Federal Register / Vol. 60, No. 46 / Thursday, March 9, 1995 / Notices 12997

1Applicants represent that they will amend the

application during the Notice Period to reflect this

representation.

[Rel. No. IC–20938; File No. 812–9314]

The Northwestern Mutual Life

Insurance Company, et al.

March 3, 1995.

AGENCY: Securities and Exchange

Commission (the ‘‘Commission’’ or the

SEC’’).

ACTION: Notice of Application for

Exemption under the Investment

Company Act of 1940 (the ‘‘1940 Act’’).

APPLICANTS: The Northwestern Mutual

Life Insurance Company

(‘‘Northwestern’’), NML Variable

Annuity Account B (‘‘Account B’’) and

Northwestern Mutual Investment

Services, Inc. (‘‘NMIS’’).

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) for

exemptions from Sections 26(a)(2)(C)

and 27(c)(2) of the 1940 Act.

SUMMARY OF THE APPLICATION:

Applicants seek an order permitting the

deduction of a mortality and expense

risk charge from the assets of Account

B under certain flexible premium

variable annuity contracts (the

‘‘Contracts’’) and any materially similar

contracts offered in the future by

Account B.1

FILING DATE: The application was filed

on November 3, 1994.

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 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

March 28, 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, Securities and

Exchange Commission, 450 Fifth Street,

N.W., Washington, D.C. 20549.

Applicants, c/o The Northwestern

Mutual Life Insurance Company, 720

East Wisconsin Avenue, Milwaukee, WI

53202.

FOR FURTHER INFORMATION CONTACT:

Joseph G. Mari, Senior Special Counsel,

or Wendy Finck Friedlander, Deputy

Chief, 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 Commission’s Public

Reference Branch.

Applicants’ Representations

1. Northwestern, a mutual life

insurance company organized under the

laws of Wisconsin, is licensed to do

business in all fifty states and the

District of Columbia.

2. Northwestern established Account

B as a separate account under

Wisconsin law to fund the Contracts.

Account B is registered as a unit

investment trust under the 1940 Act.

Account B has nine subdivisions

(‘‘Divisions’’), each of which invests in

shares of the corresponding portfolio

(‘‘portfolio’’) of Northwestern Mutual

Series Fund, Inc. (‘‘Fund’’), which is

registered under the 1940 Act as an

open-end management investment

company. Shares of each Portfolio are

purchased by Northwestern for the

corresponding division of Account B at

net asset value.

3. NMIS, a wholly-owned second tier

subsidiary of Northwestern, is the

underwriter of the Contracts and is the

investment adviser for the Fund.

4. The Contracts are individual

periodic payment deferred variable

annuity contracts that are intended to be

used in connection with retirement

plans qualified under Sections 403(b),

408, and 457 of the Internal Revenue

Code (‘‘Code’’) or by other purchasers in

situations which do not qualify for

special treatment under the Code, and

for roll-over of termination benefits from

tax qualified corporate or HR–10 plans

or trusts. A contract owner may allocate

purchase payments and/or the

accumulation value among the

Divisions of Account B. The Contract

owner may select among annuity

payment options that include variable

or fixed annuity options.

5. The Contracts are offered as either

Front Load or Back Load Contracts. The

minimum initial purchase payment for

the Front Load Contracts is $10,000. For

the Back Load Contracts, the minimum

is $25 for plans qualified under Sections

403(b), 408 (except individual

retirement annuities (‘‘IRAs’’)) and 457

of the Code; $100 for IRAs and non-tax

qualified Contracts; and $3,500 for rollover of termination benefits from taxqualified corporate or HR–10 plans.

6. Front Load Contracts have a

maximum front-end sales load of 4%

deducted from each purchase payment.

There are no withdrawal charges for

Front Load Contracts. Back Load

Contracts have no front-end sales load

deducted from purchase payments.

