[Federal Register Volume 60, Number 132 (Tuesday, July 11, 1995)]
[Notices]
[Pages 35773-35777]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16933]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21181; No. 812-9514]


Hartford Life Insurance Company, et al.

June 30, 1995.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (``1940 Act'').

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APPLICANTS: Hartford Life Insurance Company (``Hartford''), ITT 
Hartford Life and Annuity Insurance Company (``ITT-Hartford'') 
(collectively, ``Companies''), Separate Account VL-II of Hartford 
(``Account VL-II''), Separate Account VL III of ITT-Hartford (``Account 
VL-III'') (collectively, ``Separate Accounts''), any future separate 
accounts (``Future Accounts'') of the Companies offering variable life 
insurance contracts (``Future Contracts``) that are materially similar 
to the last survivor flexible premium variable life insurance contracts 
(``Contracts'') offered by the Separate Accounts, and Hartford Equity 
Sales Company (``HESCO'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for 
exemptions from Sections 27(a)(3) and 27(c)(2) of the 1940 Act and 
Rules 6e-3(T)(b)(13)(ii) and 6e-3(T)(c)(4)(v) thereunder.

SUMMARY OF APPLICATION: Applicants seek an order to permit the issuance 
of the Contracts in which: (1) Premium payments attributable to the 
basic face amount in excess of the target premium and any premium 
payments attributable to the supplemental face amount may be subject to 
a lower sales load when compared to a subsequent year's premium payment 
attributable to the basic face amount up to the target premium; and (2) 
a deduction is made from premium payments of an amount that is 
reasonably related to the Companies' increased federal tax burden 
resulting from the application of Section 848 of the Internal Revenue 
Code of 1986, as amended (``Code'').

FILING DATE: The application was filed on March 3, 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 Commission's Secretary 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on July 24, 1995, and should be accompanied by proof of service on 
Applicants in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the requestor'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, Securities and Exchange Commission, 450 5th 
Street, NW., Washington, DC 20549. Applicants, c/o Rodney J. Vessels, 
Esq., Counsel, ITT Hartford Life Insurance Companies, 200 Hopmeadow 
Street, Simsbury, Connecticut 06089.

FOR FURTHER INFORMATION CONTACT:
Yvonne M. Hunold, Assistant Special 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 
Commission's Public Reference Branch.

Applicants' Representations

    1. Hartford, a Connecticut stock life insurance company, offers 
life insurance in all states and the District of Columbia. Hartford is 
indirectly wholly-owned by Hartford Fire Insurance Company, a 
subsidiary of ITT Corporation.
    2. ITT-Hartford, a Wisconsin stock life insurance company, offers 
life insurance and annuities in all states, except New York, and in the 
District of Columbia. ITT-Hartford is a wholly owned subsidiary of 
Hartford.
    3. Account VL-II was established by Hartford as a separate account 
under the insurance laws of Connecticut. Account VL-III was established 
by ITT-Hartford as a separate account under the insurance laws of 
Wisconsin. The Separate Accounts have filed registration statements to 
register as unit investment trusts under the 1940 Act. Registration 
statements also have been filed under the Securities Act of 1933 in 
connection with the offering of the Contracts by the Separate Accounts. 
Each Separate Account presently is comprised of twenty-two sub-accounts 
(``Sub-Accounts''), which invest exclusively in certain open-end 
management investment companies or series of such companies 
(``Funds'').\1\

