14996 Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices

1Applicants represent that an amendment to the

application will be filed during the notice period

and that the amendment will include the

representation that the Contracts are not subject to

a charge for sales load.

2Applicants represent that an amendment to the

application will be filed during the notice period

and that the amendment will indicate the

requirements for transfers from one or more

subaccounts.

[Rel. No. IC–20958; File No. 812–9308]

The Paul Revere Variable Annuity

Insurance Company, et al.

March 15, 1995.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’ or the

‘‘Commission’’).

ACTION: Notice of Application for

Exemption under the Investment

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

APPLICANTS: The Paul Revere Variable

Annuity Insurance Company (‘‘Paul

Revere’’), Paul Revere Separate Account

One (the ‘‘Account’’), certain separate

accounts that may be established by

Paul Revere in the future to support

certain variable deferred annuity

contracts issued by Paul Revere (the

‘‘Other Accounts’’, collectively, with the

Account, the ‘‘Accounts’’) and Marsh &

McLennan Securities Corporation

(‘‘Marsh McLennan’’).

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) of the 1940

Act for exemptions from Sections

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

SUMMARY OF APPLICATION: Applicants

seek an order permitting Paul Revere to

deduct from the assets of the Accounts

the mortality and expense risk charge

imposed under certain variable annuity

contracts issued by Paul Revere (the

‘‘Existing Contracts’’) and under any

other variable annuity contracts issued

by Paul Revere which are materially

similar to the Existing Contracts (the

‘‘Other Contracts’’, together, with the

Existing Contracts, the ‘‘Contracts’’.

FILING DATE: The application was filed

on October 26, 1994 and amended and

restated on January 23, 1995. Applicants

represent that an amendment to the

application will be filed during the

notice period.

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 on this application by writing

to the Secretary of the SEC 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 April 10, 1995 and should

be accompanied by proof of service on

Applicants in the form of an affidavit or,

for lawyers, by certificate of service.

Hearing requests should state the nature

of the interest, the reason for the request

and the issues contested. Persons may

request notification of the date of a

hearing by writing to the Secretary of

the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

Street NW., Washington, DC 20549.

Applicants: Judith A. Hasenauer,

Blazzard, Grodd & Hasenauer, P.C., 943

Post Road East, P.O. Box 5108,

Westport, Connecticut 06881.

FOR FURTHER INFORMATION CONTACT:

Barbara J. Whisler, Senior Attorney, or

Wendy F. Friedlander, Deputy Chief,

both 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 Public Reference Branch of

the SEC.

Applicants’ Representations

1. Paul Revere, a stock life insurance

company organized under

Massachusetts law, is a wholly owned

subsidiary of The Paul Revere Life

Insurance Company, a Massachusetts

corporation. The Paul Revere Life

Insurance Company is wholly owned by

the Paul Revere Corporation (the

‘‘Corporation’’), also a Massachusetts

corporation. The application states that,

prior to October 26, 1993, the

Corporation was wholly owned by

Textron, Inc., a Delaware corporation.

On that date, Textron, Inc. sold 17% of

the Corporation to the public and

retained 83% of the outstanding shares

of the Corporation. The Account,

established August 18, 1994 under

Massachusetts law, is registered with

the Commission as a unit investment

trust. The Account will fund the

Existing Contracts issued by Paul

Revere. Applicants incorporate the

registration statement on Form N–4 for

the Account and the Existing Contracts

(File No. 33–83320) into the application

by reference. The Account is divided

into a number of subaccounts, each of

which invests in an underlying

investment option. All of the investment

options are registered with the

Commission under the 1940 Act as open

end management investment

companies.

2. Marsh McLennan, a wholly owned

subsidiary of Seabury & Smith, Inc.,

which his, in turn, a wholly owned

subsidiary of Marsh & McLennan

Companies, Inc., is a broker dealer

registered under the Securities

Exchange Act of 1934 and a member of

the National Association of Securities

Dealers, Inc. Marsh McLennan will

serve as the distributor of the Contracts.

