[Federal Register Volume 60, Number 54 (Tuesday, March 21, 1995)]
[Notices]
[Pages 14996-14997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6935]



[[Page 14996]]

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-20958; File No. 812-9308]


The Paul Revere Variable Annuity Insurance Company, et al.

March 15, 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: The Paul Revere Variable Annuity Insurance Company (``Paul 
Revere''), Paul Revere Separate Account One (the ``Account''), certain 
separate accounts that may be established by Paul Revere in the future 
to support certain variable deferred annuity contracts issued by Paul 
Revere (the ``Other Accounts'', collectively, with the Account, the 
``Accounts'') and Marsh & McLennan Securities Corporation (``Marsh 
McLennan'').

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 Paul Revere 
to deduct from the assets of the Accounts the mortality and expense 
risk charge imposed under certain variable annuity contracts issued by 
Paul Revere (the ``Existing Contracts'') and under any other variable 
annuity contracts issued by Paul Revere which are materially similar to 
the Existing Contracts (the ``Other Contracts'', together, with the 
Existing Contracts, the ``Contracts''.

FILING DATE: The application was filed on October 26, 1994 and amended 
and restated on January 23, 1995. 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 April 10, 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 NW., Washington, DC 20549. 
Applicants: Judith A. Hasenauer, Blazzard, Grodd & Hasenauer, P.C., 943 
Post Road East, P.O. Box 5108, Westport, Connecticut 06881.

FOR FURTHER INFORMATION CONTACT:Barbara J. Whisler, Senior Attorney, or 
Wendy F. Friedlander, Deputy Chief, both 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. Paul Revere, a stock life insurance company organized under 
Massachusetts law, is a wholly owned subsidiary of The Paul Revere Life 
Insurance Company, a Massachusetts corporation. The Paul Revere Life 
Insurance Company is wholly owned by the Paul Revere Corporation (the 
``Corporation''), also a Massachusetts corporation. The application 
states that, prior to October 26, 1993, the Corporation was wholly 
owned by Textron, Inc., a Delaware corporation. On that date, Textron, 
Inc. sold 17% of the Corporation to the public and retained 83% of the 
outstanding shares of the Corporation. The Account, established August 
18, 1994 under Massachusetts law, is registered with the Commission as 
a unit investment trust. The Account will fund the Existing Contracts 
issued by Paul Revere. Applicants incorporate the registration 
statement on Form N-4 for the Account and the Existing Contracts (File 
No. 33-83320) into the application by reference. The Account is divided 
into a number of subaccounts, each of which invests in an underlying 
investment option. All of the investment options are registered with 
the Commission under the 1940 Act as open end management investment 
companies.
    2. Marsh McLennan, a wholly owned subsidiary of Seabury & Smith, 
Inc., which his, in turn, a wholly owned subsidiary of Marsh & McLennan 
Companies, Inc., is a broker dealer registered under the Securities 
Exchange Act of 1934 and a member of the National Association of 
Securities Dealers, Inc. Marsh McLennan will serve as the distributor 
of the Contracts.
    3. The Existing Contracts are individual flexible premium variable 
annuity deferred contracts which provide for a guaranteed death benefit 
during the accumulation phase. Paul Revere proposes to market the 
Existing Contracts to members of various associations that sponsors 
benefit programs. The minimum initial premium is $2,500 and the minimum 
for subsequent premiums is $500. If the owner of an Existing Contract 
has elected the automatic premium option, a minimum payment of $200 
will be accepted. The maximum total premium payments which Paul Revere 
will accept is $1,000,000. The application states that there are no 
charges for sales load. Therefore, neither premiums nor amounts 
withdrawn are subject to a charge for sales load.\1\

