[Federal Register Volume 60, Number 85 (Wednesday, May 3, 1995)]
[Notices]
[Pages 21837-21839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10797]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21032; File No. 812-9270]


Equitable Variable Life Insurance Company, et al.

April 26, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

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

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APPLICANTS: Equitable Variable Life Insurance Company (``Equitable 
Variable''), Separate Account FP of Equitable Variable Life Insurance 
Company (the ``Account''), and Equico Securities, Inc. (``Equico'').

RELEVANT 1940 ACT SECTION AND RULE: Order requested under Section 6(c) 
of the 1940 Act for exemptions from Section 27(a)(3) thereof and 
subsections (b)(13)(ii) and (d)(1)(ii)(A) of Rule 6e-3(T) thereunder.

SUMMARY OF APPLICATION: Applicants seek an order to permit Equitable 
Variable to make available an Accounting Benefit Rider (``the Rider'') 
to certain flexible premium variable life insurance policies 
(``Policies'') it currently issues. The Rider permits the waiver of 
specified percentages of a Policy's contingent deferred sales charge 
during the early policy years. The Rider is designed to minimize the 
negative impact to earnings that results under generally accepted 
accounting principles in connection with the purchase of a Policy.

FILING DATE: The application was filed on October 4, 1994, and amended 
and restated on April 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 Secretary of the 
Commission and serving the [[Page 21838]] 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 May 22, 1995, and should be accompanied 
by proof of service on the 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 a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Equitable Variable and the Account, 787 Seventh Avenue, New York, NY 
10019. Equico, 1755 Broadway, New York, NY 10019.

FOR FURTHER INFORMATION CONTACT: Patrice M. Pitts, Special Counsel, or 
Wendy Finck Friedlander, Deputy Chief, Office of Insurance Products, 
Division of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Public Reference Branch of the Commission.

Applicants' Representations

    1. Equitable Variable is a stock life insurance company organized 
in 1972 under the laws of the State of New York.
    2. Equitable Variable established the Account as a segregated 
investment account in 1985, pursuant to the insurance laws of New York, 
for the purpose of funding variable life insurance policies, including 
the Policies.\1\ The Account is registered with the Commission as a 
unit investment trust under the 1940 Act. Equitable Variable is the 
depositor of the Account.

    \1\The Policies shall be referred to more specifically herein as 
the ``IL 2000 Series,'' The ``IL Plus Series,'' and the ``COLI 
Series.'' The relevant file numbers are 33-40590 (IL 2000 Series) 
and 33-83948 (IL Plus and COLI Series).
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    3. Equico is registered as a broker-dealer under the Securities 
Exchange Act of 1934. Equico distributes the variable life insurance 
policies funded by the Account, including the Policies.
    4. Equitable Variable deducts a monthly administrative expense 
charge and cost of insurance charges from the Policy account value, and 
reserves the right to assess a charge for transfers among the various 
investment options available under the Policies. In addition to 
deductions made from premiums and Policy account value, Equitable 
Variable assesses a charge against the assets of the Account for 
mortality and expense risks borne by it under the Policies. All 
administrative and other charges in connection with the Policies will 
comply with all applicable requirements of Rule 6e-3(T) under the 1940 
Act, subject only to the relief requested in this application.
    5. Among the charges assessed under the Policies are: (a) A premium 
sales charge deducted either on a front-end or a deferred basis (the 
``Premium Sales Charge''); and (b) a contingent deferred sales charge 
(the ``Surrender Charge''). The guaranteed maximum Premium Sales Charge 
is 6% of each premium payment (some Policies have lower guaranteed 
maximums). On a current basis, Equitable Variable intends to limit the 
cumulative Premium Sales Charge on the IL 2000 and IL Plus Series to 
less than the guaranteed maximum.\2\

    \2\Under the COLI Series, the Premium Sales Charge is deducted 
on a deferred basis from Policy account value rather than from gross 
premium.
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    6. The Rider provides that, upon surrender of a Policy: (a) All or 
a portion of the deductions from premiums (charge for premium taxes and 
Premium Sales Charge) will be refunded if the Policy deducts the 
Premium Sales Charge;\3\ and (b) all or a portion of the Surrender 
Charge (and, in the case of the IL Plus Series, the administrative 
surrender charge) will be waived if the Policy is surrendered during 
the early policy years. The amount refunded or waived decreases 
proportionately in each of the second through sixth policy years as 
follows:

    \3\No deductions from premium are refunded under a Policy that 
provides for deferred deduction of the Premium Sales Charge.

------------------------------------------------------------------------
                                                                Percent 
                                                   Percent of      of   
             Surrender in policy year                premium   surrender
                                                   deductions   charges 
                                                    refunded     waived 
------------------------------------------------------------------------
1................................................         100        100
2................................................          67         80
3................................................          33         60
4................................................           0         40
5................................................           0         20
6 and later......................................           0          0
------------------------------------------------------------------------

    7. Applicants represent that the net effect of implementation of 
the Rider is to reduce the amount of sales charges that would otherwise 
be applicable during the early policy years. Applicants further 
represent that, because the waiver percentages under the Rider decrease 
in each of the second through the sixth policy years, implementation of 
the Rider could cause a policyowner to pay proportionately more 
Surrender Charge than would have been paid had the Policy been 
surrendered in a preceding policy year.
    8. There is no specific fee or charge related to the Rider.\4\ 
Equitable Variable intends to make the Rider available with Policies 
purchased through corporations or partnerships under the following 
circumstances:\5\ (a) A minimum of five lives are insured; (b) proposed 
insureds are highly compensated; (c) the Policies have an average Face 
Amount of at least $500,000;\6\ (d) the initial premium payment is made 
with corporate or partnership funds; and (e) the aggregate annualized 
first year premium for all Policies is at least $150,000.