Withdrawals for Back Load Contracts

are subject to a contingent deferred sales

load at a maximum rate of 8%, and up

to 10% of the Contract’s accumulated

value as of the last Contract anniversary

can be withdrawn without a withdrawal

charge subject to restrictions described

in the Contract. The withdrawal charge

reduces by 1% per year.

7. The withdrawal charge for current

and future Contracts will not exceed

8.5% of the purchase payments under

the Contract. Applicants are relying on

Rule 6c–8 under the 1940 Act to deduct

the contingent deferred sales load.

8. Contract owners may make

unlimited transfers among the Divisions

during the accumulation period, subject

to a minimum of the lesser of $100 or

the entire amount in the Division from

which the transfer is made. A transfer

fee of $25 may apply for each transfer

in excess of twelve per Contract year.

9. The Contracts are subject to an

annual Contract fee of $30 which will be

deducted on each Contract anniversary

in proportion to the values in each

Division. Applicants represent that the

amounts collected will not exceed the

corresponding administrative costs as

defined by the applicable standards of

Rule 262–1 under the 1940 Act.

10. The Contracts permit, after the

first Contract anniversary, deduction

from purchase payments or from

Contract benefits paid of premium taxes

incurred. Northwestern currently

waives this deduction by administrative

practice.

11. Northwestern reserves the right to

charge for any tax liability it pays or

reserves for resulting from the

maintenance or operation of Account B

or any of its Divisions.

12. Northwestern imposes a charge as

compensation for bearing certain

mortality and expense risks under the

Contracts. The charge is assessed daily

and is based on the net asset value of

Account B. The mortality and expense

risk charge will not exceed .75% of the

net assets of Account B attributable to

the Front Load Contracts, and 1.25% of

the net assets of Account B attributable

to the Back Load Contracts.

Northwestern intends to charge at the

annual rate of .40% of the net asset

value of Account B attributable to Front

Load Contracts, of which .15% is for the

mortality risk and .25% is for the

expense risk, but reserves the right to

increase or decrease the charge for these

risks subject to a maximum of .75%. For

the Back Load Contracts, the mortality

and expense risk charge will be

deducted on a daily basis at an annual

rate of 1.25%, of which .50% is for the

mortality risk and .75% is for the

expense risk. For contracts offered in
12998 Federal Register / Vol. 60, No. 46 / Thursday, March 9, 1995 / Notices

2Applicants represent that they will amend the

application during the Notice Period to reflect the

representations in this paragraph.

the future that are materially similar to

the Front Load Contracts and the Back

Load Contracts all charges and expenses

will be identical to, or lower than, the

corresponding charges and expenses for

the Front Load Contracts and the Back

Load Contracts, respectively, as

described in the application.2

13. The mortality risk borne by

Northwestern under both versions of the

Contracts arises from its obligation to

make annuity payments regardless of

how long an annuitant may live. The

mortality risk is the risk that annuitants

will live longer than Northwestern’s

actuarial projections indicate, resulting

in higher than expected annuity

payments.

14. The expense risk borne by

Northwestern under the Contracts is the

risk that the charges for administering

the Contracts, which are guaranteed for

the life of each Contract, may be

insufficient to cover the actual costs of

issuing and administering the Contracts.

15. The mortality and expense risk is

higher for the Back Load Contracts than

for the Front Load Contracts for several

reasons. Collection of a significant front

end load inherently reduces the risk that

charges will fall short of corresponding

expenses since receipt of deferred loads

is far less certain. The Front Load

Contracts require a minimum initial

purchase payment of $10,000, compared

with $25, $100 or $3,500 for Back Load

Contracts. The economies of scale

associated with larger units reduce the

expense risk. Northwestern asserts that

an additional mortality risk for the Back

Load Contract exists because the

withdrawal charge does not apply upon

the death of the annuitant.

Applicants’ Legal Analysis and

Conditions

1. Applicants request an exemption

from Sections 26(a)(2)(C) and 27(c)(2) of

the 1940 Act to the extent any relief is

necessary to permit the deduction from

Account B of the mortality and expense

risk charges under the Contracts.

