[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