20296 Federal Register / Vol. 61, No. 88 / Monday, May 6, 1996 / Notices

partnership. On August 17, 1987,

applicant registered under the Act and

filed a registration statement to register

its securities under the Securities Act of

1933. Applicant’s registration statement

was declared effective on November 9,

1988, and its initial public offering

commenced shortly thereafter.

2. On January 7, 1992, in light of

applicant’s small size and the resulting

unlikelihood of achieving economies of

scale, the Individual General Partners of

applicant unanimously approved a Plan

of Dissolution, Liquidation, and

Termination (the ‘‘Plan’’) providing for

the dissolution of applicant, the

liquidation of applicant’s assets, and the

distribution of the proceeds from such

liquidation to applicant’s unitholders.

Proxy materials relating to the Plan were

filed with the SEC and distributed to

unitholders on or about March 26, 1992.

On April 30, 1992, a majority of

applicant’s unitholders approved the

Plan.

3. As of April 30, 1992, applicant had

249,941.79 units of partnership interest

outstanding, with a net asset value of

$10.38 per unit and an aggregate net

asset value of $2,594,406.15. On May 1,

1992, applicant’s assets were liquidated

and the proceeds of such liquidation,

less an amount retained for liabilities,

were distributed to applicant’s

unitholders in an amount based upon

applicant’s per share net asset value. All

sales of portfolio securities were

executed in open market transactions

through brokers or dealers not affiliated

with applicant or its investment adviser.

4. The expenses applicable to the

liquidation amounted to approximately

$64,317.06. These expenses, which were

for accounting, printing, administrative,

and legal services, were borne by

applicant’s investment adviser and

administrator. In addition, prior to

distribution of applicant’s assets, its

adviser and administrator contributed to

applicant’s assets an amount equal to

applicant’s unamortized organizational

expenses.

5. At the time of filing the application,

applicant had no assets or liabilities.

Applicant has no unitholders and is not

a party to any litigation or

administrative proceeding. Applicant is

not engaged in, and does not propose to

engage in, any business activities other

than those necessary for the winding-up

of its affairs. To effect the dissolution of

applicant as a Delaware limited

partnership, a certificate of cancellation

will be filed with the Secretary of State

of the State of Delaware.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–11137 Filed 5–3–96; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–21931; File No. 812–10100]

The Manufacturers Life Insurance

Company of America, et al.

April 30, 1996.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for

exemptions under the Investment

Company Act of 1940 (‘‘1940 Act’’).

APPLICANTS: The Manufacturers Life

Insurance Company of America,

(‘‘Company’’), Separate Account Three

of The Manufacturers Life Insurance

Company of America (‘‘Account’’) and

ManEquity, Inc. (‘‘ManEquity’’).

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) for

exemptions from Section 27(a)(3) of the

1940 Act and Rule 6e–3(T)(b)(13)(ii)

thereunder.

SUMMARY OF APPLICATION: Applicants

seek an order to permit the front-end

sales load imposed under certain

flexible premium variable life insurance

policies (‘‘Policies’’) to be eliminated for

payments in excess of one Target

Premium in any Policy year.

FILING DATE: The application was filed

on April 23, 1996. Applicants represent

that they will amend the application

during the notice period to conform to

the representation set forth herein.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless a hearing is ordered.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving the Applicants

with a copy of the request, personally or

by mail. Hearing requests must be

received by the SEC by 5:30 p.m. on

May 21, 1996 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 writer’s interest, the reason for the

request, and the issues contested.

Persons may request notification of the

date of a hearing by writing to the SEC’s

Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

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

Applicants, The Manufacturers Life

Insurance Company of America, 200

Bloor Street East, Toronto, Ontario,

Canada M4W 1E5.

FOR FURTHER INFORMATION CONTACT:

Joyce Merrick Pickholz, Senior Counsel,

or Wendy Finck Friedlander, Deputy

Chief, at (202) 942–0670, Office of

Insurance Products, Division of

Investment Management.

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application is

available for a fee from the SEC’s Public

Reference Branch.

Applicants’ Representations

1. The Company is a stock life

insurance company organized under the

laws of the State of Pennsylvania on

April 11, 1977 and redomesticated

under the laws of Michigan on

December 9, 1992. The Company is a

wholly-owned subsidiary of Manulife

Reinsurance Corporation (U.S.A.),

which in turn is a wholly-owned

subsidiary of Manufacturers Life, a

mutual life insurance company based in

Toronto, Canada. The Company is

authorized to do business in the District

of Columbia and in all states of the

United States except the State of New

York.

2. The Account was established under

Pennsylvania law on August 22, 1986.