Applicants request that the order also

permit the deduction of the mortality

and expense risk charges described

herein from the assets of Account B

pursuant to other contracts offered in

the future through Account B, to the

extent that such contracts are materially

similar to the Contracts.

2. Sections 26(a)(2)(C) and 27(c)(2) of

the 1940 Act prohibit a registered unit

investment trust and any depositor or

underwriter thereof from selling

periodic payment plan certificates

unless the proceeds of all payments are

deposited with a qualified trustee or

custodian and held under arrangements

which prohibit any payment to the

depositor or principal underwriter

except a fee, not exceeding such

reasonable amounts as the Commission

may prescribe, for performing

bookkeeping and other administrative

services.

3. Applicants submit that their

request for an order that applies to

materially similar contracts offered in

the future by Account B is appropriate

in the public interest. Such an order

would promote competitiveness in the

variable annuity contract market by

eliminating the need for Northwestern

to file redundant exemptive

applications, thereby reducing its

administrative expenses and

maximizing the efficient use of its

resources. Investors would not receive

any benefit or additional protection by

requiring Northwestern to seek

repeatedly exemptive relief regarding

the same issues addressed in the

application.

4. Applicants represent that they have

reviewed publicly available information

regarding the aggregate level of the

mortality and expense risk charges

under variable annuity contracts

comparable to the Front Load Contracts

and the Back Load Contracts currently

being offered in the insurance industry

taking into consideration such factors as

current charge levels, the manner in

which charges are imposed, the

presence of expense and annuity rate

guarantees and the markets in which the

Contracts will be offered. Based upon

this review, Applicants represent that

the mortality and expense risk charges

under the Contracts are within the range

of industry practice for comparable

contracts. Applicants will maintain and

make available to the Commission, upon

request, a memorandum outlining the

methodology underlying this

representation. Similarly, prior to

making available any materially similar

contracts through Account B,

Applicants will represent that the

mortality and expense risk charges

under any such contracts will be within

the range of industry practice for

comparable contracts. Applicants will

maintain and make available to the

Commission, upon request, a

memorandum outlining the

methodology underlying such

representation.

5. Applicants represent that Account

B will invest only in underlying funds

which undertake, in the event they

should adopt a plan under Rule 12b–1

under the 1940 Act to finance

distribution expenses, to have a board of

directors or trustees, a majority of whom

are not interested persons as defined

under Section 2(a)(19) of the 1940 Act,

formulate and approve any such plan.

6. Applicants do not expect the frontend sales load or contingent deferred

sales load imposed under the Contracts

will necessarily cover the expected costs

of distributing the Contracts. Any

shortfall will be made up from

Northwestern’s general assets which

will include amounts derived from the

mortality and expense risk charges.

Northwestern has concluded that there

is a reasonable likelihood that the

distribution financing arrangement

being used in connection with the

Contracts will benefit Account B and

the Contract owners. Northwestern will

keep and make available to the

Commission, upon request, a

memorandum setting forth the basis for

this representation.

Conclusion

Applicants assert that for the reasons

and upon the facts set forth above, the

requested exemption from Sections

26(a)(2)(C) and 27(c)(2) of the 1940 Act

to deduct the mortality and expense risk

charge under the Contracts, or under

materially similar contracts offered in

the future by Account B, meets the

standards in Section 6(c) of the 1940

Act. Applicants assert that the

exemptions requested are appropriate in

the public interest and consistent with

the protection of investors and the

policies 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. 95–5814 Filed 3–8–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35436; File No. SR–PSE–

95–01]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Stock Exchange, Inc.,

Relating to Buy-Write Options Unitary

Derivatives (‘‘BOUNDs’’)

March 2, 1995.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on February 6, 1995,

the Pacific Stock Exchange, Inc. (‘‘PSE’’

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’) or

‘‘Commission’’) the proposed rule

change as described in Items I, II and III

below, which Items have been prepared

by the self-regulatory organization. The