[Federal Register Volume 78, Number 239 (Thursday, December 12, 2013)]
[Notices]
[Pages 75581-75585]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29625]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-30821; File No. 812-14158]


Minnesota Life Insurance Company, et al.; Notice of Application

December 6, 2013.
AGENCY: The Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order pursuant to Section 6(c) of 
the Investment Company Act of 1940, as amended (the ``1940 Act'' or 
``Act''), granting exemptions from the provisions of Sections 2(a)(32) 
and 27(i)(2)(A) of the Act and rule 22c-1 under the Act.

Applicants: Minnesota Life Insurance Company (``Minnesota Life'' or 
``Insurance Company''), Variable Annuity Account (``Separate 
Account''), and Securian Financial Services, Inc. (``SFS'') 
(collectively, ``Applicants'').

SUMMARY: Summary of Application: Applicants seek an order amending an 
existing order pursuant to Section 6(c) of the 1940 Act, exempting them 
from the provisions of Sections 2(a)(32) and 27(i)(2)(A) of the 1940 
Act and rule 22c-1 under the Act to the extent necessary to permit 
Applicants, under specified circumstances, to recapture certain bonuses 
(``Credit Enhancements'') applied to cumulative net purchase payments 
under certain deferred variable annuity contracts issued by the 
Insurance Company.

DATES: Filing Date: The application was filed on May 23, 2013, and an 
amended and restated application was filed on August 9, 2013.
    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 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 December 27, 2013, and should be accompanied 
by proof of service on the 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

[[Page 75582]]

notified of a hearing may request notification by writing to the 
Secretary of the Commission.

ADDRESSES: Secretary, SEC, 100 F Street NE., Washington, D.C. 20549-
1090. Applicants, c/o Daniel P. Preiner, Counsel, Minnesota Life 
Insurance Company, 400 Robert Street North, St. Paul, Minnesota 55101.

FOR FURTHER INFORMATION CONTACT: Alberto H. Zapata, Senior Counsel, or 
Joyce M. Pickholz, Branch Chief, Insured Investments Office, Division 
of Investment Management, at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. Applicants seek the exemptions needed to recapture Credit 
Enhancements applied to cumulative net purchase payments that reach 
certain aggregate amounts in accordance with the formula described 
below made under: (i) New series (e.g., B Series and L Series) of new 
deferred variable annuity contracts, including data pages, riders and 
endorsements as described below (the ``New Contracts'') and (ii) any 
deferred variable annuity contracts, including data pages, riders and 
endorsements, substantially similar in all material respects to the New 
Contracts that Minnesota Life may issue in the future (``Future 
Contracts'') (New Contracts and Future Contracts referred to 
collectively as the ``Contracts''). Applicants request that the relief 
under the order extend to any other separate accounts of Minnesota Life 
and their successors in interest that support the Contracts (``Future 
Accounts'') and any Financial Industry Regulatory Authority (``FINRA'') 
member broker-dealers controlling, controlled by, or under common 
control with any Applicant, whether existing or created in the future, 
that in the future, may act as principal underwriter for the Contracts 
(``Future Underwriters'').
    2. In 2007 and 2008, the Commission issued orders granting 
exemptions that permit, under certain circumstances, the recapture of 
certain Credit Enhancements (collectively, the ``Existing Orders'').\1\ 
Applicants wish to leave the Existing Orders intact, thus allowing them 
to continue to recapture Credit Enhancements under the contracts 
described in those orders (collectively, the ``Prior Contracts'').
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    \1\ See Investment Company Act Release Nos. 27960 (Aug. 30, 
2007) (notice) and 27979 (Sept. 25, 2007) (order); Investment 
Company Act Release Nos. 28321 (Jun. 26, 2008) (notice) and 28334 
(Jul. 22, 2008) (order) (the ``2008 Order'').
---------------------------------------------------------------------------

