[Federal Register Volume 62, Number 202 (Monday, October 20, 1997)]
[Notices]
[Pages 54489-54493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27655]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. 22852; File No. 812-10534]


New England Life Insurance Co et al.; Notice of Application

October 10, 1997.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') granting relief from rule 
6e-2(c)(1) and from certain provisions of the Act and rules thereunder 
specified in paragraph (b) of rule 6e-2; and from sections 2(a)(32) and 
27(i)(2)(A) of the Act and rules 6e-2(b)(12) and 22c-1 thereunder.

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SUMMARY OF APPLICATION: Applicants seek exemptive relief to the extent 
necessary: (1) To permit them to offer and sell certain ``hybrid'' 
variable life insurance policies with modified scheduled premiums 
(``Policies''); and (2) to permit certain other persons which may 
become the principal underwriter for such Policies (``Future 
Underwriters'') to offer and sell such Policies.

APPLICANTS: New England Life Insurance Company (``NELICO''), New 
England Variable Life Separate Account (``Variable Account''), and New 
England Securities Corporation (``New England Securities'').

FILING DATE: The application was filed on February 28, 1997 and amended 
and restated on October 3, 1997.

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 Secretary of the 
Commission 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 November 4, 1997, 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 requester'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 Fifth 
Street, N.W., Washington, D.C. 20549; Applicants, c/o Marie C. Swift, 
Esq., New England Life Insurance Company, 501 Boylston Street, Boston, 
Massachusetts 02116.

FOR FURTHER INFORMATION CONTACT: Lorna MacLeod, Attorney, or Kevin 
Kirchoff, Branch Chief, at (202) 942-0670, Office of Insurance 
Products, Division of Investment Management.

SUPPLEMENTARY INFORMATION: Following is a summary of the application; 
the complete application may be obtained for a fee from the SEC's 
Public Reference Branch, 450 Fifth Street, N.W., Washington D.C. 20549 
(tel. (202) 942-8090).

Applicants' Representations

    1. NELICO is a Massachusetts stock life insurance company and is a 
wholly owned subsidiary of Metropolitan Life Insurance Company 
(``MetLife'').
    2. The Variable Account was established as a separate investment 
account of NELICO on January 31, 1983, under Delaware law, and became 
subject to Massachusetts law when NELICO changed its domicile to 
Massachusetts on August 30, 1996. The Variable Account is registered 
under the Act as a unit investment trust. The Variable Account 
currently consists of eighteen investment sub-accounts, each of which 
invests its assets in a different portfolio of the New England Zenith 
Fund (the ``Zenith Fund''), the Variable Insurance Products Fund (the 
``VIP Fund''), and the Variable Insurance Products Fund II (the ``VIP 
Fund II'').
    3. New England Securities, which will act as the principal 
underwriter for the Polices, is registered with the Commission as a 
broker-dealer under the Securities Exchange Act of 1934 and is a member 
of the National Association of Securities Dealers, Inc (``NASD'').
    4. Scheduled premiums for the Policy are payable until the insured 
reaches age 100. The scheduled premium amount depends on the face 
amount of the Policy, the insured's age, sex (if the Policy is sex-
based), and underwriting class, the frequency of premium payments and 
any rider benefit premiums. Scheduled premiums for substandard and 
automatic issue classes reflect additional premiums that are charged 
for Policies in those categories. If all scheduled premiums are paid 
when due, the Policy will not lapse and will retain its minimum death 
benefit guarantee, even if unfavorable investment experience has 
reduced the cash value to zero.\1\
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    \1\ A Policy may terminate when a Policy loan plus accrued 
interest exceeds the Policy's cash value, less the applicable 
Surrender Charge, on the next loan interest due date (or, if 
greater, on the date the calculation is made). NELICO notifies the 
Policy owner of such pending termination, and the Policy will 
terminate 31 days thereafter unless NELICO has received sufficient 
repayment to eliminate the excess Policy loan.
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    5. The Policy also provides considerable flexibility with respect 
to the timing and amount of premium payments. An owner of a Policy may 
make unscheduled payments at any time that the Policy is in force on a 
premium-paying basis (except any period during which scheduled premiums 
are being waived pursuant to a waiver-of-premium rider), provided that 
the unscheduled payment is at least $25 (or at least $10 for certain 
Policies) and, if required by NELICO, the insured has submitted 
evidence of insurability satisfactory to NELICO. In addition, NELICO's 
consent is required if, in order to satisfy tax law requirements, the 
payment would increase the Policy's death benefit by more than it would 
increase the cash value. NELICO reserves the right to prohibit or limit 
the amount of unscheduled payments under a Policy covering a 
substandard risk insured or under an automatic issue Policy.
    6. An owner of a Policy may plan to make a certain amount of 
unscheduled payments, subject to NELICO's administrative procedures. 
Each net unscheduled payment will be allocated to the same sub-accounts 
as net scheduled premiums. At the owner's request, NELICO will include 
the amount of any unscheduled payments, planned to be made on the 
Policy anniversary, in the premium notice sent to the owner. However, 
the owner is required to pay only the scheduled

