[Federal Register Volume 60, Number 150 (Friday, August 4, 1995)]
[Notices]
[Pages 39980-39984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19171]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21262; No. 812-9462]


Security Equity Life Insurance Company, et al.

July 28, 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: Security Equity Life Insurance Company (``Security 
Equity''), Security Equity Life Insurance Company Separate Account 13 
(``Separate Account''), and Walnut Street Securities, Inc. (``Walnut 
Street'').

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 63-2(c)(4)(v), 6e-3(T)(b)(13)(ii), and 6e-3(T)(c)(4)(v) 
thereunder.

SUMMARY OF APPLICATION: This order will permit: (1) The Separate 
Account to issue certain flexible premium variable life insurance 
policies (``Policies'') in which the sales charge deducted from 
premiums up to one target premium paid during any year exceeds the 
sales charge payable on any excess premium payments made in any prior 
year; and (2) the Separate Count and any future separate accounts 
established by Security Equity, to issue Policies, as well as other 
flexible premium, single 

[[Page 39981]]
premium, or scheduled premium variable life insurance policies, in 
which a deduction is made from premium payments of an amount that is 
reasonably related to Security Equity's increased federal tax burden 
resulting from the receipt of such premium payments pursuant to the 
application of Section 848 of the Internal Revenue Code of 1986, as 
amended.

FILING DATE: The application was filed on February 2, 1995, and amended 
on July 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 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 August 22, 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, N.W., Washington, D.C. 20549. Applicants, Juanita M. Thomas, 
Esq., Security Equity Life Insurance Company, c/o General American Life 
Insurance Company, 700 Market Street, St. Louis, MO 63101.

FOR FURTHER INFORMATION CONTACT: Pamela K. Ellis, 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 
Commission's Public Reference Branch.

Applicants' Representations

    1. Security Equity, a New York stock life insurance company, offers 
life insurance in thirty-eight states and the District of Columbia. 
Security Equity is a wholly-owned subsidiary of General American Life 
Insurance Company (``General American'').
    2. The Separate Account is a separate account established by 
Security Equity to fund the Policies. The Separate Account is 
registered with the Commission under the 1940 Act as a unit investment 
trust, and interests in the Policies are registered with the Commission 
as securities under the Securities Act of 1933. The Separate Account 
presently is comprised of ten sub-accounts (``Sub-Accounts''), which 
invest exclusively in certain open-end management investment companies 
or series of such companies (``Funds'').
    3. Walnut Street, a wholly-owned subsidiary of General American 
Holding Company (which, in turn, is a wholly-owned subsidiary of 
General American), is the distributor for the Policies. Walnut Street 
is registered as a broker-dealer under the Securities Exchange Act of 
1934, and is a member of the National Association of Securities 
Dealers, Inc.
    4. The Policies are flexible premium variable life insurance 
contracts that provide for allocation of premium payments to the Sub-
Accounts or to a fixed fund. The cash value and the death benefit under 
the Policies may fluctuate depending on the investment experience of 
the Sub-Accounts. There are three Death Benefit Options: (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 Policies will not lapse if the net cash value 
is sufficient to cover monthly fees and charges deducted from the 
account value.\1\ The Policies also offer Policy owners the opportunity 
to obtain a loan.

    \1\ Net cash value is defined as the account value less any 
outstanding Policy loan and accrued and unpaid loan interest.
    5. Certain fees and charges are deducted under the Policies. Each 
Sub-Account is assessed a daily mortality and expense risk charge, as 
well as monthly administrative charges, cost of insurance charges, 
charges for optional rider benefits, and charges for special insurance 
class rating, if any. If the Policy is issued on a medically 
underwritten basis,\2\ a $100 underwriting charge will be deducted from 
the account value on the issue date, and the first day of the Policy 
month following a medically underwritten increase in the face amount 
\3\ of the Policy.\4\

    \2\ Medically underwritten contracts, for the purposes of this 
underwriting charge, are all Policies other than those issued on a 
guaranteed issue or simplified issue basis. Security Equity may 
reduce or waive the underwriting charge in connection with the 
purchase of Policies sold by licensed agents of Security Equity that 
are also registered representatives of selected broker-dealers or 
banks that have entered into written sales agreements with Walnut 
Street.
    \3\ The face amount of the Policy is defined as the amount of 
insurance under the Policy.
    \4\ The underwriting charge is modified if the Policy is issued 
with a joint and last survivor rider.
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    6. In addition, applicants propose to deduct from premium payments 
a premium load charge consists of a distribution charge, a premium tax 
charge, and a charge equal to 1.0% 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.'' Premium load is 
expressed as a percentage of premium, and depends upon the amount of 
the premium paid in relation to the target premium,\5\ the Policy year 
in which the premium is paid, and the issue age of the insured.

