[Federal Register Volume 60, Number 99 (Tuesday, May 23, 1995)]
[Notices]
[Pages 27362-27365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12598]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-21075; 812-9530]
Northern Life Insurance Company, et al.; Notice of Application
May 16, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an Order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANTS: Northern Life Insurance Company (``Northern Life''),
Separate Account One (the ``Separate Account''), and Washington Square
Securities, Inc. (the ``Distributor'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
granting an exemption from sections 26(a)(2)(C) and 27(c)(2) of the
Act.
SUMMARY OF APPLICATION: Applicants request an order permitting Northern
Life to deduct a mortality and expense risk charge from the assets of
the Separate Account in connection with the offering of certain
flexible premium individual deferred variable annuity contracts.
FILING DATE: The application was filed on March 20, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be [[Page 27363]] issued unless the SEC orders a hearing.
Interested persons may request a hearing by writing to the SEC's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the SEC by 5:30 p.m.
on June 13, 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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o James E. Nelson, Esq., ReliaStar Financial
Corp., 20 Washington Avenue South, Minneapolis, Minnesota 55401.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Wagman, Staff Attorney, at (202) 942-0654, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: Following is a summary of the application.
The complete application may be obtained for a fee from the SEC's
Public Reference Branch.
Applicants' Representations
1. Northern Life, a stock life insurance company, is incorporated
under Washington law. Northern Life is an indirect, wholly-owned
subsidiary of ReliaStar Financial Corp.
2. The Separate Account was established by Northern Life as a
funding medium for certain flexible premium individual deferred
variable annuity contracts (the ``Contracts''). The Separate Account is
registered with the SEC as a unit investment trust under the Act. Units
of interest in the Separate Account under the Contracts will be
registered under the Securities Act of 1933.
3. The Separate Account currently is divided into subaccounts which
invest in the series (``Series'') of Variable Insurance Products Fund,
Variable Insurance Products Fund II, or Northstar/NWNL (each, a
``Fund''). Each Fund is a diversified, open-end management investment
company. Each Series has separate investment objectives and policies.
4. The Distributor is the distributor and principal underwriter of
the Contracts. The Distributor is registered under the Securities
Exchange Act of 1934 as a broker-dealer, and is a member of the
National Association of Securities Dealers, Inc.
5. The Contracts consist of two series of flexible premium
individual deferred variable annuity contracts. The first series of
Contracts consists of an individual deferred tax-sheltered annuity
contract, an individual deferred retirement annuity contract, and an
individual deferred annuity contract (the ``Transfer Series
Contracts''). The second series of Contracts consists of a flexible
premium individual deferred tax-sheltered annuity contract and a
flexible premium individual deferred retirement annuity contract (the
``Flex Series Contracts'').
6. The minimum purchase payment for a Transfer Series Contract is
$15,000, and subsequent payments must be at least $5,000. The minimum
purchase payment, and minimum subsequent payment, for a Flex Series
Contract is $50. Purchase payments may be allocated to one or more of
the subaccounts of the Separate Account which have been established to
support the Contracts, or to Fixed Account A or Fixed Account B, which
are part of the general account of Northern Life.
7. Several annuity payout options, on both a fixed and variable
basis, are available under the Contracts. Northern Life also provides a
guaranteed death benefit. If the Contract owner (or, in the case of
certain Transfer Series Contracts, the annuitant) dies prior to age 80,
the death benefit is equal to the greater of (i) all purchase payments
less any withdrawals, amounts used to purchase annuity payouts, any
outstanding loan balance, and the amount of previously deducted annual
Contract charges, (ii) the Contract value less any outstanding loan
balance, or (iii) the Contract value on the most recent Contract
anniversary that is a multiple of six years, measured from the Contract
issue date, plus any purchase payments since that anniversary and minus
any withdrawals, amounts used to purchase annuity payouts, and any
previously deducted annual Contract charges since that anniversary, and
less any outstanding loan balance. If the Contract owner (or, in the
case of certain Transfer Series Contracts, the annuitant) dies on or
after age 80, the death benefit is the Contract value less the
outstanding loan balance. If the Contract owner of a Transfer Series
individual deferred annuity Contract dies at any age, the death benefit
will be equal to the Contract value less any applicable contingent
deferred sales charge, any outstanding loan balance and the $30 annual
Contract charge.
