[Federal Register Volume 65, Number 198 (Thursday, October 12, 2000)]
[Notices]
[Pages 60700-60703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26184]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24677; File No. 812-12030]


First Allmerica Financial Life Insurance Company, et al.

October 5, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``1940 Act'') granting exemptions 
from the provisions of sections 2(a)(32), 22(c), and 27(i)(2)(A) of the 
1940 Act and Rule 22c-1 thereunder to permit the deduction of a monthly 
charge upon termination of an Optional Insurance Rider.

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APPLICANTS: First Allmerica Financial Life Insurance Company (``First 
Allmerica'') and Allmerica Financial Life Insurance and Annuity Company 
(``Allmerica Financial'') (hereinafter referred to as the 
``Companies'') together with Separate Account VA-K of First Allmerica, 
Allmerica Select Separate Account of First Allmerica, Separate Account 
VA-P of First Allmerica, Separate Account KG of First Allmerica, 
Separate Account KGC of First Allmerica, Separate Account VA-K of 
Allmerica Financial, Allmerica Select Separate Account of Allmerica 
Financial, Separate Account VA-P of Allmerica Financial, Separate 
Account KG of Allmerica Financial, Separate Account KGC of Allmerica 
Financial (together, the ``Separate Accounts''), and Allmerica 
Investments, Inc. (collectively ``Applicants'').

SUMMARY OF APPLICATION: Applicants seek an order under section 6(c) of 
the 1940 Act, to the extent necessary to

[[Page 60701]]

permit the deduction of a monthly charge from variable deferred annuity 
contracts (the ``Contracts''), for optional insurance riders 
(``Optional Insurance Riders'') upon surrender of a Contract, that the 
Companies will issue through the Separate Accounts or other separate 
accounts which the Companies may establish in the future (``Other 
Separate Accounts''), as well as other contracts, similar in all 
material respects to the Contracts described herein, that the Companies 
may issue in the future through the Separate Accounts or Other Separate 
Accounts (``Future Contracts''). Applicants state that the Optional 
Insurance Riders contained in Future Contracts funded by Separate 
Accounts or any Other Separate Accounts may offer the same benefits 
described herein, even if the Optional Insurance Rider is offered under 
a different name. Applicants also request that the order being sought 
extend to any other National Association of Securities Dealers, Inc. 
(``NASD'') member broker-dealer controlling or controlled by, or under 
common control of First Allmerica or Allmerica Financial, whether 
existing or created in the future, that serves as distributor or 
principal underwriter of the Contracts or Future Contracts offered 
through the Separate Accounts or any Other Separate Account 
(collectively, ``the Companies' Broker-Dealers'').

FILING DATE: The Application was filed on March 7, 2000, and amended 
and restated on May 17, 2000 and September 6, 2000.

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 Secretary of the 
Commission and serving 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 October 30, 2000, 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 requester's interest, the reason for the request, and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Secretary of the Commission.

ADDRESSES:

Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., 
Washington, DC 20549.
Applicants, c/o Allmerica Financial Corporation, 440 Lincoln Street, 
Worcester, Massachusetts 01653, Attn: John C. Donlon, Jr.

FOR FURTHER INFORMATION CONTACT: Mark Cowan, Senior Counsel, or Keith 
Carpenter, Branch Chief, Office of Insurance Products, Division of 
Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Public Reference Branch of the Commission, 450 Fifth Street, NW., 
Washington, DC 20549 (tel. (202) 942-8090).