    \5\ The target premium is a percentage of the level annual 
premium payment necessary to provide future benefits under the 
Policy through maturity.
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a. Distribution Charge

    Applicants assert that the distribution charge compensates Security 
Equity for its Policy sales expenses, and is comprised of a premium 
expense load and a commission charge. The percentage premium expense 
load deducted from each premium payment will be based on the sum of the 
initial premiums of all Policies in a case,\6\ in accordance with the 
following table.

    \6\ A case is a grouping of one or more Policies connected by a 
non-arbitrary factor such as common employer of each insured under 
the Policy. Every Policy is part of a case.

------------------------------------------------------------------------
                                                               Premium  
                                                               expense  
   Sum of the initial premiums of all policies in a case         load   
                                                              (percent) 
------------------------------------------------------------------------
Less than $250,000.........................................         2.00
$250,000-$999,999..........................................         1.50
$1 million and more........................................         1.25
------------------------------------------------------------------------

    The commission charge will be deducted from premiums paid in each 
Policy year up to a target premium amount. There is no commission 
charge on any premium amount paid during a Policy year in excess of the 
target premium (``Excess Premium''). The commission charge on premiums 
paid in a Policy year up to the target premium amount is based upon the 
issue age of the insured and the Policy year as follows:

------------------------------------------------------------------------
                                                   Policy year          
                                        --------------------------------
               Issue ages                    1         2-10      11-15  
                                         (percent)  (percent)  (percent)
------------------------------------------------------------------------
20-51..................................     28.00       8.00       6.00 
52-59..................................     28.00       6.33       4.00 
60-67..................................     28.00       4.66       4.00 
68-80..................................     19.00       4.00       4.00 
81-85..................................     13.00       4.00       4.00 
------------------------------------------------------------------------


[[Page 39982]]

For all issue ages the commission charge will be 2.0% for Policy years 
16 and beyond.

b. State Premium Tax Charge

    Security Equity also deducts from each premium a premium tax 
charge, equal to the taxes that are imposed on Security Equity by the 
state in which the Policy owner resides or by the state in which the 
insured resides, and that are based on such premiums received under the 
Policy.