    \1\ The Funds include: (1) the Hartford Funds--Hartford Advisers 
Fund, Inc., Hartford Aggressive Growth Fund, Inc., Hartford Bond 
Fund, Inc., Hartford Dividend and Growth Fund, Inc., Hartford Index 
Fund, Inc., Hartford International Opportunities Fund, Inc., 
Hartford Mortgage Securities Fund, Inc., Hartford Stock Fund, Inc., 
and HVA Money Market Fund, Inc., which are managed by Hartford 
Investment Management Company; (2) The Putnam Funds--PCM Diversified 
Income Fund, PCM Global Asset Allocation Fund, PCM Global Growth 
Fund, PCM Growth and Income Fund, PCM High Yield Fund, PCM Money 
Market Fund, PCM New Opportunities Fund, PCM U.S. Government and 
High Quality Bond Fund, PCM Utilities Growth and Income Fund, and 
PCM Voyager Fund, which are managed by the Putnam Management 
Company, Inc.; and (3) the Fidelity Funds--the Equity-Income 
Portfolio, Overseas Portfolio and Asset Manager Portfolio, which are 
managed by Fidelity Management & Research Company.
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    4. HESCO is the principal underwriter for the Contracts and for 
other variable insurance contracts issued by the Companies' other 
separate accounts. HESCO is registered as a broker-dealer under the 
Securities Exchange Act of 1934.
    5. The Policies are last survivor flexible premium variable life 
insurance contracts that provide for allocation of premium payments to 
the Sub-Accounts or to a fixed account. The cash value and the death 
benefit under the Contracts may fluctuate depending on the investment 
experience of the Sub-Accounts. There are three Death Benefit Options, 
which are payable at the death of the last surviving insured: (a) face 
amount; (b) face amount plus account value; or (c) face amount plus a 
return of premiums. The minimum death benefit is equal to the account 
value multiplied by a specified percentage, which varies according to 
certain conditions. The Contracts will not lapse if the cash surrender 
value is sufficient to cover monthly fees and charges deducted from 
account value or the death benefit guarantee is in effect.
    6. Certain fees and charges are deducted under the Contracts, 
including a premium expense and processing charge and a state premium 
tax charge as well as monthly issue charges, administrative charges, 
insurance charges, charges for optional rider benefits, charges for 
extra mortality risks, and a charge for mortality and expense risks. In 
addition, Applicants propose to deduct from premium payments a front-
end sales load and a charge equal to 1.25% of each premium payment to 
cover the estimated cost of the federal income tax treatment under 
Section 848 of the Code, commonly referred to as the ``DAC Tax,'' both 
of which are discussed below.

[[Page 35774]]

    7. Front-End Sales Load Charge. a. The front-end sales load is 
based on the amount of the premium paid in relation to the ``Target 
Premium,'' \2\ the Contract Year in which the premium is paid, and the 
pro-rated amount of the premium payment attributable to the basic face 
amount and to the supplemental face amount.\3\

    \2\ The ``Target Premium'' is a percentage of the level annual 
premium payment, or the ``Guideline Annual Premium,'' necessary to 
provide future benefits under the Policy through maturity.
    \3\ Premium payments are allocated to the basic face amount and 
to the supplemental face amount in the same ratio that the initial 
amounts each bear, respectively, to the initial face amount.
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    b. Current and maximum front-end sales load for premium payments 
attributable to: (1) the basic face amount up to Target Premium, (2) 
the basic face amount in excess of the Target Premium, and (3) 
supplemental face amount, are as follows:

                          Front-End Sales Loads                         
------------------------------------------------------------------------
                                   Basic face amount       Supplemental 
                             ----------------------------   face amount 
                              Up to target    Excess of  ---------------
                                 premium       target                   
       Contract years        --------------    premium                  
                                           --------------   Current/max 
                               Current/max   Current/max     (percent)  
                                (percent)     (percent)                 
------------------------------------------------------------------------
1...........................     50.0/50.0       9.0/9.0         4.0/4.0
2-5.........................     15.0/15.0       4.0/4.0         4.0/4.0
6-10........................     10.0/10.0       4.0/4.0         4.0/4.0
11-20.......................       2.0/2.0       2.0/2.0         2.0/2.0
After 20....................       0.0/0.0       0.0/2.0         0.0/2.0
------------------------------------------------------------------------

