[Federal Register Volume 60, Number 85 (Wednesday, May 3, 1995)]
[Notices]
[Pages 21837-21839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10797]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21032; File No. 812-9270]
Equitable Variable Life Insurance Company, et al.
April 26, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (the ``1940 Act'').
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APPLICANTS: Equitable Variable Life Insurance Company (``Equitable
Variable''), Separate Account FP of Equitable Variable Life Insurance
Company (the ``Account''), and Equico Securities, Inc. (``Equico'').
RELEVANT 1940 ACT SECTION AND RULE: Order requested under Section 6(c)
of the 1940 Act for exemptions from Section 27(a)(3) thereof and
subsections (b)(13)(ii) and (d)(1)(ii)(A) of Rule 6e-3(T) thereunder.
SUMMARY OF APPLICATION: Applicants seek an order to permit Equitable
Variable to make available an Accounting Benefit Rider (``the Rider'')
to certain flexible premium variable life insurance policies
(``Policies'') it currently issues. The Rider permits the waiver of
specified percentages of a Policy's contingent deferred sales charge
during the early policy years. The Rider is designed to minimize the
negative impact to earnings that results under generally accepted
accounting principles in connection with the purchase of a Policy.
FILING DATE: The application was filed on October 4, 1994, and amended
and restated on April 17, 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 Secretary of the
Commission and serving the [[Page 21838]] 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 May 22, 1995, 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 a hearing by
writing to the Secretary of the Commission.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Equitable Variable and the Account, 787 Seventh Avenue, New York, NY
10019. Equico, 1755 Broadway, New York, NY 10019.
FOR FURTHER INFORMATION CONTACT: Patrice M. Pitts, Special Counsel, or
Wendy Finck Friedlander, Deputy Chief, Office of Insurance Products,
Division of Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
Public Reference Branch of the Commission.
Applicants' Representations
1. Equitable Variable is a stock life insurance company organized
in 1972 under the laws of the State of New York.
2. Equitable Variable established the Account as a segregated
investment account in 1985, pursuant to the insurance laws of New York,
for the purpose of funding variable life insurance policies, including
the Policies.\1\ The Account is registered with the Commission as a
unit investment trust under the 1940 Act. Equitable Variable is the
depositor of the Account.
\1\The Policies shall be referred to more specifically herein as
the ``IL 2000 Series,'' The ``IL Plus Series,'' and the ``COLI
Series.'' The relevant file numbers are 33-40590 (IL 2000 Series)
and 33-83948 (IL Plus and COLI Series).
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3. Equico is registered as a broker-dealer under the Securities
Exchange Act of 1934. Equico distributes the variable life insurance
policies funded by the Account, including the Policies.
4. Equitable Variable deducts a monthly administrative expense
charge and cost of insurance charges from the Policy account value, and
reserves the right to assess a charge for transfers among the various
investment options available under the Policies. In addition to
deductions made from premiums and Policy account value, Equitable
Variable assesses a charge against the assets of the Account for
mortality and expense risks borne by it under the Policies. All
administrative and other charges in connection with the Policies will
comply with all applicable requirements of Rule 6e-3(T) under the 1940
Act, subject only to the relief requested in this application.
5. Among the charges assessed under the Policies are: (a) A premium
sales charge deducted either on a front-end or a deferred basis (the
``Premium Sales Charge''); and (b) a contingent deferred sales charge
(the ``Surrender Charge''). The guaranteed maximum Premium Sales Charge
is 6% of each premium payment (some Policies have lower guaranteed
maximums). On a current basis, Equitable Variable intends to limit the
cumulative Premium Sales Charge on the IL 2000 and IL Plus Series to
less than the guaranteed maximum.\2\
\2\Under the COLI Series, the Premium Sales Charge is deducted
on a deferred basis from Policy account value rather than from gross
premium.
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6. The Rider provides that, upon surrender of a Policy: (a) All or
a portion of the deductions from premiums (charge for premium taxes and
Premium Sales Charge) will be refunded if the Policy deducts the
Premium Sales Charge;\3\ and (b) all or a portion of the Surrender
Charge (and, in the case of the IL Plus Series, the administrative
surrender charge) will be waived if the Policy is surrendered during
the early policy years. The amount refunded or waived decreases
proportionately in each of the second through sixth policy years as
follows:
\3\No deductions from premium are refunded under a Policy that
provides for deferred deduction of the Premium Sales Charge.
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Percent
Percent of of
Surrender in policy year premium surrender
deductions charges
refunded waived
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1................................................ 100 100
2................................................ 67 80
3................................................ 33 60
4................................................ 0 40
5................................................ 0 20
6 and later...................................... 0 0
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7. Applicants represent that the net effect of implementation of
the Rider is to reduce the amount of sales charges that would otherwise
be applicable during the early policy years. Applicants further
represent that, because the waiver percentages under the Rider decrease
in each of the second through the sixth policy years, implementation of
the Rider could cause a policyowner to pay proportionately more
Surrender Charge than would have been paid had the Policy been
surrendered in a preceding policy year.
8. There is no specific fee or charge related to the Rider.\4\
Equitable Variable intends to make the Rider available with Policies
purchased through corporations or partnerships under the following
circumstances:\5\ (a) A minimum of five lives are insured; (b) proposed
insureds are highly compensated; (c) the Policies have an average Face
Amount of at least $500,000;\6\ (d) the initial premium payment is made
with corporate or partnership funds; and (e) the aggregate annualized
first year premium for all Policies is at least $150,000.
