[Federal Register Volume 61, Number 182 (Wednesday, September 18, 1996)]
[Notices]
[Pages 49182-49184]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23900]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22218/File No. 812-10082]


Metropolitan Life Insurance Company, et al.

September 12, 1996.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

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

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APPLICANTS: Metropolitan Life Insurance Company (``Metropolitan Life'') 
and Metropolitan Life Separate Account UL (``Account UL'').

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

SUMMARY OF APPLICATION: Applicants seek an order to the extent 
necessary to permit the front-end sales charge imposed under certain 
flexible premium variable life insurance policies (``Policies'') to be 
eliminated for payments in excess of one annual target premium in any 
Policy year.

FILING DATE: The application was filed on April 9, 1996.

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 this 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 October 7, 1996, 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 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, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, c/o Christopher P. Nicholss, Esq., Metropolitan Life 
Insurance Company Law Department, One Madison Avenue, New York, NY 
10010.

FOR FURTHER INFORMATION CONTACT: Joyce Merrick Pickholz, Senior 
Counsel, or Patrice M. Pitts, Special Counsel, Office of Insurance 
Products, at (202) 942-0670.

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. Metropolitan Life, incorporated under the laws of the State of 
New York in 1866, has been engaged in the life insurance business under 
its current name since 1868. Metropolitan Life is registered as a 
broker-dealer under the Securities Exchange Act of 1934 and is the 
principal underwriter for Account UL.
    2. Account UL, established by Metropolitan Life pursuant to New 
York Insurance Law on December 13, 1988, is registered as a unit 
investment trust under the Act. There are currently seven investment 
divisions in Account UL. The assets of each investment division are 
invested in a separate class (or series) of stock issued by 
Metropolitan Series Fund, Inc. (``Fund''). Assets are allocated to 
Account UL from time to time in connection with flexible premium 
variable life insurance policies issued by Metropolitan Life in 
reliance on Rule 6e-3(T) under the Act, including the Policies.
    3. The Policies provide for premium flexibility, together with a 
death benefit and a cash surrender value that may increase or decrease 
daily depending, in part, on the investment performance of the Fund.
    4. The insurance proceeds, payable when the insured under the 
Policy dies, will equal the death benefit of the particular Policy, 
plus any additional rider benefits, minus any indebtedness under the 
Policy, and minus any due and unpaid charges accruing during a grace 
period. One of several death benefit options may be elected by the 
Policy owner.
    5. The initial cash value of a Policy is the amount of premium 
allocated to Account UL and the Fixed Account, after deduction of the 
initial charges. The cash value increases or decreases daily depending 
on the investment experience of the investment division to which 
amounts are allocated, as well as interest declared for the Fixed 
Account.
    6. The owner may surrender a Policy at any time while the insured 
is living. The cash surrender value is the cash value of a Policy less 
any indebtedness. The owner may also make partial withdrawals from a 
Policy, subject to certain restrictions.
    7. A charge, currently equal to 2.25% of each premium payment, will 
be deducted from each premium payment, representing an average rate 
expected to be paid on premiums received in all states over the 
lifetimes of the insureds covered by the Policies. This charge may be 
increased for Policies not yet issued, in order to correspond with 
changes in state premium tax levels.
    8. A charge, currently equal to 1.20% of each premium payment will 
be deducted from each premium payment to cover the estimated cost of 
the federal income tax treatment of the Policies' deferred acquisition 
costs--commonly referred to as the ``DAC tax.'' This charge may be 
increased, subject to certain conditions, for Policies not yet issued, 
in order to correspond with changes in the federal income tax treatment 
of the Policies' deferred acquisition costs.
    9. A sales charge is deducted from each premium payment received by 
Metropolitan Life. The sales charge may be up to 9% of premiums paid in 
each of the first ten Policy years and up to 3% of premiums paid in 
each Policy year thereafter, until the total of such payments in each 
such Policy year equals one annual target premium. Under the Policies, 
the sales charge will be 0% for payments made in excess of one annual 
target premium in any Policy year. Currently, the annual target premium 
for the Policies is the estimated annual amount that satisfies the ``7 
pay'' test for determining modified endowment status under the Internal 
Revenue Code. However, Manufacturers Life reserves the right to modify 
the definition of target premium for Policies issued in the future.
    10. An administrative charge of up to 1.05% of premiums paid is 
deducted from all premium payments to compensate Metropolitan Life for 
expenses incurred in administering, issuing and underwriting the 
Policies. The administrative charge is reduced by 1% on the portion of 
any premium paid in a Policy year that exceeds the target premium.
    11. At the present time, a charge of $25, subject to certain 
exceptions, will be assessed against the cash value of a Policy when 
amounts are transferred among the investment divisions of Account UL, 
and between the investment divisions and the Fixed Account, more than 
six times in any Policy year. Metropolitan Life reserves the right in 
the future to assess a charge against all transfers.
    12. A cost of insurance charge will be deducted monthly from cash 
value based upon Metropolitan Life's amount at risk under the Policy, 
the attained age and risk classification of the insured, the sex of the 
insured (with certain