    8. Section 848 ``DAC Tax'' Charge. a. Applicants state that the 
1.25% charge deducted from each Premium Payment is designed to 
reimburse the Companies for their increased federal tax burden 
resulting from the application of Section 848 of the Code to the 
receipt of those premiums. Section 848, as amended, requires life 
insurance companies to capitalize and amortize over ten years certain 
general expenses for the current year rather than deduct these expenses 
in full from the current year's gross income, as allowed under prior 
law. Section 848 effectively accelerates the realization of income from 
specified contracts and, consequently, the payment of taxes on that 
income. Taking into account the time value of money, Section 848 
increases the insurance company's tax burden because the amount of 
general deductions that must be capitalized and amortized is measured 
by the premiums received under the Contracts.
    b. Deductions subject to Section 848 equal a percentage of the 
current year's net premiums received (i.e., gross premiums minus return 
premiums and reinsurance premiums) under life insurance or other 
contracts categorized under this Section. The Contracts will be 
categorized as ``specific contracts'' under Section 848 requiring 7.7% 
of the net premiums received to be capitalized and amortized under the 
schedule set forth in Section 848(c)(1).
    c. The increased tax burden on every $10,000 of net premiums 
received under the Contracts is quantified by Applicants as follows. 
For each $10,000 of net premiums received in a given year, the 
Companies' general deductions are reduced by $731.50, or (a) $770 
(i.e., 7.7% of $10,000), minus (b) $38.50 (one-half year's portion of 
the ten year amortization which may be deducted in the current year). 
The remaining $731.50 ($770 less $38.50) is subject to taxation at the 
corporate tax rate of 34% and results in $248.71 (.34%  x  $731.50) 
more in taxes for the current year than the Companies otherwise would 
have owed prior to OBRA 1990. However, the current tax increase will be 
offset partially by deductions allowed during the next ten years, which 
result from amortizing the remainder $770 ($77 in each of the following 
nine years and $38.50 in year ten).
    d. In calculating the present value of these increased future 
deductions, the Companies determined that, in their business judgment, 
it is appropriate to use a discount rate of 10% for the following 
reasons. To the extent that capital must be used by the Companies to 
pay the increased federal tax burden under Section 848, such surplus 
will be unavailable for investment. Thus, the cost of capital used to 
satisfy this increased tax burden under Section 848 is the Companies' 
targeted rate of return (i.e., return sought on invested capital), 
which is in excess of 10%. Accordingly, Applicants submit that the 
targeted rate of return is appropriate for use in this present value 
calculation.
    e. Applicants also submit that, to the extent that the 10% discount 
rate is lower than the Companies' actual targeted rate of return, the 
calculation of this increased tax burden will continue to be reasonable 
over time, even if the applicable corporate tax rate is reduced, or 
their targeted rate of return is lowered.
    f. In determining the targeted rate of return used in arriving at 
the discount rate, the Companies first identified a reasonable risk-
free rate of return that can be expected to be earned over the long 
term. The Companies then determined the premium needed to earn more 
than that risk-free rate of return because of the inherently risky 
nature of the insurance products it sells. Applicants represent that 
these are appropriate factors to consider in determining the Companies' 
targeted rate of return.
    g. Using a federal corporate tax rate of 34%, and applying a 
discount rate of 10%, the present value of the tax effect of the 
increased deductions allowable in the following ten years, which 
partially offsets the increased tax burden, equals $155.82. The effect 
of Section 848 on the Contract, therefore, is an increased tax burden 
with a present value of $92.89 for each $10,000 of net premiums (i.e., 
$248.71 less $155.82).
    h. Applicants state that the Companies do not incur incremental 
federal income tax when they pass on state premium taxes to Contract 
Owners because state premium taxes are deductible in computing the 
Companies' federal income taxes. Conversely, federal income taxes are 
not deductible in computing the Companies' federal income taxes. To 
compensate the Companies fully for the impact of Section 848, an 
additional charge must be imposed to make them whole for the $92.89 
additional tax 