c. Section 848 ``DAC Tax'' Charge

    Applicants state that the 1.0% charge deducted from each Premium 
Payment is designed to reimburse Security Equity for its 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 that 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 Policies.
    a. 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 Policies 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).
    b. The increased tax burden on every $10,000 of net premiums 
received under the Policies is quantified by applicants as follows. For 
each $10,000 of net premiums received in a given year, Security 
Equity's general deductions are reduced by $731.50 i.e., an amount 
equal to (a) $770 (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). Using a 35% corporate tax rate, applicants assert that 
Security Equity's taxes would increase for the current year by $256.03. 
However, the current tax increase will be offset partially by 
deductions allowed during the next ten years, which result from 
amortizing the remainder of the $770 ($77 in each of the following nine 
years and $38.50 in year ten).
    c. In calculating the present value of these increased future 
deductions, Security Equity determined that, in its 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 Security Equity 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 Security 
Equity's targeted rate of return (i.e., return sought on surplus), 
which is in excess of 10%. Accordingly, applicants submit that the 
targeted rate of return on surplus is appropriate for use in this 
present value calculation.
    d. Applicants also submit that, to the extent that the 10% discount 
rate is lower than Security Equity's actual targeted rate of return on 
surplus, the calculation of this increased tax burden will continue to 
be reasonable over time, even if the applicable corporate tax rate is 
reduced, or Security Equity's targeted rate of return on surplus is 
lowered.
    e. Security Equity has computed its cost of capital as the after 
tax rate of return that it seeks to earn on its surplus. Security 
Equity's rate of return is based on a number of factors including 
market interest rates, the anticipated long-term growth rates for 
Security Equity and its parent company, General American, acceptable 
level of risks for both Security Equity and General American, 
inflation, and available information about the rates of return obtained 
by other mutual life insurance companies and their subsidiaries. 
Security Equity represents that these factors are appropriate to 
consider in determining its cost of capital. Security Equity seeks to 
maintain a ratio of surplus to assets that is established based on 
judgment of the risks represented by various components of assets and 
liabilities.
    f. Using a federal corporate tax rate of 35%, 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 $160.40. The effect 
of Section 848 on the Policy, therefore, is and increased tax burden 
with a present value of $95.63 for each $10,000 of net premiums (i.e., 
$256.03 less $160.40).
    g. Applicants state that Security Equity does not incur incremental 
federal income tax when it passes on state premium taxes to Policy 
owners because state premium taxes are deductible in computing Security 
Equity's federal income taxes. Conversely, federal income taxes are not 
deductible in computing Security Equity's federal income taxes. To 
compensate Security Equity fully for the impact of Section 848, an 
additional charge must be imposed to make security Equity whole for the 
$95.63 additional tax burden attributable to Section 848, as well as 
the tax on the additional $95.63 itself. This additional charge can be 
determined by dividing $95.63 by the complement of 35% federal 
corporate income tax rate (i.e., 65%), resulting in an additional 
charge of $147.12 for each $10,000 of net premiums, or 1.47%.
    h. Based on prior experience, Security Equity reasonably expects to 
take almost all future deductions. It is the judgment of Security 
Equity that a charge of 1.0% would reimburse it for the increased 
federal income tax liabilities under Section 848 of the Code, and will 
be reasonably related to such increased federal income tax burden. This 
representation takes into account the benefit to Security Equity of the 
amortization permitted by Section 848 and the use of a 10% discount 
rate (which is equivalent to Security Equity's targeted rate of return 
on surplus) 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 Security Equity 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 exception from the 
prohibitions of Section 27(a)(3). Exemptive relief from the 
prohibitions of Section 27(a)(3) provided by Rule 6e-3(T)(b)(13)(ii) is 
available if the proportionate amount of sales charge deducted from any 
premium payment does not exceed the proportionate amount deducted from 
any prior premium payment, unless an 

[[Page 39983]]
increase is caused by reductions in the annual cost of insurance or in 
sales charge for amount 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 Policies' sales load structure, a Policy owner could 
pay a premium in any given Policy year from which a 2.0% front-end 
sales load deduction (the premium expense load) is made, because at the 
time such premium was paid, cumulative premiums paid during the Policy 
year exceeded the target premium amount. Premiums paid in a subsequent 
Policy year up to a target premium would be subject to a front-end 
sales load deduction of more than 2.0% (the applicable commission 
charge plus the premium expense load). Applicants thus request an 
exemption from the requirements of Section 27(a)(3) and Rule 
6e3(T)(13)(ii) because the Policies' sales load structure would appear 
to violate 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 seem to apply to the Policies' sales load 
structure.
    4. Applicants state that, had they chosen to impose the higher 
front-end sales load equally on all premium payments, the Policies 
would qualify for exemptive relief under Rule 6e-3(T)(b)(13)(ii), 
subject to the maximum limits permissible under subparagraph (b)(13)(i) 
or the Rule. Applicants assert, however, that such a front-end charge, 
would be less favorable to Policy owners than provided under the 
Policies; under such a sales charge structure, sales load would be 
recovered by Security Equity earlier than is the case under the 
Policies' sales load structure. The sales charge structure under the 
Policies benefits Policy owners by spreading Security Equity's recovery 
of sales load over a longer period of time, and thereby permitting a 
greater portion of a Policy owner's excess premiums to be credited to 
account value.
    5. In addition, applicants represent that the sales load structure 
has been designed based on Security Equity's operating expenses for the 
sale of the Policies and, thus, reflects in part the lower overall 
distribution costs that are associated with Excess Premiums paid over 
the life of a Policy. Applicants submit that it would not be in the 
best interest of a Policy owner to require the imposition of a higher 
sales load structure than applicants deem necessary to adequately 
defray their expenses.
    6. 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 Policy year does not have the detrimental effect that 
Section 27(a)(3) was designed to prevent because a greater proportion 
of the Policies' sales loads are deducted later than otherwise would be 
the case.
    7. Applicants state that under the Policy, premiums up to the 
target premium amount have higher levels of actual sales expenses 
(i.e., commissions) associated with them than premiums in excess of 
such target premium amounts. Because the excess premiums have a lower 
level of sales expenses, applicants argue that it is appropriate to 
analyze separately the sales load structures for the two types of 
payments. Applicant 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 Rules 6e-2(c)(4)(v) and 6e-3(T)(c)(4)(v) Thereunder in Connection 
With Deduction of a Charge for Code Section 848's 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)\7\ 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 for trustee's or custodian's 
fees, insurance premiums, issue taxes, or administrative expenses or 
fees that are not properly chargeable to sales load.