\4\The provisions of the Rider are incorporated into the
contract form for the COLI Series. The term ``Rider'' as used
herein, includes the provisions of the COLI Series contract.
\5\These requirements may vary in certain states.
\6\This criterion does not apply to the COLI Series.
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9. In Equitable Variable's experience, policyowners of the type to
which the Rider will be available are unlikely to surrender their
Policies within the five-year period during which the Rider is
operative. Applicants represent that the amount of the Surrender Charge
has not been increased to compensate for the fact that, because of the
Rider, not all Policies will be subject to the full Surrender Charges
that otherwise would apply.
Applicants' Legal Analysis
1. Section 27(a)(3) of the 1940 Act provides, in effect, that the
amount of sales Charge deducted from any of the first 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 referred to commonly as the ``stair-step'' rule.
2. Applicants request an exemption from the stair step requirements
of Section 27(a)(3) and Rule 6e-3(T)(b)(13)(ii) and (d)(1)(ii)(A) to
the extent necessary because, until the seventh policy year, the Rider
could cause a policyowner to pay proportionately more Surrender Charge
than would have been paid had the Policy been surrendered in a
preceding policy year. Applicants submit that the requested relief is
necessary only because they have reduced the amount of the Surrender
Charge otherwise payable under the Policy during the early policy
years, a procedure they contend is favorable to policyowners.
3. Subsection (b)(13)(ii) of Rule 6e-3(T) under the 1940 Act, in
pertinent part, provides an exemption from Section 27(a)(3), provided
that the proportionate amount of sales charge [[Page 21839]] deducted
from any payment does not exceed the proportionate amount deducted from
any prior payment. This general proviso holds true unless the increase
in sales load deduction is caused by reductions in the annual cost of
insurance or reductions in sales load for amounts transferred to a
variable life insurance policy from another plan of insurance.
Applicants represent that neither exception applies in the present
case.
4. Subsection (d)(1) of Rule 6e-3(T) provides relief similar to
that provided by subsection (b)(13)(ii), but for sales charges deducted
from other than premiums, and provided that the sales load deducted
pursuant to any method permitted thereunder does not exceed the
proportionate amount of sales load deducted prior thereto pursuant to
the same method. Applicants represent that the express language of
subsection (d)(1)(ii)(A) prohibits the actual deduction of
proportionately greater amounts.
5. Applicants represent that although the Rider causes the
Surrender Charge to increase over a limited period of time, the actual
amount of the Surrender charge deducted in connection with the IL 2000
Series and the IL Plus Series never is proportionately greater than any
Surrender Charge deducted prior thereto, because either: (a) There has
been no prior Surrender Charge deduction; or (b) the prior deduction
resulted from a face amount decrease to which the Rider does not apply,
with the result that the Surrender Charge percentages applicable to the
decrease are the higher percentages specified in the Policy.
6. Applicants state that, unlike under the IL 2000 Series and the
IL Plus Series, however, under the COLI Series, the Rider applies to
amounts of Surrender Charges imposed upon decreases in the face amount.
Therefore, the effective rate of a Surrender Charge imposed upon a
decrease in the face amount under the COLI Series during the first five
Policy years may be lower than the Surrender Charge applicable to a
later decrease in the face amount, surrender, or termination of a
Policy. Applicants represent that this phenomenon results solely from
the fact that the Rider--which is beneficial to policyowners--applies
to decreases in face amount (as well as surrenders and Policy
termination) under the COLI Series.
7. Applicants assert that Section 27(a)(3), in conjunction with the
other sales charge limitations in the 1940 Act, was designed to address
the perceived abuse of periodic payment plan certificates that deducted
large amounts of front-end sales charges so early in the life of the
plan that an investor redeeming in the early periods would recoup
little of his or her investment. Applicants contend that waiver of an
amount of Surrender Charge otherwise payable under the Policy upon
surrender through operation of the Rider does not present the abuses
addressed in Section 27(a)(3); indeed, operation of the Rider could
further the purposes of the 1940 Act.
8. Applicants also assert that one purpose behind Section 27(h)(3)
of the 1940 Act, a provision similar to Section 27(a)(3), is to
discourage unduly complicated sales charges. Applicants submit that
this also may be deemed to be a purpose of Section 27(a)(3) and
subsections (b)(3)(ii) and (d)(1) of Rule 6e-3(T). Applicants submit
that the variation to the Policies' sales charge structure effected by
the Rider is relatively straightforward and easily understood, as
compared to that of many other variable life insurance Policies
currently being offered. Moreover, Applicants represent that eligible
policyowners will benefit from the sales charge structure effected by
the Rider, and that the prospectuses for the Policies, or supplements
thereto, will contain disclosure informing prospective eligible
policyowners of the effect of the Rider on the sales charges under the
Policies.
Applicants' Conclusion
Applicants submit that, for the reasons and based upon the facts
set forth above, the requested exemptions from Section 27(a)(3) of the
1940 Act and subsections (b)(13)(ii) and (d)(1)(ii)(A) of Rule 6e-3(T)
under the 1940 Act--to permit Equitable Variable to make a Rider
available under the Policies--meet the standards of Section 6(c) of the
1940 Act. In this regard, Applicants submit that the exemptions are
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by 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. 95-10797 Filed 5-2-95; 8:45 am]
BILLING CODE 8010-01-M