[Federal Register Volume 59, Number 240 (Thursday, December 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: X94-11215]
[[Page Unknown]]
[Federal Register: December 15, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20762; File No. 812-9086]
Equitable Variable Life Insurance Company, et al.
December 9, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANTS: Equitable Variable Life Insurance Company (``Equitable
Variable''), Separate Account FP of Equitable Variable Life Insurance
Company (the ``Separate Account'') and Equico Securities, Inc.
(``Equico'').
RELEVANT SECTIONS OF THE ACT AND RULES: Order requested under Section
6(c) of the Act exempting Applicants from Section 27(a)(3) of the Act
and Rule 6e-3(T)(b)(13)(ii), 6e-3(T)(d)(1)(ii)(A) and 6e-3(T)(d)(2)(i)
thereunder.
SUMMARY OF APPLICATION: Applicants seek an order to the extent
necessary to permit them to issue flexible premium variable life
insurance policies that provide for a higher contingent deferred sales
charge percentage to be deducted following certain face amount
increases.
FILING DATE: The Application was filed on July 1, 1994.
HEARING OF NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing on the 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 January 4, 1995, and should be accompanied
by proof of service on Applicants in the form of an affidavit or, for
lawyers, by certificate. 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 Secretary of the SEC.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Applicants, c/o Mary Breen, Esq.,
The Equitable Life Assurance Society of the United States, 787 Seventh
Avenue, Area 36-K, New York, NY 10019.
FOR FURTHER INFORMATION CONTACT: Wendy Finck Friedlander, Senior
Attorney, 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. Equitable Variable is a stock life insurance company organized
under the laws of New York and licensed in all fifty states, Puerto
Rico, the Virgin Islands and the District of Columbia. It is a wholly-
owned subsidiary of The Equitable Life Assurance Society of the United
States, a stock life insurance company organized under the laws of New
York.
2. The Separate Account was established by Equitable Variable under
New York law. Equitable Variable is the depositor of the Separate
Account. The Separate Account is registered under the Act as a unit
investment trust. The Separate Account supports benefits payable under
certain variable life insurance contracts issued by Equitable Variable
(the ``Policies'').
3. Equico, a registered broker-dealer under the Securities Exchange
Act of 1934, is the distributor of the Policies.
4. The Policies are flexible premium variable life insurance
contracts. Equitable Variable deducts monthly charges from Policy
account value for administrative expenses, cost of insurance, mortality
and expense risk, and the guaranteed death benefit. In addition,
Equitable Variable imposes administrative charges in connection with
withdrawals. Administrative withdrawal charges are limited to the
greater of 2% of the amount withdrawn or $25. Premium payments under
the Policies are subject to deductions for state or local premium
taxes. Equitable Variable has reserved the right to charge $25 per
transfer among investment options after the twelfth transfer in any
Policy year.
5. The Policies have both a front-end sales charge (``FESC'') and a
contingent deferred sales charge (``CDSC''). The FESC and CDSC
percentage rates vary by face amount of insurance. CDSC rates are based
on ``SEC Guideline Annual Premiums'' as defined in Rule 6e-3(T)(c)(8).
The following table sets forth the sales load schedule for the first
Policy year:
------------------------------------------------------------------------
CDSC percent
FESC percent CDSC percent applied to
Face amount band of gross up to one SEC premiums over
premium guideline SEC guideline
annual premium annual premium
A B C
------------------------------------------------------------------------
$50,000 to $99,999...... 6 24 3
$100,000 to $499,999.... 4 26 5
$500,000+............... 3 27 6
------------------------------------------------------------------------
After the first Policy year, premiums paid are subject to the same
FESC percentage set forth in Column A. In policy years two through
fifteen, premiums paid are subject to the same CDSC percentage set
forth in Column C. After fifteen Policy years, the CDSC is zero. For
the first nine Policy years, the maximum CDSC for the initial face
amount is equal to 66% of one ``CDSC Target Premium.''\1\ After the
first nine Policy years, the maximum CDSC begins to decrease by 11% per
year on a monthly basis through policy year fifteen. After fifteen
Policy years, the maximum CDSC is zero.
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\1\A CDSC Target Premium is determined at issue based upon the
sex, tobacco user status and issue age of the insured person and the
face amount of the Policy.