[[Page 49183]]

exceptions), and the then-current monthly insurance rates (guaranteed 
for the standard underwriting risk class never to exceed the maximum 
rates set forth in the Policy based on certain of the 1980 
Commissioners' Standard Ordinary Mortality Tables). An additional 
charge for extra mortality risks will be deducted monthly from cash 
value if the insured does not qualify for the standard underwriting 
class. The amount of the charge depends upon the age of the insured and 
the degree of additional mortality risk.
    13. A monthly charge will be made for mortality and expense risks 
at an effective annual rate not to exceed .90% (currently up to .60%) 
of the investment divisions' assets attributable to the Policies.
    14. Any increase in coverage elected by the Policy owner may be 
subject to a one-time underwriting charge against cash value at a rate 
of up to $3.00 for each $1,000 of increased coverage.
    15. Additional charges are deducted if the owner elects to purchase 
certain optional insurance benefits. These additional charges will be 
deducted monthly from cash value.
    16. Other than the tax charges described above, no additional 
charges are currently made for the tax liabilities of Metropolitan 
Life. Metropolitan Life reserves the right, subject to any necessary 
regulatory approval, to assess additional tax charges should it incur 
increased taxes attributable to the Policies or Account UL in future 
years.
    17. Except to the extent that exemptive relief has been obtained 
from the Commission pursuant to this or any other applicable exemptive 
application, all charges under the Policies will comply with all of the 
applicable limitations, terms, conditions and requirements of the Act 
and rules thereunder.

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 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. Rule 6e-
3(T)(b)(13)(ii), in pertinent part, 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. This is commonly referred to as the 
``stair-step'' requirement.
    2. Applicants state that Metropolitan Life will not, with regard to 
the Policies, impose the 9% (or, as the case may be, 3%) front-end 
sales charge upon the amount of any premium payments received in any 
Policy year that is in excess of one annual target premium (``Excess 
Premiums''). Accordingly, the front-end sales charge may apply to some 
premium payments but not to others. Applicants submit that Section 
27(a)(3) and Rule 6e-3(T)(b)(13)(ii) appear to prohibit this structure 
and request an order exempting them from these provisions to the extent 
necessary to permit the sales charge deducted from premiums up to one 
target premium paid during any year to exceed the sales charge (none) 
payable on any Excess Premium payments made in any prior year.
    3. Applicants assert that the Policies would comply with all of the 
sales charge limitations and requirements of Rule 6e-3(T) (including 
those contained in Rule 6e-3(T)(b)(13)(ii)), if the front-end sales 
charge were deducted from all premium payments. However, Applicants 
submit that such a front-end charge structure would be less favorable 
to Policy owners than that provided under the Policies.
    4. According to the Applicants, the sales charge deducted from the 
first target premium paid under a Policy in any Policy year, as 
compared with the absence of such a charge deducted from Excess 
Premiums, in part reflects the fact that lower overall distribution 
costs (e.g., commissions paid to sales persons) are incurred in 
connection with Excess Premiums over the life of the Policies. To 
deduct a sales charge from Excess Premiums would generate more revenue 
than Metropolitan Life believes is necessary to adequately defray such 
expenses. Thus, the structure of the front-end sales load under the 
Policies provides a significant benefit to owners by passing through to 
them lower distribution costs with respect to Excess Premiums. 
Applicants submit that it would not be in the interest of owners to 
require the deduction from Excess Premiums of a sales charge that is 
higher than Applicants deem necessary.
    5. Applicants state that a purpose of Section 27(a)(3), in 
conjunction with the other sales charge limitations in the Act, was 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 assert that the 
sales load structure of the Policies would not have this effect. On the 
contrary, not deducting any sales charge from Excess Premiums paid in 
any Policy year, according to Applicants, results in a greater 
proportion of the Policies' sales charges being deducted later than 
otherwise would be the case.
    6. Applicants submit that a purpose behind Section 27(h)(3) of the 
Act, a provision similar to Section 27(a)(3), is to discourage unduly 
complicated sales charges; this also may be deemed to be a purpose of 
Section 27(a)(3) and Rule 6e-3(T)(b)(13)(ii). Applicants submit that 
the sales charge structure under the Policies is relatively 
straightforward and easily understood, as compared with that of many 
other variable life insurance policies that are currently being 
offered. Moreover, Applicants represent that owners of Policies will 
benefit from the sales charge structure of the Policies.
    7. Applicants state that Rule 6e-3(T)(b)(13)(ii) specifically 
permits an insurance company to reduce or eliminate its sales charges 
with respect to amounts contributed to a variable life insurance policy 
in connection with an exchange from another plan of insurance and, 
thereafter, to impose the full sales charge with respect to subsequent 
premium payments under the same policy. Applicants explain that such 
sales charge variations normally reflect decreased sales expenses in 
connection with exchange amounts. Accordingly, Applicants contend that 
they should be permitted to reflect their reduced sales expenses by 
forgoing the sales charge that otherwise would be deducted from any 
Excess Premiums, notwithstanding that Metropolitan Life may deduct a 
sales charge from subsequent target premium payments.
    8. Applicant assert that the fact that the full 9% (or, as the case 
may be, 3%) front-end sales charge may apply at some times but not 
other times under the same Policy results solely from the action of 
Policy owners in exercising the flexibility features under a Policy: 
e.g., flexibility in the timing and amount of premium payments. 
Applicants submit that the flexibility features are desirable from the 
standpoint of Policy owners.

Conclusion

    For the reasons and upon the facts stated above, Applicants submit 
that the requested exemptions are appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act.


[[Page 49184]]


    For the Commissioner, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-23900 Filed 9-17-96; 8:45 am]
BILLING CODE 8010-01-M