    3. The Existing Orders encompassed relief for future contracts 
substantially similar in all material respects to the Prior Contracts. 
Applicants state that the New Contracts differ from the Prior Contracts 
in the following respects: (1) The contract charges are slightly higher 
in some series and slightly lower in other series in the New Contracts; 
(2) the schedule of deferred sales charge is shorter in the L Series of 
the New Contracts; (3) the New Contracts offer different optional death 
benefit riders; (4) the New Contracts offer different optional 
guaranteed lifetime withdrawal benefit riders; and (5) the New 
Contracts do not offer the same fixed-interest allocation options. 
Although Credit Enhancement and recapture in the New Contracts will be 
administered in a manner that is substantially similar in all material 
respects to that of the Prior Contracts contemplated by the 2008 Order.
    4. Minnesota Life is a stock life insurance company organized under 
the laws of Minnesota. Minnesota Life is authorized to sell insurance 
and annuities in all states (except New York), and the District of 
Columbia. Minnesota Life is the depositor and sponsor for the Separate 
Account, as those terms have been interpreted by the Commission with 
respect to variable annuity separate accounts. Minnesota Life may 
establish one or more additional Future Accounts for which it will 
serve as depositor.
    5. The Separate Account is a segregated investment account under 
Minnesota law. The Separate Account is a ``separate account'' as 
defined by Section 2(a)(37) of the 1940 Act and is registered with the 
Commission as a unit investment trust (File No. 811-4294). A 
registration statement for interests in the Separate Account offered 
through the New Contracts has been filed with the Commission under the 
Securities Act of 1933, as amended, on Form N-4, File No. 333-189593.
    6. The Separate Account is divided into a number of sub-accounts. 
Each sub-account invests exclusively in shares representing an interest 
in a separate corresponding investment portfolio of one of several 
series-type, open-end management investment companies. The assets of 
the Separate Account support one or more varieties of variable annuity 
contracts, including the Prior Contracts and the New Contracts, among 
others. Minnesota Life may issue Future Contracts through the Separate 
Account. Minnesota Life also may issue Contracts through Future 
Accounts.
    7. Securian Financial Services, Inc. (``SFS'') is registered as a 
broker-dealer under the Securities Exchange Act of 1934 and is a member 
of FINRA. SFS serves as the principal underwriter of the Separate 
Account and may act as principal underwriter for Future Accounts for 
Minnesota Life and distributor for Future Contracts. Future 
Underwriters also may act as principal underwriter for Future Accounts 
and as distributor for any of the Contracts.
    8. The New Contracts are deferred combination variable and fixed 
annuity contracts that Minnesota Life may issue to individuals on a 
``non-qualified'' basis or in connection with certain types of 
retirement plans that receive favorable federal income tax treatment 
under the Internal Revenue Code of 1986, as amended. The New Contracts 
also make available a number of sub-accounts of the Separate Account to 
which a contract owner may allocate net purchase payments and 
associated Credit Enhancement(s), as described below.
    9. A contract owner's initial purchase payment must be at least 
$10,000 (unless a lower qualified plan limitation applies). Thereafter, 
a contract owner may choose the amount and frequency of purchase 
payments, except that the minimum subsequent purchase payment is $500 
($100 for automatic payment plans). A contract owner may make transfers 
of contract value among and between the sub-account options at any 
time. Applicants have reserved the right to impose a $10 charge for 
each transfer when transfer requests exceed 12 in a single contract 
year, but are not currently imposing the charge.
    10. The New Contracts offer a contract owner a variety of annuity 
payment options. The contract owner may annuitize at any time. If a 
deferred sales charge (``DSC'') would otherwise apply to New Contract 
withdrawals at the time of annuitization, the DSC will be waived for 
amounts applied to provide annuity payments.
    11. The New Contracts provide for an annual administrative charge 
of $50 that Minnesota Life deducts from the New Contract's accumulation 
value on each contract anniversary and upon a full surrender of a New 
Contract if the greater of: (a) Contract value or (b) purchase payments 
less withdrawals, is less than $50,000. For the B Series of the New 
Contracts, a daily mortality and expense risk charge for the base New

[[Page 75583]]

