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[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)
------------------------------------------------------------------------
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
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