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[Federal Register Volume 60, Number 36 (Thursday, February 23, 1995)]
[Notices]
[Pages 10131-10134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4399]

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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20902; File No. 812-9300]

New England Variable Life Insurance Company, et. al.

February 16, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: New England Variable Life Insurance Company (``NEVLICO''), 
New England Variable Annuity Separate Account (``Variable Account''), 
and New England Securities Corporation (``New England Securities'') 
(Collectively, ``Applicants'').

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 APPLICATION: Applicants seek an order permitting the 
deduction of a morality and expense risk charge from the assets of the 
Variable Account and any other separate accounts established by NEVLICO 
in the future in connection with the issuance and sale of certain 
flexible and single purchase payment deferred variable annuity 
contracts (``Contracts'') and any contracts that are similar in all 
material respects to the Contracts.

FILING DATE: The application was filed on October 20, 1994, and amended 
on February 10, 1995.

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 Commission's Secretary 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests must be received by the Commission by 5:30 p.m. 
on March 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 requester's 
interest, the reason for the request and the issues contested. Persons 
may request notification of a hearing by writing to the Commission's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.

APPLICANTS: Marie C. Swift, New England Variable Life Insurance 
Company, 501 Boylston Street, Boston, Massachusetts 02117.

FOR FURTHER INFORMATION CONTACT:
Mark C. Amorosi, Attorney, or Wendy Finck Friedlander, Deputy Chief, at 
(202) 942-0670, Office of Insurance [[Page 10132]] Products, Division 
of Investment Management.

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application is available for a fee from the Public 
Reference Branch of the SEC.

Applicants' Representations

    1. NEVLICO is a Delaware stock life insurance company chartered in 
1980. NEVLICO is a wholly owned subsidiary of New England Mutual Life 
Insurance Company (``The New England''), a Massachusetts mutual life 
insurance company.
    2. The Variable Account is a segregated investment account 
established by NEVLICO under Delaware law to act as a funding medium 
for variable annuity contracts. The Variable Account is divided into 12 
subaccounts (``Subaccounts'') for investment in shares of a designated 
investment portfolio of the New England Zenith Fund, which is 
registered under the 1940 Act as an open-end diversified management 
company of the series type. The shares of each of the portfolios will 
be purchased by NEVLICO for the corresponding Subaccount at the 
portfolio's net asset value per share, without the deduction of any 
sales load. The Variable Account assets attributable to the Contracts 
are not chargeable with liabilities arising out of any other business 
of NEVLICO. Income, gains and losses, realized or unrealized, of a 
Subaccount are credited to or charged against the Subaccount without 
regard to other income, gains or losses of NEVLICO. The Variable 
Account is registered under the 1940 Act as a unit investment trust.
    3. New England Securities, a wholly owned subsidiary of The New 
England, will serve as the distributor and principal underwriter for 
the Contracts. New England Securities is registered as a broker-dealer 
under the Securities Exchange Act of 1934.
    4. The Contracts are flexible and single purchase payment deferred 
variable annuity contracts. Interests in the Contracts are registered 
under the Securities Act of 1933. The minimum initial purchase payment 
is $2,000 for Contracts qualifying for special tax treatment under 
Section 408 of the Internal Revenue Code of 1986, as amended. The 
minimum initial purchase payment for non-qualifying Contracts is 
$5,000. The minimum subsequent purchase payment is $250 for all 
Contracts. Purchase payments can be allocated to one or more 
Subaccounts and/or NEVLICO's general account (the ``Fixed Account'').
    5. A death benefit is payable to the Beneficiary in the event that 
the Contract Owner dies prior to the maturity Date or earlier 
annuitization (the ``Death Proceeds''). The Death Proceeds equal a 
greater of (1) the Contract Value next determined after the later of 
the date when due proof of death is received at the Administrative 
Office and the date when an election of payment in one sum or under a 
payment option is received at the Administrative Office, or (2) the 
guaranteed minimum Death Proceeds on that date. On the date of issue, 
the guaranteed minimum Death Proceeds will equal the initial purchase 
payment. Thereafter, until the end of the seventh contract year, the 
guaranteed minimum Death Proceeds will be equal to the aggregate 
purchase payments paid, less any pro rata reductions caused by previous 
surrenders.
    On the seventh Contract Anniversary, and every seventh year 
anniversary thereafter until the Contract Owner's 76th birthday, the 
guaranteed minimum Death Proceeds will be recalculated to determine 
whether a higher guarantee will apply. The guaranteed minimum Death 
Proceeds on each seven year anniversary is the greater of (a) the 
Contract Value on that date, or (b) the guaranteed minimum Death 
Proceeds amount that applied to the Contract just before the 
recalculation. In between seven year anniversaries, the guaranteed 
minimum Death Proceeds is adjusted for any interim purchase payments 
and surrenders.
    6. At any time prior to the Maturity Date, a Contract may be 
surrendered for all or part of the Contract Value. The proceeds, after 
applicable charges are assessed, can be paid in cash or applied to a 
payment option. A Contract also contains a transfer provision providing 
for up to 12 free transfers of Contract Value among Subaccounts and the 
Fixed Account per year.
    7. Two forms of administrative charges are deducted from the 
Contracts to compensate NEVLICO for certain administrative services. 
First, an annual Administration Contract Charge of $30 or, if less, 2% 
of the total Contract Value will be deducted from the Contract Value in 
the Variable Account on each Contract anniversary for the prior 
Contract Year, and will be deducted on a pro rata basis on the Maturity 
Date or upon a full surrender if it is not on a Contract anniversary. 
The charge will be waived for a Contract Year, except on full surrender 
or at the Maturity Date, if (1) the Contract Value at the end of the 
year was at least $50,000, or (2) additional net deposits (purchase 
payments minus partial surrenders) of at least $1,000 were made during 
the Contract Year and the Contract Value at the end of the previous 
Contract Year was at least $25,000. Second, NEVLICO will also deduct 
from the Variable Account a daily Administration Asset Charge equal to 
an effective annual rate of 0.10% of the average daily net assets of 
the Variable Account. This charge will continue to be assessed after 
annuitization if annuity payments are made on a variable basis. 
Applicants state that these administration charges are guaranteed not 
to increase. Applicants represent that these charges will be deducted 
in accordance with Rule 26a-1 under the 1940 Act. NEVLICO states that 
it neither anticipates nor intends to make a profit from the charges 
and will periodically monitor the administrative charges to determine 
whether they exceed the actual cost of providing administrative 
services for the Contracts.
    8. NEVLICO currently allows 12 free transfers of Contract Value 
from one or more Subaccounts or the Fixed Account to another one or 
more of the Subaccounts or to the Fixed Account. NEVLICO assesses a $10 
transfer charge on the thirteenth and each subsequent transfer during a 
single Contract Year prior to annuitization.
    9. Contingent Deferred Sales Charge (``CDSC'') of up to 7% may be 
deducted in the event of (1) a full or partial withdrawal from the 
Contract Value, (2) in certain circumstances, the withdrawal of the 
amounts applied to a payment option prior to the Maturity Date, and (3) 
under Contracts issued in Pennsylvania or New York, the Maturity Date 
if at that date a purchase payment has been invested for less than 
seven years (collectively referred to as ``CDSC events''). The CDSC is 
calculated as a percentage of purchase payments withdrawn or applied. 
the CDSC declines with respect to each purchase payment based on the 
number of years for which the payment has been invested. Purchase 
payments will be treated as withdrawn on a first in, first out basis. 
The following table shows the schedule of the sales charge that will be 
applied at the occurrence of a CDSC event:

                                                                        
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                                                            Applicable  
  Number of full contract years since purchase payment   charge(percent)
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1......................................................              7  
2......................................................              6  
3......................................................              5  
4......................................................              4  
5......................................................              3  
6......................................................              2  
7......................................................              1  
Thereafter.............................................              0  
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    [[Page 10133]] 10. The Contracts provide that several types of 
withdrawals can be made without incurring a sales charge. In any 
Contract Year, the Contract Owner may surrender a portion of Contract 
Value without incurring any CDSC. The free withdrawal amount is equal 
to the greater of (1) 10% of the Contract Value at the beginning of the 
Contract Year during which the CDSC event occurs, or (2) the excess of 
Contract Value over purchase payments subject to the sales charge on 
the date of the CDSC event. A surrender will be attributed first to the 
free withdrawal amount. If the surrendered amount is greater than the 
free withdrawal amount, the excess will be attributed to purchase 
payments on a first in, first out basis.
    The CDSC will be waived on full or partial surrenders if the 
Contract Owner is terminally ill, has been confined to a nursing home 
for more than 90 continuous days, or is permanently and totally 
disabled, as those terms are defined in the registration statement for 
the Contracts.
    The CDSC may be waived if the Contract Owner applies the proceeds 
from a surrender to certain payment options as described in the 
Contract. The CDSC will also be waived (except in Pennsylvania and New 
York) if, under a spousal continuation provision, the Contract's 
Maturity Date is reset to a date that is less than seven years after 
the most recent purchase payment made under the Contract.
    The Contracts may also be sold directly, without the application of 
the Contingent Deferred Sales Charge, to employees, officers, 
directors, trustees and registered representatives of NEVLICO, The New 
England and their affiliated companies, to employees, officers, 
directors, trustees and registered representatives of any broker/dealer 
authorized to sell the Contracts and of any subadivsor to the 
portfolios, and to the spouses and immediate family members of any of 
the foregoing.
    11. NEVLICO will deduct premium tax charges from the Contract Value 
in states that impose premium taxes on annuity purchase payments 
received by insurance companies. Deductions for premium tax charges 
currently range from 0% to 3.5% of Contract Value.
    12. For all Contracts issued in connection with the Variable 
Account, NEVLICO deducts a Mortality and Expense Risk Charge that is 
equal, on an annual basis, to 1.25% of the average daily net assets of 
the Variable Account: approximately 0.70% for mortality risks and 0.55% 
for expense risks. This charge will continue to be assessed if annuity 
payments are made on a variable basis either before or after the 
Maturity Date. NEVLICO guarantees that this charge will not increase 
over the life of the Contract.
    The mortality risks assumed by NEVLICO arise in part from NEVLICO's 
guarantee to make annuity payments at least equal to payments 
calculated based on annuity tables provided in the Contracts, 
regardless of how long an annuitant lives and regardless of any 
improvement in life expectancy.
    NEVLICO also assumes a mortality risk in connection with the 
provision of a death benefit. If the Contract Owner dies prior to the 
Annuity Date, NEVLICO will pay the beneficiary the greater of (1) the 
Contract Value next determined after the later of the date when due 
proof of death is received at the Administrative Office and the date 
when an election of payment in one sum or under a payment option is 
received at the Administrative Office, or (2) the guaranteed minimum 
Death Proceeds on that date.
    The expense risk assumed by NEVLICO is the risk that NEVLICO's 
administrative charges will be insufficient to cover actual 
administrative expenses over the life of the Contract.