Since December 9, 1992, the Account

has been operated under Michigan law.

The assets of the Account fund the

Policies and certain other variable life

insurance policies issued by the

Company. The Account is registered

under the 1940 Act as a unit investment

trust.

3. ManEquity, an indirect, whollyowned subsidiary of Manulife

Reinsurance Corporation (U.S.A.), is

registered with the Commission as a

broker-dealer and is a member of the

National Association of Securities

Dealers, Inc. ManEquity is the principal

underwriter for the Policies and for

other variable life insurance policies

and variable annuity contracts issued by

the Company.

4. The Policies are flexible-premium

survivorship life insurance policies that

permit accumulation of Policy Values

on a variable, fixed, or combination of

variable and fixed basis. The Company

will issue a Policy with a face amount

of at least $250,000, and will generally

issue Policies only to persons who have

not attained age 90.

5. A Policy owner may pay premiums

at any time and in any amount, subject

to certain limitations. At a Policy’s

maturity, Policy Value, minus any

outstanding Policy loans and unpaid

interest thereon, is paid to the Policy

owner.

6. Policy Values currently may be

allocated among sub-accounts of the

Account (‘‘Investment Accounts’’) that
Federal Register / Vol. 61, No. 88 / Monday, May 6, 1996 / Notices 20297

1A Target Premium is a measure of premium

specified in a policy that varies from insured to

insured and never exceeds a Guideline Annual

Premium (‘‘GAP’’), as defined in Rule 6e–3(T)(c)(8)

under the 1940 Act.

invest in nine investment company

portfolios of Manulife Series Fund, Inc.

and seven portfolios of NASL Series

Trust, or may be allocated to a fixed rate

(general account) option. Policy Values

may be transferred among the

Investment Accounts and to and from

the fixed rate option, subject to certain

restrictions described in the prospectus

for the Policies. The Policies also permit

asset allocation rebalancing and dollar

cost averaging. Policy Values may be

accessed by means of partial

withdrawals or a total surrender of a

Policy, or by taking a Policy loan.

7. The Policies offer a choice of two

death benefit options. Under Option 1,

the death benefit is the face amount of

the Policy or, if greater, the Policy Value

multiplied by the corridor percentage

applicable for the age of the youngest

insured as set forth in the ‘‘Corridor

Percentage Table’’ which is contained in

the prospectus. Under Option 2, the

death benefit is the face amount of the

Policy plus the Policy Value, or, if

greater, the Policy Value multiplied by

the corridor percentage applicable for

the age of the youngest insured, as set

forth in the Corridor Percentage Table.

If the Policy is in force at the time of the

last surviving insured’s death, the

Company will pay, upon receipt of due

proof of death, an insurance benefit

based on the death benefit option

selected by the Policy owner.

8. In those states where permitted, the

Policies also provide for certain

guarantees that a Policy will not go into

default, even if a combination of Policy

loans, adverse investment experience or

other factors should cause the Policy’s

net cash surrender value to be

insufficient to meet the monthly

deductions due at the beginning of a

Policy month. Depending upon the type

of guarantee selected, for additional

monthly premiums set forth in the

Policy, the amounts of which are based

upon (1) the supplementary benefits

available under the Policy and selected

by the Policy owner and (2) the risk

classification of any life insured under

the Policy, the Company will provide

guarantees against lapse if, as of the

beginning of the Policy month, the sum

of all premiums paid to date less any

partial withdrawals and less any Policy

debt is greater than or equal to the sum

of the premiums due for the guarantee

elected since the Policy Date.

9. The Company deducts a charge of

2.35% of each premium payment for

state and local taxes and a charge of

1.25% of each premium payment to

reimburse the Company for a portion of

its increased federal tax liability in

connection with receipt of premiums

under the Policies under Section 848 of

the Internal Revenue Code of 1986, as

amended. The Company currently

intends to cease these deductions at the

end of the tenth Policy year, but

reserves the right to continue these

deductions beyond the tenth Policy

year.

10. The Policies have a front-end sales

load equal to 5.5% of all premiums paid

in each Policy year up to one Target

Premium; 1 for premium payments in

excess of one Target Premium in a

Policy year there is no front-end sales

charge. This deduction is guaranteed to

cease at the end of the tenth Policy year,

or ten years after a face amount increase,

as applicable. Payments made after ten

Policy years, (or, if there has been a face

amount increase, ten Policy years after

that increase) are not subject to a frontend sales charge.