8. Among the various charges and fees Northern Life will deduct
under the Contracts is an annual Contract charge of $30 designed to
compensate Northern Life for the administrative services provided under
the Contracts. It will be deducted pro rata from the fixed accounts and
each Separate Account subaccount, and is guaranteed not to increase.
9. Northern Life also will deduct from the assets of the Separate
Account a daily asset administration charge, equal to an annual rate of
.15%. This charge is designed to reimburse Northern Life for
administrative services it provides with respect to the Contracts and
the Separate Account, and is guaranteed not to increase.
10. Northern Life does not currently intend to impose a charge for
any transfers among the Separate Account subaccounts and the fixed
accounts, but reserves the right to impose a charge of up to $25 for
each transfer. Northern Life also does not currently intend to impose a
processing fee for partial withdrawals of Contract value, but reserves
the right to assess a fee not to exceed the lesser of 2% of the partial
withdrawal account, of $25.
11. These administrative charges will be deducted in reliance on
rule 26a-1 under the Act, and each represents reimbursement only for
administration costs expected to be incurred over the life of the
Contracts. Northern Life does not anticipate any profit from any of
these charges. Administrative charges may be reduced or waived under
certain circumstances.
12. Northern Life may assess a contingent deferred sales charge
(``CDSC'') in the event of any partial or full withdrawal of Contract
value under the Transfer Series Contracts and the Flex Series
Contracts. The CDSC for the Transfer Series Contracts is calculated as
a percentage of each purchase payment. The CDSC will apply during the
year the Contract takes effect and for the five Contract years
immediately thereafter, according to the following schedule:
------------------------------------------------------------------------
Withdrawal charge
Contract year of withdrawal minus contract year of as a percentage
purchase payment of each purchase
payment (percent)
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0.................................................... 6
1.................................................... 6
2.................................................... 5
3.................................................... 5
4.................................................... 4
5.................................................... 2
6 and later.......................................... 0
------------------------------------------------------------------------
For purposes of imposing the CDSC, purchase payments are considered to
be withdrawn on a first-in, first-out basis, [[Page 27364]] and
purchase payments are considered to be withdrawn before earnings
thereon. No CDSC is imposed upon either annuitization or payment of the
death benefit, except that if the Contract owner of a Transfer Series
individual deferred annuity Contracts dies, a CDSC is deducted upon
payment of the death benefit.
13. The CDSC for the Flex Series Contracts is calculated as a
percentage of Contract value withdrawn. The CDSC may be assessed
against any full or partial withdrawal of Contract value occurring
before the eleventh Contract year, in accordance with the following
schedule:
------------------------------------------------------------------------
Contract year Withdrawal charge
------------------------------------------------------------------------
1.................................................... 8
2.................................................... 8
3.................................................... 8
4.................................................... 7
5.................................................... 6
6.................................................... 5
7.................................................... 4
8.................................................... 3
9.................................................... 2
10................................................... 1
11+.................................................. 0
------------------------------------------------------------------------
No CDSC is imposed upon either annuitization or payment of the death
benefit.
14. Under both the Transfer Series Contracts and the Flex Series
Contracts, the Contract owner may withdraw a portion of the Contract
value during any 12-month period after the issue date of the Contract
without Northern Life deducting a CDSC. The amount on which no CDSC
will be imposed is the greater of: (i) 10% of the Contract value less
any outstanding loan balance, or (ii) the purchase payments remaining
which are no longer subject to a CDSC (Transfer Series Contracts) or
the Contract value no longer subject to a CDSC (Flex Series Contracts).
This privilege may only be exercised a limited number of times during
any 12-month period. In addition, the CDSC may be reduced or waived
under certain circumstances.
15. Northern Life does not anticipate that CDSC revenues from the
Transfer Series Contracts and the Flex Series Contracts will generate
sufficient funds to pay the cost of distributing the Contracts. If CDSC
revenues are insufficient to cover distribution expenses, the
deficiency will be met with amounts from Northern Life's general
account, which may include amounts derived from the mortality and
expense risk charge.
16. Northern Life may deduct any applicable premium taxes levied by
any unit of government. As permitted or required by applicable state
law, Northern Life may deduct premium taxes from purchase payments upon
receipt, or deduct premium taxes from Contract value at a later date.