Applicants Representations

    1. First Allmerica is a life insurance company organized under the 
laws of Massachusetts in 1844. Effective October 16, 1995, First 
Allmerica converted from a mutual life insurance company known as State 
Mutual Life Assurance Company of America to a stock life insurance 
company and adopted its present name. First Allmerica is a wholly owned 
subsidiary of Allmerica Financial Corporation (``AFC'') and is licensed 
to do business in the State of New York.
    2. Allmerica Financial is a life insurance company organized under 
the laws of Delaware in July 1974. Allmerica Financial, a wholly owned 
subsidiary of First Allmerica, is licensed to do business in the 
District of Columbia, Puerto Rico, the Virgin Islands, and all states 
except New York.
    3. Each of the Separate Accounts of First Allmerica is a segregated 
asset account that is registered with the Commission as a unit 
investment trust under the 1940 Act (Separate Account VA-K, see file 
No. 811-8114; Allmerica Select Separate Account, see file No. 811-8116; 
Separate Account VA-P, see file No. 811-8872; Separate Account KG, see 
file No. 811-7769; and Separate Account KGC, see file No. 811-7771).
    4. Each of the Separate Accounts of Allmerica Financial is a 
segregated asset account that is registered with the Commission as a 
unit investment trust under the 1940 Act (Separate Account VA-K, see 
file No. 811-6293; Allmerica Select Separate Account, see file No. 811-
6632; Separate Account VA-P, see file No. 811-8848, Separate Account 
KG, see file No. 811-7767; and Separate Account KGC, see file No. 811-
7777).
    5. Allmerica Investments, Inc. (``Allmerica Investments'') is an 
affiliate of Allmerica Financial and will be the principal underwriter 
of the Separate Accounts and distributor of the Contracts funded 
through Separate Account VA-K of First Allmerica and Allmerica 
Financial (``VA-K Contracts''), Allmerica Select Separate Account of 
First Allmerica and Allmerica Financial (``Select Contract''), Separate 
Account VA-P of First Allmerica and Allmerica Financial (``VA-P 
Contracts''), Separate Account KG of First Allmerica and Allmerica 
Financial (``KG Contracts''), and Separate Account KGC of First 
Allmerica and Allmerica Financial (``KGC Contracts'') (collectively, 
the ``Contracts''). Allmerica Investments is registered with the 
Commission as a broker-dealer under the Securities Exchange Act of 1934 
(the ``1934 Act'') and is a member of the NASD. The Contracts will be 
offered through registered representative of Allmerica Investments, or 
through registered representatives of brokers-dealers, which are 
registered under the 1934 Act and members of NASD, that have selling 
agreements with Allmerica Investments. Allmerica Investments , or any 
successor entity, may act as principal underwriter for any Other 
Separate Account and distributor for any Future Contracts issued by the 
Companies. A successor entity may also act as principal underwriter for 
the Separate Accounts and Other Separate Accounts.
    6. The Contracts are a combination fixed and variable, flexible 
payment deferred annuity contracts. Contracts may be issued as non-
qualified annuities for after-tax contributions only, as individual 
retirement annuities (``IRAs,'' including either ``Traditional IRAs'' 
or ``Roth IRSs''), for use in certain types of qualified plans which 
qualify for special federal income tax treatment under sections 401, 
403(b), 408, 408A and 457 of the Internal Revenue Code, and in 
retirement plans which do not qualify for special tax treatment. In 
some states the Contracts may be issued on a group basis connection 
with retirement plans that do not qualify for special federal income 
tax treatment.
    7. The Contracts permit the owner to allocate contributions to a 
fixed interest account (``Fixed Account'') of the Companies' General 
Account, to accumulate interest at a fixed, guaranteed rate. 
Contributions may also be allocated to certain guarantee period 
accounts (``Gurarantee Period Accounts'') that will provide a guarantee 
of each contribution plus interest at a guaranteed interest rate. Once 
declared, the guaranteed interest rate will not change during the 
duration of the guarenteed period. A ``Market Value Adjustment'' will 
be made to the annuity account value in a Guarantee Period Account upon 
a withdrawal, surrender or transfer from the Gurantee Period Account 
prior to the expiration of its guarantee period. Even after application 
of the Market Value Adjustment, earnings in a Guarantee

[[Page 60702]]