Contract is deducted from the assets of the Separate Account at an 
annual rate equal to 1.15% of average account value, which is lower 
than the Prior Contracts contemplated by the 2008 Order. For the L 
Series of the New Contracts, a daily mortality and expense risk charge 
for the base New Contract is deducted from the assets of the Separate 
Account at an annual rate equal to 1.55% of average account value, 
which is higher than the Prior Contracts contemplated by the 2008 
Order. For each series of the New Contracts, a daily administrative 
charge for the base New Contract is deducted from the assets of the 
Separate Account at an annual rate equal to 0.15% of average account 
value. The New Contracts have a DSC which is applicable on surrender 
and withdrawal of accumulation values. Credit Enhancements are not 
recaptured upon surrender or withdrawal. A charge may also be assessed 
depending on the type of optional benefit elected, if any.
    12. The New Contracts offer a standard DSC schedule as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           0-1        1-2        2-3        3-4        4-5        5-6        6-7        7-8
             Contract years since payment               (percent)  (percent)  (percent)  (percent)  (percent)  (percent)  (percent)  (percent)     8+
--------------------------------------------------------------------------------------------------------------------------------------------------------
B Series Deferred Sales Charge........................        8.0        8.0        7.0        6.0        6.0        5.0        4.0        3.0         0
L Series Deferred Sales Charge........................        8.0        8.0        7.0        6.0          0          0          0          0         0
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The DSC does not apply in any circumstances under which Credit 
Enhancements will be recaptured.
    13. Subject to state availability, a contract owner may elect to 
purchase an optional living benefit rider. There are currently eight 
different Guaranteed Lifetime Withdrawal Benefit optional riders 
available (the ``GLWB Riders''), however, a contract owner may only 
elect a single living benefit on a New Contract. In the future, 
Minnesota Life may offer other living benefit riders as options under 
the Contracts.
    14. Minnesota Life will deduct a maximum annual charge ranging from 
0.25% to 2.25% (current charges range from 0.45% to 1.50%) of the 
greater of the contract value or benefit base (as described in the 
applicable GLWB Rider) depending on which GLWB Rider is elected. One 
quarter of the GLWB Rider charge will be taken three months after the 
GLWB Rider effective date and at the end of every three months 
thereafter. The charge does not apply after annuitization.
    15. If a contract owner dies before the annuity start date, the New 
Contract provides for a death benefit payable to a beneficiary computed 
as described in the Application. In the future, Minnesota Life may 
offer other optional death benefit riders as options under the 
Contracts.
    16. For the Highest Anniversary Value II Death Benefit, the Premier 
II Death Benefit, and the MyPath Highest Anniversary Death Benefit, 
Minnesota Life will deduct a maximum annual charge ranging from 0.30% 
to 1.00% of the death benefit amount, depending on which optional death 
benefit option is elected, if any. For the Estate Enhancement Benefit 
II, Minnesota Life will deduct a daily charge from the assets of the 
Separate Account at a maximum annual charge ranging from 0.25% to 0.40% 
of average account value.
    17. The Contract provides three standard annuity options: a life 
annuity, a life annuity with a period certain, or a joint and last 
survivor annuity. Minnesota Life may make other options available on 
request.
    18. Minnesota Life will credit the contract value allocated to the 
sub-accounts and the fixed-interest accounts with a Credit Enhancement 
when total cumulative net purchase payments reach the aggregate levels 
set forth in the following table:

------------------------------------------------------------------------
                                                                Credit
              Cumulative net purchase payments               enhancement
                                                              percentage
------------------------------------------------------------------------
$250,000-$499,999.99.......................................        0.25%
$500,000-$749,999.99.......................................        0.50%
$750,000-$999,999.99.......................................        0.75%
$1,000,000 or more.........................................        1.00%
------------------------------------------------------------------------

    19. The term ``cumulative net purchase payments'' means the total 
of all purchase payments applied to the contract less any amounts 
previously withdrawn from contract value. Similar to the Prior 
Contracts contemplated by the 2008 Order, the amount of the Credit 
Enhancement to be credited will be calculated as follows: (a) 
Cumulative net purchase payments; multiplied by (b) the applicable 
Credit Enhancement percentage from the table above; minus (c) any 
Credit Enhancements previously applied to contract value.
    20. Minnesota Life will allocate the Credit Enhancement for the 
applicable purchase payment among the sub-accounts and fixed interest 
accounts the contract owner selects in accordance with a contract 
owner's current purchase payment allocation instructions. As disclosed 
in the prospectus for the New Contracts, Minnesota Life reserves the 
right to increase or decrease the amount of the Credit Enhancement or 
discontinue the Credit Enhancement in the future. In such case, 
Minnesota Life would seek any additional exemptive relief to the extent 
required.
    21. Minnesota Life intends to recapture or retain the Credit 
Enhancements only in the following circumstances. First, Minnesota Life 
recaptures or retains 100% of the Credit Enhancements in the event that 
the contract owner exercises his or her cancellation right during the 
``free look'' period. Second, Minnesota Life recaptures all of the 
Credit Enhancements added to the Contract within 12 months prior to the 
date any amounts are paid out as a death benefit. Any Credit 
Enhancement added to the Contract more than 12 months prior to the date 
any amount is paid out as a death benefit would not be recaptured. 
Third, Minnesota Life will recapture all of the Credit Enhancements 
added to the Contract within 12 months prior to the annuitization date 
of the Contract. Any Credit Enhancement added to the Contract more than 
12 months prior to the date of annuitization would not be recaptured. 
(If only a partial annuitization were elected, a pro rata portion of 
the Credit Enhancements added to the Contract within 12 months of the 
annuitization date would be recaptured.)
    22. Investment gains attributable to the Credit Enhancement will 
not be recaptured. Since Minnesota Life does not recapture the 
investment gain/loss attributable to the Credit Enhancement, only the 
dollar amount of the Credit Enhancement added to the Contract is 
recaptured in the circumstances described in the application.
    23. Finally, because it is not administratively feasible to track 
the Credit Enhancements in the Separate Account which may still be 
subject to recapture, Minnesota Life deducts the daily mortality and 
expense risk charge from the entire net asset value of the Separate 
Account. As a result, the daily mortality and expense risk charge, and 
any optional benefit charges paid by any