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6. Applicants represent that the aggregate of the FESC and the CDSC
assessed in connection with a Policy will not exceed sales load
limitations specified in Rule 6e-3(T)(b)(13)(i)(A). Specifically, the
total sales load under a Policy will not exceed nine percent of the sum
of the Guideline Annual Premiums that would be paid over a twenty year
period or the life expectancy of the insured if it is less than twenty
years.
7. Any time after the first Policy year, a Policy owner can request
an increase in face amount. A new layer of sales charges will apply to
a requested face amount increase (with certain rare exceptions). If the
increase keeps the Policy in the same Face Amount Band, there will be
no change in the FESC and CDSC percentages applied to future premium
payments in the table in paragraph 5. However, if a face amount
increase moves a Policy into a different Face Amount Band, the FESC and
CDSC percentages applied to future premium payments will be changed.
For example, if a Policy owner requests a face amount increase from a
$50,000 Policy to a $150,000 Policy, the FESC percentage will decrease
from 6% to 4% and the CDSC percentage will increase from 24% to 26%
(first year) and 5% (subsequent years) for future premiums. Sales
charges will not be adjusted based on the new percentages for premiums
paid prior to the increase in face amount.
Applicants' Legal Analysis
1. Section 27(a)(3) of the Act provides that the amount of sales
charge deducted from any of the first twelve monthly payments on a
periodic payment plan certificate by any registered investment company
issuing such certificates, or any depositor or underwriter for such
company, 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.
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, unless an increase 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.
Subsection (d) of Rule 6e-3(T) provides computational rules for use
is applying the Rule. Rule 6e-3(T)(d)(1)(ii)(A) provides that section
(b)(13)(ii) of Rule 6e-3(T) shall be deemed to be satisfied if the
amount of sales load deducted pursuant to any method permitted does not
exceed the proportionate amount of sales load deducted prior thereto
pursuant to the same method, with certain exceptions not present here.
Rule 6e-3(T)(d)(2)(ii)(A) provides procedures for computing sales
load to comply with provisions of the Rule after an increase in or
addition of insurance benefits.
3. Under the Policy's sales load structure, Applicants state that
if a face amount increase results in a higher Face Amount Band, the
CDSC percentages for the incremental face amount layer and, with
respect to premiums paid subsequent to the increase, the CDSC
percentages for the initial (base) policy, will be higher than the
initial CDSC percentages for the base policy. This scenario would
appear to give rise to a violation of the so-called ``stair-step''
provisions in Section 27(a)(3) of the Act. Moreover, the exemption
provided by Rule 6e-3(T)(b)(13)(ii) does not appear to apply to this
situation.
4. Applicants submit that the Policy's sales charge structure
benefits Policy owners and is not inconsistent with the policies and
purposes behind Section 27(a)(3). Any increase an CDSC percentages
resulting from a change in Face Amount Band is accompanied by an
identical percentage decrease in the FESC percentage that would
otherwise apply. Thus, Applicants assert that the sole effect of the
Policy's sales charge structure is to shift part of the sales charges
from the front-end to the back-end for Policies that move into a larger
Face Amount Band, a change that does not increase the proportionate
amount of sales charges when taken as a whole. The potential benefit to
Policy owners is that more of the investor's money is available to
accrue any positive investment experience due to the inherent benefits
of CDSCs to FESCs.
5. Section 27(a)(3), and the other sales load limitations in the
Act, were designed to address the perceived abuses of periodic payment
plans that deducted large amounts of front-end sales charges early in
the life of the plan so that an investor who redeemed in the early
periods recouped little of his or her investment. Applicants contend
that the fact that the Policy's sales structure may vary solely because
of the action of Policy owners in exercising their flexibility to
increase the face amount under a Policy is a desirable feature for
Policy owners. Applicants contend that the policies underlying the
stair-step provisions are not contravened by fluctuations in sales load
due to factors beyond the issuer's control.
Conclusion
For the reasons stated above, Applicants submit that the requested
exemptions, in accordance with the standards of Section 6(c) of the
Act, are consistent with the protection of Policy owners and the
purposes fairly intended by the policy and provisions of the Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 30778 Filed 12-14-94; 8:45 am]
BILLING CODE 8010-01-M