    \4\The provisions of the Rider are incorporated into the 
contract form for the COLI Series. The term ``Rider'' as used 
herein, includes the provisions of the COLI Series contract.
    \5\These requirements may vary in certain states.
    \6\This criterion does not apply to the COLI Series.
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    9. In Equitable Variable's experience, policyowners of the type to 
which the Rider will be available are unlikely to surrender their 
Policies within the five-year period during which the Rider is 
operative. Applicants represent that the amount of the Surrender Charge 
has not been increased to compensate for the fact that, because of the 
Rider, not all Policies will be subject to the full Surrender Charges 
that otherwise would apply.

Applicants' Legal Analysis

    1. Section 27(a)(3) of the 1940 Act provides, in effect, that the 
amount of sales Charge deducted from any of the first twelve monthly 
payments of 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. 
This prohibition is referred to commonly as the ``stair-step'' rule.
    2. Applicants request an exemption from the stair step requirements 
of Section 27(a)(3) and Rule 6e-3(T)(b)(13)(ii) and (d)(1)(ii)(A) to 
the extent necessary because, until the seventh policy year, the Rider 
could cause a policyowner to pay proportionately more Surrender Charge 
than would have been paid had the Policy been surrendered in a 
preceding policy year. Applicants submit that the requested relief is 
necessary only because they have reduced the amount of the Surrender 
Charge otherwise payable under the Policy during the early policy 
years, a procedure they contend is favorable to policyowners.
    3. Subsection (b)(13)(ii) of Rule 6e-3(T) under the 1940 Act, in 
pertinent part, provides an exemption from Section 27(a)(3), provided 
that the proportionate amount of sales charge [[Page 21839]] deducted 
from any payment does not exceed the proportionate amount deducted from 
any prior payment. This general proviso holds true unless the increase 
in sales load deduction is caused by reductions in the annual cost of 
insurance or reductions in sales load for amounts transferred to a 
variable life insurance policy from another plan of insurance. 
Applicants represent that neither exception applies in the present 
case.
    4. Subsection (d)(1) of Rule 6e-3(T) provides relief similar to 
that provided by subsection (b)(13)(ii), but for sales charges deducted 
from other than premiums, and provided that the sales load deducted 
pursuant to any method permitted thereunder does not exceed the 
proportionate amount of sales load deducted prior thereto pursuant to 
the same method. Applicants represent that the express language of 
subsection (d)(1)(ii)(A) prohibits the actual deduction of 
proportionately greater amounts.
    5. Applicants represent that although the Rider causes the 
Surrender Charge to increase over a limited period of time, the actual 
amount of the Surrender charge deducted in connection with the IL 2000 
Series and the IL Plus Series never is proportionately greater than any 
Surrender Charge deducted prior thereto, because either: (a) There has 
been no prior Surrender Charge deduction; or (b) the prior deduction 
resulted from a face amount decrease to which the Rider does not apply, 
with the result that the Surrender Charge percentages applicable to the 
decrease are the higher percentages specified in the Policy.
    6. Applicants state that, unlike under the IL 2000 Series and the 
IL Plus Series, however, under the COLI Series, the Rider applies to 
amounts of Surrender Charges imposed upon decreases in the face amount. 
Therefore, the effective rate of a Surrender Charge imposed upon a 
decrease in the face amount under the COLI Series during the first five 
Policy years may be lower than the Surrender Charge applicable to a 
later decrease in the face amount, surrender, or termination of a 
Policy. Applicants represent that this phenomenon results solely from 
the fact that the Rider--which is beneficial to policyowners--applies 
to decreases in face amount (as well as surrenders and Policy 
termination) under the COLI Series.
    7. Applicants assert that Section 27(a)(3), in conjunction with the 
other sales charge limitations in the 1940 Act, was designed 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 contend that waiver of an 
amount of Surrender Charge otherwise payable under the Policy upon 
surrender through operation of the Rider does not present the abuses 
addressed in Section 27(a)(3); indeed, operation of the Rider could 
further the purposes of the 1940 Act.
    8. Applicants also assert that one purpose behind Section 27(h)(3) 
of the 1940 Act, a provision similar to Section 27(a)(3), is to 
discourage unduly complicated sales charges. Applicants submit that 
this also may be deemed to be a purpose of Section 27(a)(3) and 
subsections (b)(3)(ii) and (d)(1) of Rule 6e-3(T). Applicants submit 
that the variation to the Policies' sales charge structure effected by 
the Rider is relatively straightforward and easily understood, as 
compared to that of many other variable life insurance Policies 
currently being offered. Moreover, Applicants represent that eligible 
policyowners will benefit from the sales charge structure effected by 
the Rider, and that the prospectuses for the Policies, or supplements 
thereto, will contain disclosure informing prospective eligible 
policyowners of the effect of the Rider on the sales charges under the 
Policies.

Applicants' Conclusion

    Applicants submit that, for the reasons and based upon the facts 
set forth above, the requested exemptions from Section 27(a)(3) of the 
1940 Act and subsections (b)(13)(ii) and (d)(1)(ii)(A) of Rule 6e-3(T) 
under the 1940 Act--to permit Equitable Variable to make a Rider 
available under the Policies--meet the standards of Section 6(c) of the 
1940 Act. In this regard, Applicants submit that the exemptions are 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the 
policies and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-10797 Filed 5-2-95; 8:45 am]
BILLING CODE 8010-01-M