[[Page 54490]]

premium in order to keep the Policy in force on a premium paying basis.
    7. The amount of net scheduled premiums due is automatically 
allocated to the Policy's sub-accounts, chosen by the Policy owner, on 
each scheduled premium due date. A scheduled premium which is unpaid as 
of its due date is in default, but the Policy provides a 31-day grace 
period for the payment of each scheduled premium after the first. For 
60 days after the due date of a premium in default, NELICO will not 
impose the normal monthly administrative, minimum death benefit 
guarantee and cost of insurance charges against a Policy's cash value. 
If the scheduled premium in default is paid, these deductions will be 
made retroactively. If the Policy is surrendered while the premium is 
in default, the monthly deduction and a prorated cost of insurance 
charge are deducted from surrender proceeds. If the insured dies during 
the grace period and before the premium is paid, a prorated portion of 
the unpaid scheduled premium, measured from its due date to the date of 
death, will be deducted from the amount otherwise payable. As owner of 
a Policy may choose among several lapse options, which may include 
extended term insurance, fixed paid-up insurance or variable paid-up 
insurance, subject to restrictions set forth in the Policy.
    8. An owner of a Policy may also elect the Special Premium Option, 
which permits an owner to skip one or more scheduled premium payments 
after the first Policy year, subject to the following conditions. 
NELICO will determine that payment of a scheduled premium that has not 
been paid by the end of the grace period is not required if: (a) The 
Policy's cash value on the premium due date (before NELICO advanced the 
premium due) exceeds the Policy's ``tabular cash value'' on that date 
by at least the amount of the scheduled premium due, including any 
rider and substandard risk or automatic issue premiums due; and (b) 
immediately after the Special Premium Option is exercised, the amount 
of any Policy loan outstanding plus accrued interest will not exceed 
the Policy's loan value.\2\
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    \2\ The ``tabular cash value'' is a hypothetical value that is 
used to determine the Option 2 death benefit, availability of the 
Special Premium Option, and the amount of cash value available to be 
withdrawn from the Policy. The ``tabular cash value'' is the value 
the Policy would have if: (a) All scheduled premiums were paid when 
due; (b) no unscheduled payments, partial surrenders, partial 
withdrawals or loans were made; (c) the cash value in the Policy's 
sub-accounts (and cash value in the fixed account) earned a 4.5% 
annual net rate of return; and (d) the maximum guaranteed cost of 
insurance rates and maximum levels of other Policy charges were 
deducted.
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    9. If NELICO permits nonpayment of a scheduled premium under the 
Special Premium Option, NELICO will deduct from the Policy's cash 
value, as of the premium due date, 91% of the portion of the annual 
administrative charge and of any rider, substandard risk or automatic 
issue premiums due on that date.
    10. An owner of a Policy may also elect an automatic premium loan 
option. Under this option, if a scheduled premium has not been paid by 
the end of the grace period, the Policy's loan value will be used to 
pay the scheduled premium. If an owner of a Policy has elected both the 
Special Premium Option and the automatic premium loan provision, NELICO 
will first determine whether the Special Premium Option can be used in 
the event of nonpayment of a scheduled premium. If the Special Premium 
Option conditions are not met, then NELICO will determine whether the 
premium can be paid by means of an automatic premium loan.
    11. The Policy provides for two alternate death benefit options. 
The Option 1 death benefit is equal to the greater of: (a) The face 
amount of the Policy; or (b) the Policy's cash value divided by the net 
single premium per $1 of death benefit at the insured's attained age. 
The alternative in (b), above, means that the death benefit will not be 
less than the amount of insurance which could be purchased on that date 
by a net single premium equal to the Policy's cash value, and is 
designed to ensure that the Policy will satisfy Federal tax law 
requirements.
    12. The Option 2 death benefit is equal to the greater of: (a) The 
face amount of the Policy plus any excess of the Policy's cash value 
over its ``tabular cash value''; or (b) the Policy's cash value divided 
by the net single premium per $1 of the death benefit at the insured's 
attained age. The Policy does not provide for changes in death benefit 
options.
    13. Under either death benefit option, the death benefit is 
guaranteed not to be less than the Policy's face amount, regardless of 
the investment experience of the Policy's subaccounts, as long as 
scheduled premiums have been paid in a timely manner or nonpayment has 
been permitted in accordance with the terms of the Policy. However, if 
Policy loans plus accrued interest exceed the Policy's cash value less 
the surrender charge, the Policy may terminate even if all scheduled 
premiums have been paid.
    14. The Option 1 death benefit remains fixed in the amount 
initially stated in the Policy as long as scheduled premiums are paid 
(or need not be paid pursuant to the Special Premium Option), until the 
death benefit is increased for Federal tax law purposes, described 
below. The Option 2 death benefit varies daily with the net investment 
experience of the Variable Account, but will never be less than the 
amount initially stated in the Policy as long as scheduled premiums are 
paid (or need not be paid pursuant to the Special Premium Option). In 
order to qualify the Policy as life insurance for Federal tax law 
purposes, the death benefit will be an amount, if greater than the 
amount otherwise provided under Option 1 or Option 2, as appropriate, 
equal to the Policy's cash value divided by the net single premium per 
$1.00 of death benefit at the insured's attained age. Thus, the death 
benefit under either Option 1 or Option 2 varies with investment 
experience when the cash value is sufficiently large that the death 
benefit is increased in order for the Policy to qualify as life 
insurance for Federal tax law purposes.
    15. NELICO permits (in states where it has been approved by the 
state insurance department) a Policy owner to effect a reduction in the 
Policy's face amount (without receiving a distribution of any of the 
Policy's cash value) but not, without NELICO's consent, below NELICO's 
minimum face amount requirements at issue. A reduction in face amount 
will reduce the Policy's cash value by the amount of any applicable 
Surrender Charge, will also reduce the scheduled premium level and 
``tabular cash value,'' and may require a reduction in any related 
rider benefits. Generally, the Policy's death benefit will also be 
decreased. However, if the death benefit at the time of a face amount 
reduction is determined by dividing the cash value by the net single 
premium per dollar of death benefit, the death benefit will not be 
decreased unless a Surrender Charge was deducted from the cash value in 
connection with the face amount reduction.
    16. NELICO deducts the following amounts from each scheduled 
premium paid under a Policy to arrive at a basic scheduled premium: (a) 
Charges for any supplementary benefits provided by rider; (b) any extra 
premiums paid for a Policy in a substandard risk or automatic issue 
class; and (c) an annual Policy administrative charge. NELICO does not 
deduct any of these charges from unscheduled payments.
    17. NELICO also deducts sales load (5.5%), state premium tax 
(2.5%), and federal tax (1%) charges from each basic