17. Northern Life proposes to assess a charge to compensate it for
bearing certain mortality and expense risks in connection with both
Contracts. This charge is equal to an effective annual rate of 1.25% of
the value of the assets in the Separate Account. Of that amount, .85%
is attributable to mortality risks, and .40% is attributed to expense
risks. The rate of the mortality and expense risk charge is guaranteed
not to increase.
18. The mortality risk arises from Northern Life's contractual
obligation to make annuity payments regardless of how long all
annuitants, or any individual annuitant, may live. This obligation
assures that neither an annuitant's own longevity, nor an improvement
in general live expectancy, will adversely affect the monthly annuity
payments that an annuitant will receive under a Contract. Northern Life
also incurs a mortality risk in connection with the death benefit
guarantee. In addition, Northern Life assumes the expense risk that its
actual administrative costs will exceed the amount recovered through
the administrative charges.
19. If the mortality and expense risk charge is insufficient to
cover Northern Life's actual costs and assumed risks, the loss will
fall on Northern Life. If the charge is more than sufficient to cover
costs, any excess will be profit to Northern Life. Northern Life
currently anticipates a profit from this charge.
Applicant's Legal Analysis
1. Applicants request an exemption under section 6(c) of the Act
from sections 26(a)(2)(C) and 27(c)(2) of the Act to permit the
deduction of a mortality and expense risk charge from the assets of the
Separate Account under the Contracts.
2. Sections 26(a)(2)(C) and 27(c)(2) of the Act, in relevant part,
prohibit a principle underwriter for, or depositor of, a registered
unit investment trust from selling periodic payment plan certificates
unless the proceeds of all payments, other than sales loads, on such
certificates are deposited with a qualified trustee or custodian,
within the meaning of section 26(a)(1), and are held under arrangements
that prohibit any payment to the depositor or principal underwriter
except a reasonable fee, as the SEC may prescribe, for performing
bookkeeping and other administrative duties normally performed by the
trustee or custodian. Northern Life's deduction of a mortality and
expense risk charge from the assets of the Separate Account may be
deemed to be a payment prohibited by sections 26(a)(2)(C) and 27(c)(2).
3. Section 6(c) of the Act authorizes the SEC, by order upon
application, to grant an exemption from any provision of the Act, or
any rule or regulation promulgated thereunder, if and to the extent
that such 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 Act.
4. Applicants believe that Northern Life is entitled to reasonable
compensation for its assumption of mortality and expense risks.
Applicants represent that the proposed mortality and expense risk
charge of 1.25% is consistent with the protection of investors because
it is a reasonable and proper insurance charge. The charge is a
reasonable one to compensate Northern Life for the risks that: (i)
Annuitants under the Contracts will live longer individually or as a
group than has been anticipated in setting the annuity rates guaranteed
in the Contracts; (ii) the Contract value will be less than the death
benefit; and (iii) administrative expenses will be greater than amounts
derived from the administrative charges.
5. Northern Life represents that the 1.25% mortality and expense
risk charge under the Contracts is within the range of industry
practice for comparable annuity products. This representation is based
upon Northern Life's analysis of publicly available information about
similar industry products, taking into consideration such factors as
current charge levels, the existence of charge level guarantees, and
guaranteed annuity rates. Northern Life will maintain at its
administrative offices, and make available to the SEC upon request, a
memorandum setting forth in detail the products analyzed in the course
of, and the methodology and results of, its comparative survey.
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 viewed as being offset by distribution expenses not reimbursed by
CDSC revenues. Northern Life has concluded that there is a reasonable
likelihood that the proposed distribution financing arrangements for
the Contracts will benefit the Separate Account and the Contract
owners. The basis for that conclusion will be set forth in a memorandum
that will be [[Page 27365]] maintained by Northern Life at its
administrative offices and will be available to the SEC.
7. Northern Life states that the Separate Account will invest only
in those management investment companies that undertake, in the event
such company should adopt a plan under rule 12b-1 under the Act to
finance distribution expenses, to have a board of directors (or
trustees), a majority of whom are not ``interested persons'' of such
investment company, formulate and approve any such plan pursuant to
rule 12b-1.
Conclusion
For the reasons set forth above, applicants believe that the
requested 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 Act.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12598 Filed 5-22-95; 8:45 am]
BILLING CODE 8010-01-M