[[Page 35775]]
burden attributable to Section 848, as well as the tax on the 
additional $92.89 itself. This additional charge can be determined by 
dividing $92.89 by the complement of 34% federal corporate income tax 
rate (i.e., 66%) resulting in an additional charge of $140.74 for each 
$10,000 of net premiums, or 1.41%.
    i. Based on prior experience, the Companies reasonably expect to 
take almost all future deductions. It is the judgment of the Companies 
that a charge of 1.25% would reimburse them for the increased federal 
income tax liabilities under Section 848 of the Code. Applicants 
represent that the 1.25% charge will be reasonably related to the 
Companies' increased federal income tax burden under Section 848 of the 
Code. This representation takes into account the benefit to the 
Companies of the amortization permitted by Section 848 and the use of a 
10% discount rate (which is equivalent to the Companies' targeted rate 
of return) in computing the future deductions resulting from such 
amortization. Applicants assert that it is appropriate to deduct this 
charge, and to exclude the deduction of this charge from sales load, 
because it is a legitimate expense of the Companies and not for sales 
and distribution expenses.

Applicants' Legal Analysis

A. Exemptive Relief Under Section 27(a)(3) of the 1940 Act and Rule 6e-
3(T)(b)(13)(ii) Thereunder

    1. Section 27(a)(3) of the 1940 Act provides that the amount of 
sales charge deducted from any of the first twelve monthly payments on 
a periodic payment plan certificate may not exceed proportionately the 
amount deducted from any other such payment. Section 27(a)(3) further 
provides that the sales charge 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 a partial exemption from the 
prohibitions of Section 27(a)(3). Exemptive relief from the 
prohibitions of Section 27(a)(3) provided by Rule 6e-3(T)(13)(ii) is 
available if the proportionate amount of sales charge deducted from any 
premium payment, unless an increase is caused by reductions in the 
annual cost of insurance or in sales charge for amounts transferred to 
a variable life insurance contract from another plan of insurance. Rule 
6e-3(T)(b)(13)(ii) thus permits a decrease in sales load for any 
subsequent premium payment but not an increase.
    3. Under the Contracts' sales load structure, a subsequent year's 
premium payment that is attributable to the basic face amount up to the 
Target Premium will be subject to a higher sales charge than premium 
payments attributable to the basic face amount in excess of one year's 
Target Premium and the supplemental face amount (together, ``Excess 
Premium'').\4\ Applicants thus request an exemption from the 
requirements of Section 27(a)(3) and Rule 6e-3(T)(b)(13)(ii) because 
the Contracts' sales load structure violates the ``stair-step'' 
provisions in Section 27(a)(3) and because the exemption from Section 
27(a)(3) provided by Rule 6e-3(T)(b)(13)(ii) does not apply to the 
Contracts' sales load structure.