[[Page 54491]]

scheduled and unscheduled premium payment made during the life of the 
Policy.
    18. NELICO deducts from a Policy's cash value, on the Policy date 
and on the first day of each Policy month, a monthly deduction, 
consisting of an administrative charge and a minimum death benefit 
guarantee charge, and a charge for the cost of providing insurance 
protection for the Policy month equal to the amount at risk multiplied 
by the cost of insurance rate for that month. NELICO also charges the 
sub-accounts of the Variable Account for mortality and expense risks, 
at an annual rate of 0.60% (guaranteed not to exceed 0.90%) of the 
value of each sub-account's assets attributable to the Policies; and 
charges for investment advisory and other Fund expenses are deducted 
from Fund assets and are indirectly borne by owners of Policies.
    19. During the first eleven Policy years, NELICO deducts a charge 
from a Policy's cash value upon a full or partial surrender, upon a 
reduction in face amount, or upon lapse of the Policy (the ``Surrender 
Charge''). The Surrender Charge is calculated as a percentage of basic 
scheduled premiums, and will be applied to an amount equal to the total 
annualized basic scheduled premiums for the Policy payable through the 
Policy year in which total or partial surrender, lapse, or face amount 
reduction occurs, up to a maximum of four annualized basic scheduled 
premiums.
    20. The Surrender Charge rate that applies in each Policy year is 
indicated below:

------------------------------------------------------------------------
        Policy year          Percentage             Applied to          
------------------------------------------------------------------------
1                                55.00   One annualized basic scheduled 
                                          premium.                      
2                                55.00   Two annualized basic scheduled 
                                          premiums.                     
3                                36.67   Three annualized basic         
                                          scheduled premiums.           
4                                27.50   Four annualized basic scheduled
                                          premiums.                     
5*                               26.25   Four annualized basic scheduled
                                          premiums.                     
6*                               25.00   Four annualized basic scheduled
                                          premiums.                     
7*                               20.00   Four annualized basic scheduled
                                          premiums.                     
8*                               15.00   Four annualized basic scheduled
                                          premiums.                     
9*                               10.00   Four annualized basic scheduled
                                          premiums.                     
10*                               5.00   Four annualized basic scheduled
                                          premiums.                     
11*                               0.00   Four annualized basic scheduled
                                          premiums.                     
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*End of policy year.                                                    

    21. For the first four Policy years the Surrender Charge rate that 
applies in a particular year remains level throughout that year. 
Beginning in the fifth Policy year, the Surrender Charge rate declines 
on a monthly basis to the end of year rates shown in the table 
above.\3\ The maximum dollar amount of the charge applies in Policy 
years two through four. The dollar amount of the Surrender Charge is 
also limited to an amount per $1,000 of a Policy's face amount. These 
limits are:
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    \3\ In all cases, the annualized premium amount to which the 
Surrender Charge applies is calculated based on the premium payment 
frequency in effect at the time. Therefore, if basic scheduled 
premiums are being paid in quarterly installments rather than 
annually at the time of a full or partial surrender, a reduction in 
face amount or lapse of a Policy, the dollar amount of the Surrender 
Charge may be higher because the dollar amount of an annual basic 
scheduled premium is somewhat higher if it is paid in installments 
rather than once a year.

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                                                                     Policy year                                
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                                       1      2      3      4      5      6      7      8      9      10     11 
----------------------------------------------------------------------------------------------------------------
Maximum surrender charge per $1,000                                                                             
 of face amount....................    $47    $44    $42    $39    $37    $35    $33    $31    $29    $27    $25
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    22. In the case of a partial surrender or reduction in face amount, 
the Surrender Charge is deducted from the Policy's cash value in an 
amount proportional to the amount of the face amount surrender.
    23. The Surrender Charge is deducted from the Policy's available 
cash value, regardless of whether the cash value comes from scheduled 
premiums, unscheduled payments or investment experience. If the 
applicable Surrender Charge amount equals or exceeds the available cash 
value, there will be no proceeds paid to the Policy owner upon 
surrender or lapse. The Surrender Charge covers the following expenses: 
developmental costs associated with the Policies (such as actuarial, 
legal, systems and other overhead costs), underwriting, and marketing 
and other distribution expenses.

Applicant's Legal Analysis

Definition of ``Variable Life Insurance Contract''

    1. Rule 6c-3 grants exemptions from those provisions of the Act 
that are specified in paragraph (b) of Rule 6e-2 (except for Sections 7 
and 8(a)) to certain separate accounts of life insurance companies that 
support variable life insurance policies. Specifically, the exemptions 
provided by Rule 6c-3 are available only to separate accounts 
registered under the Act whose assets are derived solely from the sale 
of ``variable life insurance contracts'' that meet the definition set 
forth in Rule 6e-2(c)(1), and from certain advances made by the 
insurer. The term ``variable life insurance contract'' is defined by 
Rule 6e-2(c)(1) to include only life insurance policies that provide a 
death benefit and a cash surrender value, both of which vary to reflect 
the investment experience of the separate account, and that guarantee 
that the death benefit will not be less than an initial dollar amount 
stated in the policy. Applicants request relief from the definition of 
``variable life insurance contracts'' set forth in Rule 6e-2(c)(1) 
because Applicants must rely on certain exemptive provisions in Rule 
6e-2(b), as described below, in connection with the issuance and sale 
of the Policies.
    2. Applicants must avail themselves of certain relief provided by 
Rule 6e-2(b), as set forth below, in order to issue, sell, and maintain 
the Policies.\4\ Applicants request relief to the extent necessary to 
permit reliance on the exemptions provided in each of the provisions of 
Rule 6e-2 that are set forth below, in connection with the issuance and 
sale of the Policies.
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    \4\ Certain of the relief requested may not currently be 
necessary in light of the structure of the Variable Account as a 
``unit investment trust,'' but would become necessary if the 
Variable Account were to be restructured as an open-end management 
company in the future. The Policies permit such a restructuring.
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    (a) Paragraph (b)(1)--Sales load is no longer subject to the 
specific quantitative limits set forth in the Act, and rules 
thereunder. It is nonetheless possible that the amount of ``sales 
load'' imposed under the Policies would need