11. In addition, the Company will

assess surrender charges upon the

surrender of a Policy, on certain partial

withdrawals under a Policy, in the event

of a decrease in the face amount of a

Policy or a cancellation of an increase,

and in the event that a Policy lapses. If

applicable, these charges will be

assessed if any of these transactions

occurs within the applicable surrender

charge period as set forth in the Policy.

There are two surrender charges: a

deferred underwriting charge (‘‘DUC’’)

and a contingent deferred sales charge

(‘‘CDSC’’).

12. The DUC is $4 for each $1,000 of

face amount of life insurance coverage

initially purchased or added by

increase. This charge applies only to the

first $1,000,000 of face amount initially

or the first $1,000,000 of each

subsequent increase in face amount. The

DUC is designed to cover the

administrative expenses associated with

underwriting and Policy issuance.

13. The maximum CDSC under the

Policies is equal to one Target Premium

multiplied by percentages shown in

Table 1 of the prospectus for the

Policies, which percentage grade down

over fifteen Policy years to 0% (but in

no event will the sum of the CDSC and

the front-end sales charge exceed the

amount permitted by Section 27(a)(2) of

the 1940 Act). Except for surrenders to

which the sales charge limitations

provisions described below apply,

100% of the CDSC will be in effect for

at least the first six Policy years for lives

insured with either an average issue age

(or average attained age at the time of a

face amount increase) of 0–75. For

average ages higher than 75, the CDSC

will grade down more rapidly, at a rate

that is also set forth in Table 1 of the

prospectus.

14. In order to determine the CDSC

applicable to a face amount increase, the

Company will treat a portion of the

Policy Value on the date of increase as

a premium attributable to the increase.

In addition, a portion of each premium

paid on or subsequent to the increase

will be attributed to the increase. In

each case, the portion attributable to the

increase will be the ratio of the GAP for

the increase to the sum of the GAPs for

the initial face amount and all increases

including the requested increase.

15. If a Policy is surrendered or

lapsed, or a face amount decrease is

requested at any time during the first

two years after issuance (for corporate

owned Policies) or after an increase in

face amount, the Company will forego

taking that part of the CDSC with

respect to ‘‘premiums’’ paid for the

initial face amount or that increase

(including the portion of Policy Value

treated as premiums for the increase, as

described above), whichever is

applicable, which exceeds the sum of (i)

30% of the premiums paid up to the

lesser of one GAP or the cumulative

premiums paid to the surrender date,

plus (ii) 10% of the premiums paid in

excess of one GAP, up to the lesser of

two GAPs or the cumulative premiums

paid to the surrender date, plus (iii) 9%

of the premiums paid in excess of two

GAPs, reduced by the amount of all

sales charges previously taken.

16. Since a CDSC is deducted when

a Policy terminates for failure to make

the required payment following a Policy

default, the sales charge limitation

described above will apply if the

termination occurs during the two-year

period following issuance or any

increase in face amount. If the Policy

terminates during the two years after a

face amount increase, the limitation will

relate only to the CDSC applicable to the

increase.

17. A monthly charge (at a minimum

rate of $30 per Policy month and a

maximum rate of $60 per month) is

deducted from the Policy Value for

administration of the policies. The

monthly administration charge is $.04

per $1,000 of ace amount until the later

of the youngest living life insured’s

attained age 55 or the end of the

fifteenth Policy year. Thereafter, the

charge is $0.

18. A cost of insurance charge that is

guaranteed to be no more than that

permitted under the applicable 1980

Commissioners Standard Ordinary

Mortality Table is deducted from Policy

Value each month. This charge

compensates the Company for the death
20298 Federal Register / Vol. 61, No. 88 / Monday, May 6, 1996 / Notices

1 15 U.S.C. 78s(b)(1) (1988).

benefits provided under the Policies and

varies from insured to insured based

upon issue age, gender (except where

unisex rates are mandated by law),

smoking status and risk class. Cost of

insurance rates on amounts added by

face increase are based on the same

factors, but determined based upon the

time of increase instead of issue.

19. A mortality and expense risk

charge is deducted from Policy Value at

the beginning of each Policy month, at

a rate of .067% through the later of the

tenth Policy year and the youngest life

insured’s attained age 55. Currently, it is

expected that this charge will reduce to

.0215 per month thereafter, although the

Company reserves the right not to

reduce this charge.

20. Charges will be imposed on

certain transfers of Policy Values,

including a $35 charge for transfers in

any Policy month after the first transfer,

a $15 charge for each asset allocation

rebalancing transfer and a $5 charge for

each dollar cost averaging transfer when

Policy Value does not exceed $15,000.

