if the 
Insurance Companies were required repeatedly to seek exemptive relief 
with respect to the same issues addressed in this Application, 
investors would not receive any benefit or additional protection 
thereby. Thus, Applicants believe that the requested exemptions are 
appropriate in the public interest and consistent with the protection 
of investors and purposes fairly intended by the policy and provisions 
of the 1940 Act.
    3. 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.
    4. 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 preforming 
bookkeeping and other administrative duties normally performed by the 
bank itself.
    5. Applicants represent that the 1.25% mortality and expense risk 
charge under the Contracts is within the range of industry practice for 
comparable annuity contracts. This representation is based upon 
Applicants' analysis of similar industry products, taking into account 
such factors as current change levels, existence of charge level 
guarantees, and guaranteed annuity rates. Applicants represent that the 
Insurance Companies will maintain at their home offices, available to 
the Commission, a memorandum setting forth in detail the products 
analyzed in the course of, and the methodology and results of, their 
comparative survey.
    6. Applicants acknowledge that, if a profit is realized from the 
mortality and expense risk charge under the Contracts, all or a portion 
of such profit may be available to pay distribution expenses not 
reimbursed by the CDSC. The Insurance Companies have concluded that 
there is a reasonable likelihood that the proposed distribution 
financing arrangements will benefit the Accounts and the Contract 
owners. The basis for that conclusion is set forth in a memorandum 
which will be maintained by the Insurance Companies at their 
administrative offices and will be made available to the Commission.
    7. Applicants also represent that the Accounts will invest only in 
underlying open-end 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 such company within 
the meaning of Section 2(a)(19) of the 1940 Act, 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. 95-2655 Filed 2-2-95; 8:45 am]
BILLING CODE 8010-01-M