[[Page 54492]]

to be determined (for example, in connection with analyzing an exchange 
offer involving the Policies; or analyzing variations in sales load 
pursuant to Section 22(d) of the Act). Accordingly, Applicants seek 
relief permitting them to rely on paragraph (b)(1) of Rule 6e-2.
    (b) Paragraph (b)(3)--Relief is requested to permit the Variable 
Account to rely on paragraph (b)(3)(ii) of Rule 6e-2 in order to effect 
compliance with Section 8(b) of the Act (regarding the filing of a 
registration statement with the Commission).
    (c) Paragraph (b)(4)--Relief is requested to permit Applicants to 
apply the eligibility restrictions of Section 9 of the Act in the 
fashion contemplated by paragraph (b)(4).
    (d) Paragraph (b)(5)--Relief is requested to permit Applicants to 
rely on the exemptions provided from Section 13(a) of the Act relating 
to the imposition by an insurance regulatory authority of certain 
requirements on the investment policies of the Variable Account; and 
disapproval by NELICO of changes in the investment policy of the 
Variable Account initiated by contract owners, under circumstances 
contemplated by and in accordance with the requirements of paragraph 
(b)(5).
    (e) Paragraph (b)(6)--Relief is requested to permit Applicants to 
rely on the relief provided by paragraph (b)(15) of Rule 6e-2 (see 
below), which in turn refers to the conditions of paragraph (b)(6).
    (f) Paragraph (b)(7)--Relief is requested to permit Applicants to 
rely on the exemptions provided from Section 15 (a), (b), and (c) 
relating to an insurance regulatory authority disapproving advisory or 
underwriting contracts; disapproval by NELICO of changes in the 
principal underwriter for the Variable Account initiated by contract 
holders; and disapproval by NELICO of changes in the investment adviser 
to the Variable Account initiated by contract owners, under 
circumstances contemplated by and in accordance with the requirements 
of paragraph (b)(7).
    (g) Paragraph (b)(8)--Relief is requested to permit Applicants to 
rely on the exemptions provided from Section 16(a) relating to an 
insurance regulatory authority disapproving or removing a member of the 
board of directors of a separate account, under circumstances 
contemplated by and in accordance with the replacements of paragraph 
(b)(8).
    (h) Paragraph (b)(9)--Relief is requested to permit Applicants to 
rely on the exemptions provided from Section 17(f) in order to maintain 
separate account assets in the custody of NELICO or an affiliate 
thereof, in accordance with the requirements of paragraph (b)(9).
    (i) Paragraph (b)(10)--Relief is requested to permit Applicants to 
rely on the exemptions provided from Section 18(i) in order to provide 
for variable contract owner voting as contemplated by and in accordance 
with the requirements of paragraph (b)(10).
    (j) Paragraph (b)(12)--Relief is requested to permit Applicants to 
rely on the exemptions provided from Section 22(d), 22(e) and Rule 22c-
1 in connection with the issuance, transfer and redemption procedures 
for the Policies, including premium processing, premium rate structure, 
underwriting standards, and the benefit provided by the Policies, as 
contemplated by and in accordance with the requirements of paragraph 
(b)(12).
    (k) Paragraph (b)(14)--Relief is requested to permit Applicants to 
rely on the relief provided by paragraph (b)(15) of Rule 6e-2 (see 
below), which in turn refers to the conditions of paragraph (b)(14).
    (l) Paragraph (b)(15)--Relief is requested to permit Applicants to 
rely on the exemptions provided from Section 9(a), and to facilitate 
the voting by NELICO of shares of management investment companies held 
by the Variable Account in disregard of contract owner instructions 
under the circumstances contemplated by, and in accordance with the 
requirements of, paragraph (b)(15). Relief is also requested to permit 
Applicants to rely on the exemptions provided from Section 14(a), 
15(a), 16(a), and 32(a)(2) in connection with any registered management 
investment company established by NELICO in the future in connection 
with the Policies, in accordance with the requirements of paragraph 
(b)(15), and paragraphs (b)(5), (b)(7), (b)(8), and (b)(14) of Rule 6e-
2.
    3. Applicants believe the Option 2 death benefit under the Policies 
falls within the requirement that it ``vary to reflect the investment 
experience of the separate account.'' Although the Option 2 death 
benefit varies only when the Policy's cash value exceeds its ``tabular 
cash value,'' it is analogous to more conventional scheduled premium 
variable life insurance policies, which provide for death benefits that 
increase when investment experience exceeds an assumed investment rate. 
A policy under the Option 1 death benefit, however, will fail to 
satisfy this requirement if the death benefit has not been otherwise 
increased to satisfy Federal tax law requirements.
    4. The Policies also contain other provisions, relating primarily 
to the flexibility of premium payments, that are not specifically 
addressed in Rule 6e-2. Applicants therefore request relief to the 
extent necessary to permit reliance on the definition of ``variable 
life insurance contract'' in Rule 6e-2(c)(1), and on the exemptions 
provided in each of the provisions of paragraph (b) of Rule 6e-2 that 
are set forth above, under the same terms and conditions applicable to 
a separate account that satisfies the conditions set forth in Rule 6e-
2.
    5. Applicants submit that the considerations that led the 
commission to adopt Rules 6c-3 and 6e-2 apply equally to the Variable 
Account and NELICO's Policy, and that the exemptions provided by these 
rules should be granted to the Variable Account and to the other 
Applicants on the terms specified in those rules, except to the extent 
that further exemption from those terms is specifically requested 
herein.