Applicants’ Legal Analysis

1. Section 27(a)(3) of the 1940 Act

provides that the amount of sales charge

deducted from any of the fist twelve

monthly payments of a periodic

payment plan certificate may not exceed

proportionately the amount deducted

from any other such payment, and that

the amount deducted from any

subsequent payment may not exceed

proportionately the amount deducted

from any other subsequent payment.

This prohibition is commonly referred

to as the ‘‘stair-step’’ rule.

2. Rule 6e–3(T)(b)(13)(ii) provides an

exemption from Section 27(a)(3),

provided that the proportionate amount

of sales charge deducted from any

payment does not exceed the

proportionate amount deducted from

any prior payment.

3. Under the Policies described

herein, a Policy owner paying premiums

in excess of the Target Premium in any

of the first ten Policy years will pay a

5.5% front-end sales load on the portion

of the premium up to the Target

Premium, but will pay no front-end

sales load on premiums about the Target

Premium in that year. Applicants

submit that this sales load structure

could be deemed to violate Section

27(a)(3). In addition, a Policy owner

paying more than a Target Premium in

any of the first ten Policy years who

subsequently makes a premium

payment equal to the Target Premium

will pay a higher front-end sales in that

subsequent Policy year. Consequently,

the exemption provided in Rule 6e–

3(T)(b)(13)(ii) would be unavailable.

4. According to the Applicants,

Section 27 was designed to protect

Policy owners against sales load

structures that deducted large amounts

of front-end sales charges so early in the

life of a Policy that little of the Policy

owner’s early payments were actually

invested, or if an owner redeemed in the

early years of an investment, that

investor would recoup little of his or her

investment upon redemption.

Applicants assert that the front-end

sales load structure under the Policies

does not present these concerns. Rather,

Applicants state that they expect that by

imposing a lower front-end sales load

on premiums in excess of the Target

Premium, the Company will lower the

aggregate level of sales load paid in each

of the first ten Policy years (or the first

ten years after a face amount increase).

5. Applicants state that the

Company’s front-end sales load

structure significantly benefits Policy

owners by eliminating sales charges on

payments in excess of Target Premiums

in any Policy year. According to the

Applicants, the Company could avoid

the stair-step issue presented by Section

27(a)(3) and Rule 6e–3(T) simply by

imposing a higher front-end load on the

full amount of premium payments in

each Policy year, including amounts

over the Target Premium. Under this

arrangement, however, a Policy owner

would pay a higher overall sales load,

and would be left with a smaller

percentage of his or her premium

payment for investment under the

Policy. Further, if the Company were to

impose the higher sales charge on

premiums about the Target Premium, it

would generate more revenue from the

Policies than it believes necessary to

support the distribution costs associated

with the Policies.

6. Rule 6e–3(T)(b)(13)(ii) contains an

exception to its policy prohibiting

increases in sales load that allow

insurance companies to charge a lower

sales charge or amounts transferred to a

flexible premium variable life insurance

policy from another plan of insurance,

and thereafter to impose a full sales

charge on later premium payments.

Applicants contend that this exception

implicitly recognizes that insurance

companies incur lower costs on

premium payments that consist of

amounts transferred from other policies

and permits insurance companies to

pass those costs savings through to

Policy owners. For the same reason,

Applicants submit that the Company

should be permitted to pass through to

Policy owners its reduced costs with

respect to premiums about the Target

Premium by reducing its front-end sales

load on premiums above the Target

Premium in each Policy year that a

front-end sales load applies.

Conclusion

For the reasons set forth above,

Applicants submit that the requested

exemptions from the provisions of

Section 27(a)(3) of the 1040 Act and

Rule 6e–3(T)(b)(13)(ii) thereunder, are

in accordance with the standards of

Section 6(c) of the 1940 Act, and with

the protection of investors and the

purposes and policies of the 1940 Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–11231 Filed 5–3–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37149; File No. SR–DCC–

96–05]

Self-Regulatory Organizations; Delta

Clearing Corp.; Notice of Filing and

Immediate Effectiveness of a Proposed

Rule Change Relating to a Change in

Interdealer Brokers

April 29, 1996.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

April 17, 1996, Delta Clearing Corp.

(‘‘DCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

the proposed rule change as described

in Items I, II, and III below, which items

have been prepared primarily by DCC.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The purpose of the proposed rule

change is to revise the procedures for

DCC’s Over-The-Counter Options

Trading System by including in the

definition of ‘‘RMJ’’ a statement that all

references to RMJ in the procedures

shall be deemed to be references to the

broker then performing the duties and

responsibilities of RMJ under the

procedures.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DCC included statements concerning

the purpose of and basis for the

proposed rule change and discussed any