[Federal Register Volume 86, Number 231 (Monday, December 6, 2021)]
[Notices]
[Pages 69107-69108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26328]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 34429; 812-15263]


Fortune V Separate Account, et al.

November 30, 2021.
AGENCY:  Securities and Exchange Commission (``Commission'').

ACTION:  Notice.

-----------------------------------------------------------------------

    Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from sections 12(b), 
18(f)(1) and 18(i) of the Act.

Summary of Application: Applicants request an order to permit a 
registered open-end investment company that offers variable annuity 
contracts (``Contracts'') to issue multiple classes of units 
(``Units'') with varying administrative and/or distribution expenses 
and other expenses, and to permit an arrangement for financing the 
distribution of those Contracts.

Applicants: Fortune V Separate Account (``Fortune V'') and Universal 
Financial Services (``UFS'').

FILING DATES: The application was filed on September 20, 2021 and 
amended on October 29, 2021, November 12, 2021, and November 30, 2021.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by emailing the Commission's 
Secretary at [email protected] and serving applicants with a 
copy of the request by email. Hearing requests should be received by 
the Commission by 5:30 p.m. on December 22, 2021, and should be 
accompanied by proof of service on the applicants, in the form of an 
affidavit, or, for lawyers, a certificate of service. Pursuant to rule 
0-5, hearing requests should state the nature of the writer's interest, 
the reason for the request, and the issues contested. Persons who wish 
to be notified of a hearing may request notification by emailing to the 
Commission's Secretary at [email protected].

ADDRESSES: The Commission: [email protected]. Applicants: c/o 
Dodie Kent, by email to sutherland.com">[email protected]sutherland.com.

FOR FURTHER INFORMATION CONTACT: Harry Eisenstein, Senior Special 
Counsel, at (202) 551-6764 or Nadya Roytblat, Assistant Chief Counsel, 
at (202) 551-6825 (Division of Investment Management, Chief Counsel's 
Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained by searching the 
Commission's website, at http://www.sec.gov/search/search.htm, using 
the application's file number or the applicant's name, or by calling 
(202) 551-8090.

Applicants' Representations

    1. Fortune V was established under the laws of Puerto Rico in 2007 
by Universal Life Insurance Company (``Universal''), a stock life 
insurance company domiciled in Puerto Rico, and offers Contracts 
exclusively to residents of Puerto Rico. Until May 24, 2021, Fortune V 
was exempt from regulation under the Act pursuant to section 6(a)(1) of 
the Act. That exemption was repealed on May 24, 2018, effective May 24, 
2021. On May 24, 2021, Fortune V filed a Notification of Registration 
under the Act on Form N-8A as an open-end investment company. In 
addition, with the repeal of Section 6(a)(l) of the Act, the exemption 
in section 3(a)(11) of the Securities Act of 1933 is no longer 
applicable to the Contracts.
    2. UFS, a subsidiary of Universal, is registered with the 
Commission as an investment adviser under the Investment Advisers Act 
of 1940 and as a broker-dealer under the Securities Exchange Act of 
1934, and acts as investment adviser and the distributor for Fortune V.
    3. Fortune V is comprised of several sub-accounts, each of which 
has a generally defined investment strategy and invests in a portfolio 
of separate underlying mutual funds (the ``Sub-Accounts''). Applicants 
calculate the value of the assets in each Sub-Account as of the close 
of every business day. Fortune V deducts expenses from the net assets 
of each Sub-Account each business day for investment management, 
administrative and distribution services.
    4. Fortune V offers different classes of Units \1\ in a Sub-Account 
with different levels of expenses that reflect the different liquidity 
options and death benefits made available to Contract owners, as 
described in the application. With the exception of Contracts sold 
until 2011, all classes incur a base annual account charge of 1.40% 
and, in addition, may be subject to additional charges based on which 
liquidity option is selected and whether the optional death benefit is 
selected (not including the base annual account charge, these 
additional charges are referred to as ``Covered Expenses'').
---------------------------------------------------------------------------