    \4\ For example, in Contract Year 2, premium payments 
attributable to the basic face amount in excess of the Target 
Premium and premium payments attributable to the supplemental face 
amount are subject to a 4% sales load. In Contract Year 3, however, 
subsequent premium payments attributable to the basic face amount up 
to the Target Premium are subject to a 15% sales load.
    4. Applicants state that, had they chosen to impose the higher 
front-end sales load equally on all premium payments, the Contracts 
would qualify for exemptive relief under Rule 6e-3(T)(b)(13)(ii), 
subject to the maximum limits permissible under subparagraph (b)(13)(i) 
of the Rule. Applicants represent, however, that the sales load 
structure has been designed based on the Companies' operating expenses 
for the sale of the Contracts and, thus, reflects in part the lower 
overall distribution costs that are associated with Excess Premiums 
paid over the life of a Contract. Applicants submit that it would not 
be in the best interest of a Contract Owner to require the imposition 
of a higher sales load structure than Applicants deem necessary to 
adequately defray their expenses.
    5. Applicants argue that Section 27(a)(3) was designed to address 
the abuse of periodic payment plan certificates under which large 
amounts of front end sales loads were deducted so early in the life of 
the plan that an investor redeeming in the early periods would recoup 
little of his or her investment since only a small portion of the 
investor's early payments were actually invested. Applicants submit 
that the deduction of a reduced front-end sales load on Excess Premiums 
paid in any Contract Year does not have the detrimental effect that 
Section 27(a)(3) was designed to prevent because a greater proportion 
of the Contracts' sales loads are deducted later than otherwise would 
be the case.
    6. Applicants state that Rule 6e-3(T)(b)(13)(i) specifically 
permits an insurance company to reduce or eliminate its sales loads 
with respect to amounts contributed to a variable life insurance 
contract in connection with an exchange from another plan of insurance 
and, thereafter, to impose the full sales load with respect to 
subsequent premium payments. Applicants submit that such sales load 
variations normally reflect decreased sales expenses in connection with 
the exchanged amounts. Similarly, Applicants submit that the Companies 
should be permitted to pass on its reduced sales expenses by forgoing 
the extra front-end sales load applicable to any Excess Premium, 
notwithstanding that it will impose a front-end sales load on premium 
payments in subsequent years as described herein.
    7. Applicants also state that Target Premiums and Excess Premium 
have different levels of sales expenses because they serve different 
purposes. Premium payments up to the Target Premium are applied 
primarily to guarantee benefits under the Contracts and have a higher 
level of sales expenses than the Excess Premium, which are applied to 
increase account values under the Contracts, resulting in an increase 
in the investment element of the Contracts. Applicants argue that it is 
appropriate to analyze the sales load structure for premium payments up 
to and in excess of Target Premium separately from those attributable 
to supplemental face amounts. Applicants submit that, when analyzed 
separately, both types of sales load comply with Rule 6e-
3(T)(b)(13)(ii).

B. Exemptive Request With Respect to Section 27(c)(2) of the 1940 Act 
and Rule 6e-3(T)(c)(4)(v) Thereunder in Connection With Deduction of 
Charge for Section 848 Deferred Acquisition Costs

    1. Section 27(c)(2) prohibits a registered investment company or 
its depositor or underwriter from making any deduction from premium 
payments made under periodic payment plan certificates other than a 
deduction for ``sales load.'' Section 2(a)(35)\5\ defines ``sales 
load'' as the difference between the price of a security to the public 
and that portion of the proceeds from its sale which is received and 
invested or held for investment, less amounts deducted 

[[Page 35776]]
from trustee's or custodian's fees, insurance premiums, issue taxes, or 
administrative expenses or fees that are not properly chargeable to 
``sales load.''