    \1\Applicants represent that an amendment to the application 
will be filed during the notice period and that the amendment will 
include the representation that the Contracts are not subject to a 
charge for sales load.
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    4. Applicants state that the current practice of Paul Revere is to 
deduct for premium taxes when those taxes become due and payable to the 
states. Thus, premium taxes relating to a Contract may be deducted from 
either the premium payments made or the value of the Contract. The 
application states that premium taxes generally range from 0% to 4%.
    5. Paul Revere presently permits unlimited transfers. 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 Paul Revere. 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, presently unlimited, Paul Revere will deduct a 
transfer fee from the amount transferred equal to the lesser of $25 or 
2% of the amount transferred. The minimum amount which may be 
transferred is $500 (from one or multiple subaccounts); however, the 
entire interest in the subaccount must be transferred, if, prior to or 
as a result of the transfer, the interest in the subaccount is less 
than $500.\2\

    \2\Applicants represent that an amendment to the application 
will be filed during the notice period and that the amendment will 
indicate the requirements for transfers from one or more 
subaccounts.
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    6. On each Contract anniversary, Paul Revere deducts a Contract 
maintenance charge of $25 from Contracts with a Contract value of less 
than $25,000. During annuitization, the Contract maintenance charge is 
$2.00 per month for all Contracts and is deducted from annuity 
payments. The application states that the fee is to reimburse Paul 
Revere for its administrative expenses. Applicants further state that 
the charge has been set at a level so that, when [[Page 14997]] taken 
together with the annual administrative charge, Paul Revere will not 
make a profit from the two charges assessed for administration.
    7. Paul Revere deducts an annual administrative charge equal to 
.15% of the average daily net asset value of the Account. Applicants 
represent that this charge, together with the Contract maintenance 
charge, is to reimburse Paul Revere for expenses incurred in 
establishing and maintaining both the Account and the Contracts. 
Applicants also state that Paul Revere does not intend to profit from 
this charge and that Paul Revere will monitor the charge to ensure that 
it does not exceed expenses. Applicants state that they will rely upon 
Rule 265a-1 under the 1940 Act in deducting both the Contract 
maintenance charge and the annual administrative charge.
    Paul Revere will impose a daily charge equal to an annual effective 
rate of .80% of the value of the net assets of the Account to 
compensate Paul Revere for assuming certain mortality and expense risks 
in connection with the Contracts. Applicants state that approximately 
.50% of the .80% charge is attributable to mortality risk while 
approximately .30% is attributable to expense risk. The application 
states that Paul Revere 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, Paul Revere 
will bear the loss. Conversely, if the charge exceeds costs, this 
excess will be profit to Paul Revere and will be available for any 
corporate purpose, including payment of expenses relating to the 
distribution of the Contracts. The application states that Paul Revere 
expects a profit from the mortality and expense risk charge.
    9. Applicants state that the mortality risk borne by Paul Revere 
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.
    10. Applicants state that Paul Revere 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 charge 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 will promote competitiveness 
in the variable annuity market by eliminating the need to file 
redundant exemptive applications and will, 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 Paul 
Revere 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. Finally, Applicants state that were 
Paul Revere 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 morality and expense risks 
is reasonable compensation for the risks assumed.
    4. Applicants represent that the proposed charge of .80% and the 
maximum charge of 1.25% for the mortality and expense risks assumed by 
Paul Revere is within the range of industry practice with respect to 
comparable annuity products. Applicants state that this representation 
is based upon an 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 Paul Revere 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 Paul Revere.
    5. Applicants assess no charge for sales load. To the extent that 
distribution costs are not covered, Paul Revere 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 Paul Revere. Applicants represent that Paul Revere 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 Paul Revere at its principal 
office and will be made available to the Commission.\3\

    \3\Applicants represent that an amendment to the application 
will be filed during the notice period and that such amendment will 
include the representations contained in paragraph 5 of this notice.
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    6. Paul Revere 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 of the board of trustees, as 
applicable, a majority of whom are not interested persons of such 
company within the meaning of the 1940 Act.

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. 95-6935 Filed 3-20-95; 8:45 am]
BILLING CODE 8010-01-M