    \7\ 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 Other Accounts, 
Security Equity (as depositor), and Walnut Street (as principal 
distributor) 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 Security 
Equity for their increased federal tax burden resulting from the 
receipt of such premium payments under the Policies.
    3. Certain provisions of Rules 6e-2 and 6e-3(T) provide exemptive 
relief from Section 27(c)(2) if the separate account issues variable 
life insurance contracts, or flexible premium variable life insurance 
contracts, respectively. Rule 6e-2(b)(13)(iii) provides an exemption 
from Section 27(c)(2) of the 1940 Act to permit an insurer to deduct 
certain charges, other than sales load, including administrative 
expenses. Similarly, 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 governmental 
entity.
    Rule 6e-2(b)(1), together with Rule 6e-2(c)(4), provides an 
exemption from the Section 2(a)(35) definition of sales load by the 
substitution of a new definition to be used for the purposes of Rule 
6e-2. Rule 6e-2(c)(4) defines sales load charged on any payment as the 
excess of the payment over certain specified charges and adjustments, 
including a deduction approximately equal to state premium taxes. Rule 
6e-3(T)(b)(1), together with Rule 6e-3(T)(c)(4), also provides an 
exemption from the Section 2(a)(35) definition to be used for the 
purposes of Rule 6e-3(T). Rule 6e-3(T)(c)(4) defines sales load during 
a period as the excess of any payments made during that period over 
certain specified charges and adjustments, including a deduction for 
and approximately equal to state premium taxes.
    4. Applicants request exemptions from Rules 6e-2(c)(4)(v) and 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 

[[Page 39984]]
of that Section found implicitly in Rule 6e-2 and explicitly in Rule 
6e-3(T).
    5. Applicants assert that the proposed deduction with respect to 
Section 848 of the Code arguably is covered by Rules 6e-2(b)(13)(iii) 
and 6e-3(T)(b)(13)(iii) and should be treated as other than sales load. 
Applicants note, however, that under a literal reading of Rules 6e-
2(c)(4) and 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 Rules 6e-2 and 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 Rules 6e-2(c)(4) and 6e-3(T)(c)(4).
    7. Applicants submit that the source for the definition of sales 
load found in Rules 6e-2(c)(4) and 6e-3(T)(c)(4) supports this 
analysis. Applicants believe that, in adopting paragraph (c)(4) of the 
Rules, 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 Rules.
    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-2 and 6e-3(T) 
deductions made to pay an insurer'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 Security Equity 
for its 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 the 
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 
Rules 6e 2 and 6e-3(T) from the definition of sales load is limited to 
state premium taxes. Applicants note that, when Rules 6e-2 and 6e-3(T) 
were 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 Policies to be issued through Other 
Accounts are also consistent with the standards of Section 6(c). 
Without the requested relief, applicants would have to request and 
obtain such exemptive relief for each Future Contract to be issued 
through an Other 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 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 applicants' increased 
overhead expenses.

Conditions for Relief

    Applicants agree to the following conditions:
    a. Security Equity will monitor the reasonableness of the charge to 
be deducted pursuant to the requested exemptive relief.
    b. The registration statement for each Policy and Future Policy 
under which the above-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 Security Equity's 
increased federal tax burden under Section 848 of the Code resulting 
from the receipt of premium payments.
    c. The registration statement for each Policy and Future Policy 
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 Security Equity's increased 
federal tax burden under Section 848 of the Code resulting from the 
receipt of premiums; (2) the reasonableness of the rate of return on 
surplus that is used in calculating such charge; and (3) the 
appropriateness of the factors taken into account by Security Equity in 
determining such 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 Rules 6e-2(c)(4)(v), 6e-3(T)(b)(13)(ii), 
and 6e-3(T)(c)(4)(v) 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-19171 Filed 8-3-95; 8:45 am]
BILLING CODE 8010-01-M