[[Page 75584]]

contract owner may be greater than that which he or she would pay 
without the Credit Enhancement.

Applicants' Legal Analysis

    1. Applicants request that the Commission, pursuant to Section 6(c) 
of the 1940 Act, grant the exemptions set forth below to permit 
Applicants to recapture Credit Enhancements previously applied to 
purchase payments under the New Contracts: (1) In the event a contract 
owner exercises his or her right to cancellation/``free look'' under 
the New Contract; (2) if the Credit Enhancements were added to the 
Contract within 12 months prior to the date any amounts are paid out as 
a death benefit; and (3) if the Credit Enhancements were added to the 
Contract within 12 months prior to the date of annuitization or partial 
annuitization of the Contract.
    2. Section 6(c) of the 1940 Act authorizes the Commission 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 under the Act, 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.
    3. Appellants submit that the Credit Enhancement recapture is not a 
sales load. Rather, it is a recapture of a Credit Enhancement 
previously applied to a contract owner's purchase payments. Minnesota 
Life provides the Credit Enhancement from its general account on a 
guaranteed basis. The Contracts are designed to be long-term investment 
vehicles. If a contract owner withdraws his or her money during the 
free look period, if a death benefit is owed shortly after Credit 
Enhancements are applied, or if the Contract is annuitized before this 
anticipated period, Minnesota Life must recapture the Credit 
Enhancement subject to recapture in order to avoid a loss.
    4. Applicants submit that the proposed recapture of the Credit 
Enhancement would not violate Section 2(a)(32) or 27(i)(2)(A) of the 
1940 Act or rule 22c-1 under the Act. Minnesota Life would grant Credit 
Enhancements out of its general account assets. Applicants submit if 
Minnesota Life recaptures any Credit Enhancements or part of a Credit 
Enhancement in the circumstances described above, it would merely be 
retrieving its own assets.
    5. Applicants further submit that the operation of the proposed 
Credit Enhancements would not violate Section 2(a)(32) or 27(i)(2)(A) 
of the 1940 Act because the recapture of Credit Enhancements would not, 
at any time, deprive a contract owner of his or her proportionate share 
of the current net assets of the Separate Account.
    6. Applicant's assert that rule 22c-1 was intended to eliminate or 
reduce, as far as was reasonably practicable: (1) The dilution of the 
value of outstanding redeemable securities of registered investment 
companies through their sale at a price below net asset value or their 
redemption at a price above net asset value; or (2) other unfair 
results, including speculative trading practices. Applicants submit 
that the industry and regulatory concerns prompting the adoption of 
rule 22c-1 were primarily the result of backward pricing, the practice 
of basing the price of a mutual fund share on the net asset value per 
share determined as of the close of the market on the previous day. 
Applicants submit that the Credit Enhancements do not give rise to 
either of the two concerns that rule 22c-1 was designed to address. 
First, Applicants contend that the proposed Credit Enhancements pose no 
such threat of dilution. A contract owner's interest in his or her 
contract value or in the Separate Account would always be offered at a 
price based on net asset value next calculated after receipt of the 
request. Second, Applicants submit that speculative trading practices 
calculated to take advantage of backward pricing will not occur as a 
result of Minnesota Life's recapture of the Credit Enhancement. 
Variable annuities are designed for long-term investment, and by their 
nature, do not lend themselves to the kind of speculative short-term 
trading that rule 22c-1 was designed to prevent. More importantly, the 
Credit Enhancement recapture simply does not create the opportunity for 
speculative trading.
    7. Applicants assert that the Credit Enhancement is generally 
beneficial to a contract owner. The recapture tempers this benefit 
somewhat, but unless: (1) The contract owner exercises his or her right 
to cancel the contract during the ``free look'' period, or (2) 
Minnesota Life applies Credit Enhancements and pays a death benefit 
during the same 12-month period, or (3) Minnesota Life applies Credit 
Enhancements and a contract owner annuitizes during the same 12-month 
period, the contract owner retains the ability to avoid the Credit 
Enhancement recapture. Applicants submit that as any earnings on Credit 
Enhancements applied would not be subject to recapture and thus would 
be immediately available to a contract owner. Applicants submit that 
the Credit Enhancement recapture does not diminish the overall value of 
the Credit Enhancement.
    8. Applicants assert that recapture provision is necessary for 
Minnesota Life to offer the Credit Enhancement and prevent anti-
selection--the risk that a contract owner would make significant 
purchase payments into the Contract solely to receive a quick profit 
from the Credit Enhancements and then withdraw his or her money. 
Applicants submit it would be unfair to Minnesota Life to permit a 
contract owner to keep his or her Credit Enhancement upon his or her 
exercise of the Contract's ``free look'' provision. Applicants submit 
it would also be unfair to Minnesota Life to permit a contract owner to 
keep his or her Credit Enhancements paid shortly before death benefits 
are paid or the contract is annuitized. Applicants further submit that 
because no additional DSC applies upon payment of a death benefit, a 
death shortly after the award of Credit Enhancements would afford a 
contract owner or a beneficiary a similar profit at Minnesota Life's 
expense. Finally, because no additional DSC applies on annuitization, 
if a contract owner annuitizes his or her contract shortly after the 
award of the Credit Enhancement, such event would afford a contract 
owner a similar profit at Minnesota Life's expense.
    9. Applicants state that the Commission's authority under Section 
6(c) of the 1940 Act to grant exemptions from various provisions of the 
1940 Act and rules under that Act is broad enough to permit orders of 
exemption that cover classes of unidentified persons. Applicants 
request an order of the Commission that would exempt them, Minnesota 
Life's successors in interest, Future Accounts and Future Underwriters 
from the provisions of Sections 2(a)(32) and 27(i)(2)(A) of the 1940 
Act and rule 22c-1 under the Act with respect to the Contracts. 
Applicants submit that the exemption of these classes of persons is 
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 because all of the potential members of the 
class could obtain the foregoing exemptions for themselves on the same 
basis as Applicants, but only at a cost to each of them that is not 
justified by any public policy purpose. As discussed in the 
application, the requested exemptions would only extend to persons that 
in all material respects are the same as Applicants.
    10. Applicants represent that any Future Contracts will be 
substantially