3. The Existing Contracts are

individual flexible premium variable

annuity deferred contracts which

provide for a guaranteed death benefit

during the accumulation phase. Paul

Revere proposes to market the Existing

Contracts to members of various

associations that sponsors benefit

programs. The minimum initial

premium is $2,500 and the minimum

for subsequent premiums is $500. If the

owner of an Existing Contract has

elected the automatic premium option,

a minimum payment of $200 will be

accepted. The maximum total premium

payments which Paul Revere will accept

is $1,000,000. The application states

that there are no charges for sales load.

Therefore, neither premiums nor

amounts withdrawn are subject to a

charge for sales load.1

4. Applicants state that the current

practice of Paul Revere is to deduct for

premium taxes when those taxes

become due and payable to the states.

Thus, premium taxes relating to a

Contract may be deducted from either

the premium payments made or the

value of the Contract. The application

states that premium taxes generally

range from 0% to 4%.

5. Paul Revere presently permits

unlimited transfers. The owner of an

Existing Contract may transfer all or part

of the interest in a subaccount to

another subaccount; or, during

annuitization, from a subaccount to the

general account of Paul Revere. These

transfers are permitted without charge

so long as the designated number of

transfers has not been exceeded. If

transfers are made in excess of the free

number of transfers, presently

unlimited, Paul Revere will deduct a

transfer fee from the amount transferred

equal to the lesser of $25 or 2% of the

amount transferred. The minimum

amount which may be transferred is

$500 (from one or multiple

subaccounts); however, the entire

interest in the subaccount must be

transferred, if, prior to or as a result of

the transfer, the interest in the

subaccount is less than $500.2

6. On each Contract anniversary, Paul

Revere deducts a Contract maintenance

charge of $25 from Contracts with a

Contract value of less than $25,000.

During annuitization, the Contract

maintenance charge is $2.00 per month

for all Contracts and is deducted from

annuity payments. The application

states that the fee is to reimburse Paul

Revere for its administrative expenses.

Applicants further state that the charge

has been set at a level so that, when
Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices 14997

3Applicants represent that an amendment to the

application will be filed during the notice period

and that such amendment will include the

representations contained in paragraph 5 of this

notice.

taken together with the annual

administrative charge, Paul Revere will

not make a profit from the two charges

assessed for administration.

7. Paul Revere deducts an annual

administrative charge equal to .15% of

the average daily net asset value of the

Account. Applicants represent that this

charge, together with the Contract

maintenance charge, is to reimburse

Paul Revere for expenses incurred in

establishing and maintaining both the

Account and the Contracts. Applicants

also state that Paul Revere does not

intend to profit from this charge and

that Paul Revere will monitor the charge

to ensure that it does not exceed

expenses. Applicants state that they will

rely upon Rule 265a–1 under the 1940

Act in deducting both the Contract

maintenance charge and the annual

administrative charge.

Paul Revere will impose a daily

charge equal to an annual effective rate

of .80% of the value of the net assets of

the Account to compensate Paul Revere

for assuming certain mortality and

expense risks in connection with the

Contracts. Applicants state that

approximately .50% of the .80% charge

is attributable to mortality risk while

approximately .30% is attributable to

expense risk. The application states that

Paul Revere reserves the right to

increase the charge to a maximum of

1.25%. If the mortality and expense risk

charge is insufficient to cover actual

costs of the risks undertaken, Paul

Revere will bear the loss. Conversely, if

the charge exceeds costs, this excess

will be profit to Paul Revere and will be

available for any corporate purpose,

including payment of expenses relating

to the distribution of the Contracts. The

application states that Paul Revere

expects a profit from the mortality and

expense risk charge.