Redeemability

    6. Section 27(i)(2)(A) of the Act provides that no registered 
separate account funding variable insurance contracts or its sponsoring 
insurance company shall sell such a contract unless it is a 
``redeemable security.'' Section 2(a)(32) defines a ``redeemable 
security'' as one entitling its holder to receive ``approximately his 
proportionate share'' of the issuer's current net asset value upon 
presentation to the issuer. Applicants request relief from the 
requirement in Section 27 that the Policy be a ``redeemable security,'' 
and from the definition of ``redeemable security'' set forth in Section 
2(a)(32), in connection with the issuance and sale of the Policies.
    7. Rule 22c-1 requires that a Policy be redeemed at a price based 
on the current net asset value of the Policy next computed after 
receipt of the request for surrender. If the conditions of Rule 6e-
2(b)(12) are satisfied, paragraph (b)(12) provides certain exemptions 
from Rule 22c-1. A contingent deferred charge such as the Surrender 
Charge may, however, not be contemplated by Rule 6e-2(b)(12), and thus 
may be deemed inconsistent with Rule 6e-2(b)(12), to the extent that 
the charge can be viewed as causing a Policy to be redeemed at a price 
based on less than the current net asset value that is next computed 
after full or partial surrender of the Policy. Accordingly, Applicants 
request relief from Rule 22c-1 and Rule 6e-2(b)(12),

[[Page 54493]]

to the extent necessary to permit the deduction of the Surrender Charge 
on surrender, partial surrender, face amount reduction or lapse of a 
Policy.
    8. Although Section 2(a)(32) does not specifically contemplate the 
imposition of a charge at the time of redemption, Applicants assert 
that such charges are not necessarily inconsistent with the definition 
of ``redeemable security.''
    9. Applicants submit that although the deferred imposition of the 
Surrender Charge (upon surrender or lapse) may not fall within the 
historical pattern of all the provisions described in this Application, 
that does not change the charge's essential nature. Moreover, the 
proposed amendments to Rule 6e-2 would permit a sales charge to be 
imposed on a contingent deferred basis. Contingent deferred charges are 
also authorized by Rule 6e-3(T) for policies able to rely on that rule. 
Therefore, Applicants submit that the Surrender Charge is consistent 
with the principles and policies underlying the limitations in Section 
2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rules 6e-2(b)(12) and 
22c-1 thereunder.

Class Exemption for Future Underwriters

    10. Applicants seek to have the relief they request extend to 
underwriters that may, in the future, act as principal underwriters of 
the Policies (``Future Underwriters''). Future Underwriters will be 
members of the NASD.
    11. Applicants represent that the terms of the relief requested 
with respect to any Future Underwriters are consistent with the 
standards set forth in Section 6(c) of the Act. Further, Applicants 
state that, without the requested class relief, exemptive relief for 
any Future Underwriter would have to be requested and obtained 
separately. Applicants assert that such additional requests for 
exemptive relief would present no issues under the Act not already 
addressed herein. Applicants submit that their request for class 
exemptions is necessary or 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, and that an order of 
the Commission including such class relief, should, therefore, be 
granted.

Conclusion

    For the reasons summarized above, Applicants assert that the 
requested exemptions are appropriate in the public interest and 
consistent with the protection of investors and 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. 97-27655 Filed 10-17-97; 8:45 am]
BILLING CODE 8010-01-M