Applicants' Legal Analysis and Conditions

    1. Pursuant to Section 6(c) of the 1940 Act, the Commission may, by 
order upon application, conditionally or unconditionally exempt any 
person, security or transaction, or any class or classes of persons, 
securities or transactions, from any provision of provisions of the 
1940 Act or from any rule or regulation 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.
    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 request an order under Section 6(c) exempting them 
from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act to the extent 
necessary to permit the deduction of the mortality and expense risk 
charge from the assets of the Variable Account under the Contracts. 
Applicants request that the order also permit the deduction of the 
Mortality and Expense Risk Charge from the assets of any other separate 
account established by NEVLICO in the future to support variable 
annuity contracts similar in all material respects to the Contracts.
    4. Applicants submit that their request for an order that applies 
to future separate accounts issuing contracts that are similar in all 
material respects to the Contracts is appropriate in the public 
interest. Such an order would promote competitiveness in the variable 
annuity contract market by eliminating the need for NEVLICO to file 
redundant exemptive applications, thereby reducing administrative 
expenses and maximizing the efficient use of resources. Applicants 
argue that the elimination of the delay and expense of redundant 
filings would enhance the ability of NEVLICO to effectively take 
advantage of business opportunities as they arise. Applicants further 
represent that the requested relief is consistent with the purposes of 
the 1940 Act and the protection of investors for the same reasons. 
Investors would not receive any additional benefit or protection by 
requiring NEVLICO to repeatedly seek exemptive relief with respect to 
the same issues addressed in this application.
    5. NEVLICO states that it is entitled to compensation for its 
assumption of mortality and expense risks, and it represents that the 
mortality and expense risk charge is within the range of industry 
practice with respect to comparable annuity products. NEVLICO bases 
this representation on the analysis of the mortality risks, taking into 
consideration such factors as annuity purchase rate guarantees, death 
proceeds guarantees, other contract charges, the frequency of charges, 
the administrative services performed by NEVLICO with respect to the 
Contracts, the means of promotion, the market for the Contracts, 
investment options under the Contracts, purchase payment, transfer, 
dollar cost averaging and systematic withdrawal features, and the tax 
status of the Contracts. NEVLICO represents that it will maintain at 
its principal office a memorandum, available to the Commission, setting 
forth in detail this analysis.
    6. NEVLICO acknowledges that its revenues from the Contingent 
Deferred Sales Charge could be less than its costs of distributing the 
Contracts. If a profit is realized from the Mortality and Expense Risk 
Charge, all or a portion of such profit may be viewed as being 
[[Page 10134]] offset by distribution expenses not reimbursed by the 
Contingent Deferred Sales Charge. In such circumstances, a portion of 
the Mortality and Expense Risk Charge might be viewed as providing for 
a portion of the costs relating to distribution of the Contracts. 
NEVLICO represents that there is a reasonable likelihood that the 
proposed distribution financing arrangements will benefit the Variable 
Account and Contract Owners. The basis for such a conclusion with be 
maintained in a memorandum at NEVLICO's principal office and available 
to the Commission upon request.
    7. NEVLICO represents that the Variable Account will invest only in 
management investment companies that undertake, in the event the 
company adopts a plan to finance distribution expenses under Rule 12b-1 
under the 1940 Act, to have such plan formulated and approved by the 
company's board of directors, a majority of whom are not ``interested 
persons'' of the company within the meaning of section 2(a)(19) of the 
1940 Act.

Conclusion

    Applicants assert that, for the reasons and the facts set forth 
above, the requested exemptions from Section 26(a)(2)(C) and 27(c)(2) 
of the 1940 Act to deduct the mortality and expense risk charge from 
the assets of the Variable account under the Contracts meet the 
standards in Section 6(c) of the 1940 Act. Applicants assert that the 
exemptions requested are necessary and 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. 95-4399 Filed 2-22-95; 8:45 am]
BILLING CODE 8010-01-M
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