9. Applicants state that the mortality

risk borne by Paul Revere consists of: (a)

The risk of guaranteeing to make

monthly annuity payments in

accordance with the annuity option

selected by the Contract owner

regardless of how long the annuitant

may live; (b) the risk of guaranteeing the

annuity purchase rates, for either a fixed

or a variable annuity, for the annuity

options under the Contracts; and (c) the

risk of guaranteeing a death benefit.

10. Applicants state that Paul Revere

assumes an expense risk under the

Contracts. According to Applicants, this

is the risk that the charges for

administrative services under the

Contracts will be insufficient to cover

actual administrative expenses.

Applicants’ Legal Analysis and

Conditions

1. Applicants request that the

Commission, pursuant to Section 6(c) of

the 1940 Act, grant the exemptions from

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

1940 Act in connection with

Applicants’ assessment of the daily

charge for the mortality and expense

risks under the Contracts. Applicants

state that the requested extension of

relief to the Other Accounts and the

Other Contracts is appropriate in the

public interest. Applicants opine that

the relief will promote competitiveness

in the variable annuity market by

eliminating the need to file redundant

exemptive applications and will,

therefore, reduce administrative

expenses and maximize efficient use of

resources. Applicants assert that the

delay and expense involved in having to

repeatedly seek exemptive relief would

impair the ability of Paul Revere to take

advantage effectively of business

opportunities as those opportunities

arise. Applicants posit that the

requested relief is consistent with the

purposes of the 1940 Act and the

protection of investors for the same

reasons. Finally, Applicants state that

were Paul Revere required to seek

repeated exemptive relief with respect

to the issues addressed in the

application, no additional benefit or

protection would be provided to

investors through the redundant filings.

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

the 1940 Act, in pertinent part, prohibit

a registered unit investment trust and

any depositor thereof or underwriter

therefor from selling periodic payment

plan certificates unless the proceeds of

all payments (other than sales load) are

deposited with a qualified bank as

trustee or custodian and held under

arrangements which prohibit any

payment to the depositor or principal

underwriter except a fee, not exceeding

such reasonable amount as the

Commission may prescribe, for

performing bookkeeping and other

administrative services of a character

normally performed by the bank itself.

3. Applicants assert that the charge for

morality and expense risks is reasonable

compensation for the risks assumed.

4. Applicants represent that the

proposed charge of .80% and the

maximum charge of 1.25% for the

mortality and expense risks assumed by

Paul Revere is within the range of

industry practice with respect to

comparable annuity products.

Applicants state that this representation

is based upon an analysis of publicly

available information regarding

mortality risks, taking into

consideration such factors as: the

guaranteed annuity purchase rates; the

expense risks, the estimated costs for

product features; and the industry

practice with respect to comparable

contracts. Applicants represent that

Paul Revere will maintain at its

principal office, available to the

Commission, a memorandum setting

forth in detail the products analyzed

and the methodology and results of the

analysis by Paul Revere.

5. Applicants assess no charge for

sales load. To the extent that

distribution costs are not covered, Paul

Revere will recover its distribution costs

from the assets of the general account.

These assets may include that portion of

the mortality and expense risk charge

which is profit to Paul Revere.

Applicants represent that Paul Revere

has concluded that there is a reasonable

likelihood that the proposed

distribution financing arrangement will

benefit the Account and the owners of

the Contracts. The basis for this

conclusion is set forth in a

memorandum which will be maintained

by Paul Revere at its principal office and

will be made available to the

Commission.3

6. Paul Revere also represents that the

Accounts will invest only in

management investment companies

which undertake, in the event such

company adopts a plan under Rule 12b–

1 of the 1940 Act to finance distribution

expenses, to have such plan formulated

and approved by either the company’s

board of directors of the board of

trustees, as applicable, a majority of

whom are not interested persons of such

company within the meaning of the

1940 Act.

Conclusion

Applicants assert that for the reasons

and upon the facts set forth above, the

requested exemptions from Sections

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

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.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–6935 Filed 3–20–95; 8:45 am]

BILLING CODE 8010–01–M