    \5\ Sales loads, as defined under Section 2(a)(35), are limited 
by Sections 27(a)(1) and 27(h)(1) to a maximum of 9% of total 
payments on periodic payment plan certificates. The proceeds of all 
payments (except amounts deducted for ``sales load'') must be held 
by a trustee or custodian having the qualifications established 
under Section 26(a)(1) for the trustees of unit investment trusts 
and held under an indenture or agreement that conforms with the 
provisions of Section 26(a)(2) and Section 26(a)(3) of the 1940 Act.
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    2. The Separate Accounts are, and the Future Accounts will be, 
regulated under the 1940 Act as issuers of periodic payment plan 
certificates. Accordingly, the Separate Accounts, the Future Accounts, 
the Companies (as depositor), and HESCO (as principal underwriter) are 
deemed to be subject to Section 27 of the 1940 Act. Applicants thus 
request an order under Section 6(c) of the 1940 Act granting exemptions 
from Sections 27(c)(2) of the 1940 Act to allow the deduction of a 
charge from premium payments to compensate the Companies for their 
increased federal tax burden resulting from the receipt of such premium 
payments under the Contracts.
    3. Certain provisions of Rule 6e-3(T) provides exemptive relief 
from Section 27(c)(2) if the separate account issues flexible premium 
variable life insurance contracts, as defined in subparagraph (c)(1) of 
that Rule. Rule 6e-3(T)(b)(13)(iii) provides exemptive relief from 
Section 27(c)(2) to permit an insurer to make certain deductions, other 
than ``sales load,'' including the insurer's tax liabilities from 
receipt of premium payments imposed by states or by other governmental 
entities. For purposes of variable life insurance contracts issued in 
reliance on Rule 6e-3(T), paragraph (b)(1) of the Rule provides an 
exemption from the Section 2(a)(35) definition of ``sales load'' by 
substituting a new definition provided in paragraph (c)(4) of the Rule. 
Under Rule 6e-3(T)(c)(4), ``sales load'' charged during a period is 
defined as the excess of any payments made during that period over the 
sum of certain specified charges and adjustments, including a deduction 
for state premium taxes.
    4. Applicants request exemptions from Rule 6e-3(T)(c)(4)(v) under 
the 1940 Act to permit the proposed deduction with respect to Section 
848 of the Code to be treated as other than ``sales load,'' as defined 
under Section 2(a)(35) of the 1940 Act, for purposes of Section 27 and 
the exemptions from various provisions of that Section found in Rule 
6e-3(T).
    5. Applicants assert that the proposed deduction with respect to 
Section 848 of the Code arguably is covered by Rule 6e-3(T)(b)(13)(iii) 
and should be treated as other than ``sales load.'' Applicants note, 
however, that the language of paragraph (c)(4) of Rule 6e-3(T) appears 
to require that deductions for federal tax obligations from receipt of 
premium payments be treated as ``sales load.'' Under a literal reading 
of Rule 6e-3(T)(c)(4), a deduction for an insurer's increased federal 
tax burden does not fall squarely into those itemized charges or 
deductions, arguably causing the deduction to be treated as part of 
``sales load.''
    6. Applicants state that they have found no public policy reason 
for including a deduction for an insurer's increased federal tax burden 
in sales load. Applicants assert that the public policy that underlies 
paragraph (b)(13)(i) of Rule 6e-3(T), like that which underlies 
paragraphs (a)(1) and (h)(1) of Section 27, is to prevent excessive 
sales loads from being charged for the sale of periodic payment plan 
certificates. Applicants submit that this legislative purpose is not 
furthered by treating a federal income tax charge based on premium 
payments as a sales load because the deduction is not related to the 
payment of sales commissions or other distribution expenses. Applicants 
assert that the Commission has concurred with this conclusion by 
excluding deductions for state premium taxes from the definition of 
``sales load'' in Rule 6e-3(T)(c)(4).
    7. Applicants submit that the source for the definition of ``sales 
load'' found in Rule 6e-3(T)(c)(4) supports this analysis. Applicants 
believe that, in adopting paragraph (c)(4) of the Rule, the Commission 
intended to tailor the general terms of Section 2(a)(35) to variable 
life insurance contracts to ease verification by the Commission of 
compliance with the sales load limits of subparagraph (b)(13)(i) of the 
Rule. Just as the percentage limits of Sections 27(a)(1) and 27(h)(1) 
depend on the definition of ``sales load'' in Section 2(a)(35) for 
their efficacy, Applicants assert that the percentage limits in 
subparagraph (b)(13)(i) of Rule 6e-3(T) depends on paragraph (c)(4) of 
that Rule, which does not depart, in principal, from Section 2(a)(35).
    8. Applicants submit that the exclusion from the definition of 
``sales load'' under Section 2(a)(35) of deductions from premiums for 
``issue taxes'' suggests that it is consistent with the policies of the 
1940 Act to exclude from the definition of ``sales load'' in Rule 6e-
3(T) deductions made to pay an insure's costs attributable to its 
federal tax obligations. Additionally, the exclusion of administrative 
expenses or fees that are ``not properly chargeable to sales or 
promotional activities'' also suggests that the only deductions 
intended to fall within the definition of ``sales load'' are those that 
are properly chargeable to sales or promotional activities. Applicants 
represent that the proposed deductions will be used to compensate the 
Companies for their increased federal tax burden attributable to the 
receipt of premiums and not for sales or promotional activities. 
Applicants therefore believe the language in Section 2(a)(35) further 
indicates that not treating such deductions as sales load is consistent 
with policies of the 1940 Act.
    9. Finally, Applicants submit that it is probably an historical 
accident that the exclusion of premium tax in subparagraph (c)(4)(v) of 
Rule 6e-3(T) from the definition of ``sales load'' is limited to state 
premium taxes. Applicants note that, when Rule 6e-3(T) was adopted, and 
later amended, the additional Section 848 tax burden attributable to 
the receipt of premiums did not yet exist.
    10. Applicants further submit that the terms of the relief 
requested with respect to Future Contracts to be issued through Future 
Accounts are also consistent with the standards of Section 6(c). 
Without the requested relief, the Applicants would have to request and 
obtain such exemptive relief for each Future Contract to be issued 
through a Future Account. Such additional requests for exemptive relief 
would present no issues under the 1940 Act that have not already been 
addressed in this application.
    11. The requested relief is appropriate in the public interest 
because it would promote competitiveness in the variable life insurance 
market by eliminating the need for the Applicants to file redundant 
exemptive applications regarding the federal tax charge, thereby 
reducing their administrative expenses and maximizing the efficient use 
of their resources. Applicants represent that the delay and expense 
involved in having to repeatedly seek exemptive relief would impair 
their ability to effectively take advantage of business opportunities 
as they arise.
    12. Applicants further submit that the requested relief is 
consistent with the purposes of the 1940 Act and the protection of 
investors for the same reasons. If Applicants were required to 
repeatedly seek exemptive relief with respect to the same issues 
regarding the federal tax charge addressed in this application, 
investors would not receive any benefit or additional protection 
thereby and might be disadvantaged as a result of the Applicants' 
increased overhead expenses.
    13. Conditions for Relief. Applicants agree to the following 
conditions:
    a. The Companies will monitor the reasonableness of the charge to 
be deducted pursuant to the requested exemptive relief.
    b. The registration statement for each Contract under which the 
above-