Period Account will not be less than an effective rate of 3% annually.
    8. Each Separate Account consists of Sub-Accounts that invest in 
the portfolios of certain underlying investment companies (``Funds'') 
each of which is registered with the Commission as an open-end 
management investment company. The shares of the Funds are registered 
under the 1933 Act. Other Funds may be made available to the Separate 
Accounts or to Other Separate Accounts of the Companies. The Owner may 
allocate contributions to the Sub-Accounts offered by the Contracts 
(the Contract may contain restrictions as to the number of Sub-Accounts 
that may be selected).
    9. The Contracts sold by the Companies provide the purchaser with 
the right to select an Optional Insurance Rider or Riders for an 
additional charge. The following riders are offered by the Companies 
(the actual riders offered will vary by Contract): the Disability 
Rider, the Living Benefits Rider, the Enhanced Death Benefit Rider, and 
the Minimum Guaranteed Annuity Payout (M-GAP) Rider. The Companies 
deduct a separate monthly change for each rider selected. On the last 
day of the month and on the date the rider is terminated, a charge 
equal to \1/12\ of the applicable annual rate is made against the 
Accumulated Value of the Contract at that time.

Applicant's Legal Analysis

    1. Section 6(c) of the 1940 Act authorizes the Commission, by order 
upon application, to exempt any person, security or transaction, or any 
class or classes of persons, securities or transactions from the 
provisions of the 1940 Act and the rules 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 1940 Act. 
Applicants request that the Commission, pursuant to section 6(c) of the 
1940 grant the exemptions requested below with respect to the 
Contracts, and any Future Contracts funded by the Separate Accounts or 
Other Separate Accounts, which are issued by the Companies and 
undewritten or distributed by Allmerica Investments or other Allmerica 
Broker-Dealers. Applicants state that the riders contained in Future 
Contracts funded by Separate Accounts or any Other Separate Account may 
offer the same benefit described herein, even if the Optional Insurance 
Rider is offered under a different name. Applicants believe that the 
requested exemptions are 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.
    2. Rule 6c-8(b) under the Act exempts a registered separate account 
and its depositor and principal underwriter from certain provisions of 
the Act and Rule 22c-1 to permit the imposition of a contingent 
deferred sales charge on variable annuity contracts participating in 
such separate account. Applicants maintain that Rule 6c-8(b) is not 
available with respect to the imposition of a charge for an Optional 
Insurance Rider because it is a charge for an optional insurance 
benefit rather than a contingent deferred sales charge.
    3. Rule 6c-8(c) provides exemptions from certain provisions of the 
Act and Rule 22c-1 to permit the deduction of a full annual 
administrative services fee from variable annuity contracts upon 
surrender. However, an Optional Insurance Rider charge is not a fee for 
administrative services and, therefore, Rule 6c-8(c) is not applicable. 
Applicants note; however, that Rule 6c-8(c) permits the deduction of 
the entire annual administrative fee upon surrender, it does not 
require that the fee be pro-rated. Applicants only seek an exemption so 
that it may collect the entire monthly charge when a Contract is 
surrendered on any day other than the last day of a Contract month.
    4. Section 2(a)(32) of the 1940 Act defines ``redeemable security'' 
as any security under the terms of which the holder, upon its 
presentation to the issuer, is entitled to receive approximately his 
proportionate share of the issuer's currents net assets, or the cash 
equivalent thereof. Assessing the full monthly charge upon termination 
of an Optional Insurance Rider may not be contemplated by section 
2(a)(32), and thus may be deemed inconsistent with the foregoing 
provision, to the extent that the charge can be viewed as causing a 
Contract to be redeemed at a price less than the current net asset 
value that is next computed after termination of the rider. Although 
Applicants do not concede that relief is necessary, Applicants request 
relief from section 2(a)(32) to permit the deduction of a monthly 
charge for each Optional Insurance Rider upon surrender of a Contract.
    5. The Optional Insurance Rider represents a benefit for which each 
Insurer is entitled to receive compensation. Accordingly, Applicants 
assert the deduction of an Optional Insurance Rider charge is a 
legitimate charge for an optional insurance benefit under the Contract, 
and therefore does not reduce the amount of the Separate Account's 
current net assets that a Contract Owner would otherwise be entitled to 
receive.
    6. The charge assessed for an Optional Insurance Rider at surrender 
of the Contract is little different, for this purpose, from the 
``redemption'' charge authorized in section 10(d)(4) of the 1940 Act. 
Congress, according to the Applicants, obviously intended that such a 
redemption charge, which is expressly described as a ``discount from 
net asset value,'' be deemed consistent with the concept of 
``proportionate share'' under section 2(a)(32).
    7. The deduction of the charge for the Optional Insurance Rider 
upon termination of the rider is disclosed in the prospectuses. There 
will be no restriction on, or impediment to, surrender or partial 
withdrawal that should cause the Contracts to be considered other than 
redeemable securities within the meaning of section 2(a)(32) of the 
1940 Act and the rules thereunder.
    8. Rule 22c-1, promulgated under section 22(c), prohibits a 
registered investment company issuing any redeemable security, a person 
designated in such insurer's prospectus as authorized to consummate 
transactions in any such security, and a principal underwriter of, or 
dealer in, such security from selling, redeeming, or repurchasing any 
such security except at a price based on the current net asset value of 
such security. The deduction of a monthly charge for an Optional 
Insurance Rider upon the surrender of a Contract is consistent with the 
policy behind Rule 22c-1. Applicants submit that the Contracts will 
satisfy the requirements of Rule 22c-1. However, to avoid any 
uncertainty as to full compliance with the 1940 Act, Applicants request 
an exemption from the provisions of section 22(c) and Rule 22c-1 to the 
extent necessary to permit the deduction of a monthly charge for an 
Optional Insurance Rider upon surrender of a Contract.
    9. Section 27(i)(2)(A) provides that it shall be unlawful for any 
registered separate account funding variable insurance contracts, or 
for the sponsoring insurance company of such account, to sell any such 
contracts unless such contract is a redeemable security. Applicants 
submit that the deduction of a monthly charge for an Optional Insurance 
Rider upon surrender of a Contract is nothing more than the deduction 
of an insurance charge. Applicants submit that the