[[Page 75585]]

similar in all material respects to the New Contracts, but particularly 
with respect to the Credit Enhancements and recapture of Credit 
Enhancements and that each factual statement and representation about 
the Credit Enhancement feature will be equally true of any Future 
Contracts. Applicants also represent that each material representation 
made by them about the Separate Account and SFS will be equally true of 
Future Accounts and Future Underwriters, to the extent that such 
representations relate to the issues discussed in this Application. In 
particular, each Future Underwriter will be registered as a broker-
dealer under the Securities Exchange Act of 1934 and be a member of 
FINRA.
    11. Based upon the foregoing, Applicants submit that recapture of 
the proposed Credit Enhancement involves none of the abuses to which 
provisions of the 1940 Act and rules thereunder are directed. The 
contract owner will always retain the investment experience 
attributable to the Credit Enhancement and will retain the principal 
amount in all cases except under the circumstances described in the 
Application. Further, Applicants assert that Minnesota Life should be 
able to recapture such Credit Enhancement to limit potential losses 
associated with such Credit Enhancements.

Conclusions

    For the reasons set forth in the Application, the Applicants assert 
that the provisions for recapture of Credit Enhancements under the 
Contracts do not violate Section 2(a)(32) and 27(i)(2)(A) of the Act 
and rule 22c-1 under the Act and that the requested relief is 
consistent with the standards set forth in Section 6(c) of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-29625 Filed 12-11-13; 8:45 am]
BILLING CODE 8011-01-P