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1 SEC Docket 1 (1973)

handle is hein.journals/secdoc1 and id is 1 raw text is: RELEASES IN THIS ISSUE 33- 5360-62 IC- 7640-57 34- 9929 IA- 359 9965 9969 LF 5711 9972-85 57.1417 35-17866-73 SECURITIES ACT OF 1933 SECURITIES ACT OF 1933 Rel. No. 5360/January 31, 1973 SECURITIES EXCHANGE ACT OF 1934 Rel. No. 9972/January 31, 1973 INVESTMENT COMPANY ACT OF 1940 Rel. No. 7644/January 31, 1973 INVESTMENT ADVISERS ACT OF 1940 Rel. No. 359/January 31, 1973 ADOPTION OF RULE 3c-4 UNDER THE INVEST- MENT COMPANY ACT OF 1940 (15 U.S.C. 80a-1 et seq.) TO DEFINE A SEPARATE ACCOUNT ESTAB- LISHED BY A LIFE INSURANCE COMPANY TO FUND CERTAIN TYPES OF VARIABLE LIFE INSUR- ANCE CONTRACTS AS AN INSURANCE COMPANY SO AS TO EXEMPT SUCH SEPARATE ACCOUNT FROM THE PROVISIONS OF THE INVESTMENT COM- PANY ACT AND ADOPTION OF RULE 202-1 UNDER THE INVESTMENT ADVISERS ACT OF 1940 (15 U.S.C. 80b-1 et seq.) TO EXEMPT FROM THAT ACT AN INSURANCE COMPANY OR AN AFFILIATED COMPANY THEREOF TO THE EXTENT IT PERFORMS ADVISORY SERVICES INCIDENTAL TO THE ISSU- ANCE OF VARIABLE LIFE INSURANCE CONTRACTS. (File No. 4-149) On February 15, 1972, the Securities and Exchange Commission published a notice of and order for hearing with respect to rules proposed by the American Life Convention and the Life Insurance Association of America (Petitioners) in Petition for Issuance and Amendment of Rules and Rulemaking Proceeding Therefor (Petition).1 As proposed, the rules would exempt certai- vari- able life insurance contracts, related interests and participations therein, and the issuers thereof and their related persons from the Securities Act of 1933 (Securities Act) (15 U.S.C. 70a et seq.), the Securities Exchange Act of 1934 (Exchange Act) (15 U.S.C. 78a et seq.), the Investment Company Act of 1940 (Investment Company Act) (15 U.S.C. 80a-1 et seq.), and the Investment Ad- visors Act of 1940 (Investment Advisers Act) (15 U.S.C. 80b-1 et seq.). The Commission invited all interested persons who wished to comment on the proposed rules to appear in person at the hearing or to submit written statements for inclusion in the pro- ceeding. The public hearing commenced on April 10, 1972 and concluded on June 7, 1972 during which time the Commission had the aid and assistance of extensive testimony and written submissions. The Commission has considered the comments and submissions made at the hearing. The Commission has also considered a report pre- pared by its Division of Investment Management Regulation, short- ly to be published, which summarizes and explains the features of variable life insurance based upon information developed during the hearing and provides an analysis of the law with regard to variable life insurance. Based upon this record and upon its own independent review of the Petition and the issues raised therein, the Commission has determined: 1. A public offering of variable life insurance contracts in the forms proposed in the Petition would involve an offering of secu- rities required to be registered under the Securities Act. 2. Persons selling such variable life contracts would generally be required to register as broker-dealers under the Securities Ex- change Act. 3. A company, including a separate account of an insurance com- pany, primarily engaged in issuing and selling such variable life in- surance contracts would be an investment company required to be registered under the Investment Company Act. 4. An insurance company or other person rendering investment advice to a separate account issuing and funding such variable life insurance contracts would be required to register as an investment adviser under the Investment Advisers Act. The Commission has further determined: 1. To adopt Rule 3c-4 under the Investment Company Act to ex- empt from the Act separate accounts with certain specified char- acteristics established to fund such contracts. 2. To adopt Rule 202-1 under the Investment Advisers Act to exempt from the Act an insurance company or affiliated com- pany acting as adviser to such an account. The Applicability of the Federal Securities Laws In arriving at these determinations, the Commission in no way questions the merits or desirability of variable life insurance which may well become an important and valuable combined investment and insurance vehicle. Analysis of the record does indicate that such a contract would involve important elements of insurance. In particular, a variable life insurance contract would provide im- mediate insurance equal to the initial face amount many times the amount of premiums paid, and a guaranteed minimum death bene- fit also equal to the initial face amount. But, unlike traditional life insurance, a variable life contract would also provide a variable death benefit and a variable cash value - important features which are likely to be emphasized in the sale of variable life insurance. As to these critical features, the contractholder participates direct- ly in the investment experience of the separate account and bears an investment risk. For these reasons the Comission has determined that a variable life contract would be a security, not entitled to the exemption set forth in Section 3(a)(8) of the Securities Act. That provision was intended only to exempt an insurance policy or contract un- der which a policyholder has a fixed benefit and does not share in the investment experienceof-an equity portfolio and as to SEC RELEASES/1 VOLUME , N. 1 FEBRUARY 13, 1973 3 doc A WEEKLY COMPILATION OF RELEASES FROM THE SECURITIES AND EXCHANGE COMMISSION kLos

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