[[Page 60703]]

Contracts will satisfy the requirements of section 27(i)(2)(A).
    10. Accordingly, Applicants seek exemptions pursuant to section 
6(c) from sections 2(a)(32), 22(c) and 27(i)(2)(A) of the 1940 Act and 
Rule 22c-1 thereunder to the extent deemed necessary to permit the 
Companies to issue Contracts that offer Optional Insurance Riders and 
deduct a monthly charge for each rider upon surrender of a Contract.
    11. Applicants seek relief not only with respect to themselves and 
the Contracts, but also with respect to Other Separate Accounts 
established by the Companies that may support Future Contracts that may 
offer the same benefit described herein, even if the Optional Insurance 
Rider is offered under a different name. Applicants also seek relief 
with respect to any of the Companies' Broker-Dealers, which will be 
members of the NASD.
    12. Applicants state, that without the requested class relief, 
exemptive relief for Future Contracts, any other Separate Account, or 
any of the Companies' Broker-Dealers would have to be requested and 
obtained separately. Applicants assert that these additional requests 
for exemptive relief would present no new issues under the 1940 Act not 
already addressed herein. Applicants state that if they were to 
repeatedly seek exemptive relief with respect to the same issues 
addressed herein, investors would not receive any additional protection 
or benefit, and investors and Applicants could be disadvantaged by 
increased costs from preparing such additional requests for relief. 
Applicants argue that the requested class relief is appropriate in the 
public interest because the relief will promote competitiveness in the 
variable annuity market by eliminating the need for Applicants to 
refile redundant exemptive applications, thereby reducing 
administrative expenses and maximizing efficient uses of resources. 
Elimination of the delay and the expense of repeatedly seeking 
exemptive relief would, Applicants opine, enhance each Applicant's 
ability to effectively take advantage of business opportunities as such 
opportunities arise.

Conclusion

    For the reasons summarized above, Applicants submit 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. 
Applicants therefore request that an order be granted permitting the 
proposed transactions.

    For the Commission, by Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-26184 Filed 10-11-00; 8:45 am]
BILLING CODE 8010-01-M