[[Page 35777]]
referenced federal tax charge is deducted will: (1) disclose the 
charge; (2) explain the purpose of the charge; and (3) state that the 
charge is reasonable in relation to the relevant Company's increased 
federal tax burden under Section 848 of the Code resulting from the 
receipt of premium payments.
    c. The registration statement for each Contract under which the 
above-referenced federal tax charge is deducted will contain as an 
exhibit an actuarial opinion as to: (1) The reasonableness of the 
charge in relation to the relevant Company's increased federal tax 
burden under Section 848 of the Code resulting from the receipt of 
premiums; (2) the reasonableness of the targeted rate of return that is 
used in calculating such charge; and (3) the appropriateness of the 
factors taken into account by the relevant Company in determining such 
targeted rate of return.

Conclusion

    1. Section 6(c) of the 1940 Act, in pertinent part, provides that 
the Commission, by order upon application, may conditionally or 
unconditionally exempt any person, security or transaction, or any 
class or classes of persons, securities or transactions, from any 
provision or provisions of the 1940 Act, to the extent that such 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the contract and provisions of the 1940 Act.
    2. For the reasons and upon the facts set forth above, Applicants 
submit that the requested exemptions from Sections 27(a)(3) and 
27(c)(2) of the 1940 Act and paragraphs (b)(13)(ii) and (c)(4) of Rule 
6e-3(T) thereunder, are necessary and appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the contract and provisions of the 1940 
Act. Therefore, the standards set forth in Section 6(c) of the 1940 Act 
are satisfied.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-16933 Filed 7-10-95; 8:45 am]
BILLING CODE 8010-01-M