    \1\ ``Units'' refers to accumulation units, which are used to 
calculate the value allocated to each of the Sub-Accounts in the 
variable account before the annuitization date.
---------------------------------------------------------------------------

    5. All expenses incurred by Fortune V are allocated among its 
various classes of Units based on the respective average daily net 
assets attributable to each such class, except that the Unit value and 
expenses of each class will reflect the Covered Expenses attributable 
to the class. Covered Expenses of Fortune V allocated to a particular 
class of Units will be borne on a pro rata basis by each Unit of that 
class.
    6. On November 12, 2021, the board of directors of Fortune V (the 
``Board''), including a majority of disinterested Board members, 
adopted a multiple class plan in accordance with Rule 18f-

[[Page 69108]]

3(d) under the Act. (On November 29, 2021, the Board, including a 
majority of disinterested Board members, approved clarifying amendments 
to the plan in accordance with rule 18f-3.) Also on November 12, 2021, 
the Board, including a majority of disinterested Board members, adopted 
a plan for the distribution of Units (``Rule 12b-1 Plan). On November 
29, 2021, the Board, including a majority of disinterested Board 
members, approved clarifying amendments to the Rule 12b-1 Plan in 
accordance with rule 12b-1.

Applicants' Legal Analysis

    1. Section 18(f)(1) of the Act provides, in relevant part, that an 
open-end investment company may not issue or sell any senior security 
if, immediately thereafter, the company has outstanding more than one 
class of senior security. Section 18(i) of the Act provides that each 
share of stock issued by a registered management investment company 
will be a voting stock and have equal voting rights with every other 
outstanding voting stock.
    2. Section 12(b) of the Act makes it unlawful, with certain 
exceptions, for any registered open-end investment company to act as a 
distributor of securities, except through an underwriter, in 
contravention of such rules as the Commission may prescribe as 
necessary or appropriate in the public interest or for the protection 
of investors. Rule 12b-1 under the Act provides that an open-end 
investment company that engages in financing any activity that is 
primarily intended to result in the sale of its shares will be deemed 
to be acting as a distributor of securities of which it is the issuer, 
unless it adopts a written plan that meets certain requirements.
    3. Applicants state that the issuance and sale of multiple classes 
of Units of Fortune V may be deemed to be prohibited by section 
18(f)(1) of the Act and to violate section 18(i). Applicants also state 
that the use of Sub-Account assets to finance the distribution of the 
Contracts may be deemed to violate section 12(b) of the Act.
    4. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction or any class or classes of persons, 
securities or transactions from any provision of the Act, or from any 
rule under the Act, if and to the extent such exemption 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. Applicants request an exemption under section 
6(c) from sections 18(f)(1) and 18(i) to the extent that the proposed 
issuance and sale of multiple classes of Units of Fortune V with 
varying Covered Expenses may be deemed: (1) To result in the issuance 
of a ``senior security'' within the meaning of section 18(g) of the Act 
and thus be prohibited by section 18(f)(1); and (2) to violate the 
equal voting provisions of section 18(i) of the Act. In addition, 
Applicants request an exemption under section 6(c) of the Act from 
section 12(b), to the extent that Fortune V may be deemed to be acting 
as a distributor of its own securities within the meaning of rule 12b-1 
under the Act, solely with respect to the initial shareholder approval 
requirement in rule 12b-1(b) as it applies to the Rule 12b-1 Plan 
adopted on November 12, 2021 and amended on November 29, 2021. 
Applicants state that, for the reasons discussed below, they satisfy 
the standard for relief under section 6(c) of the Act.
    5. Applicants state that the different classes of Units provide the 
Applicants with the flexibility to offer different liquidity options 
and death benefits to Contract owners. Further, Applicants assert that 
being limited to a single liquidity option may adversely affect Fortune 
V's ability to maintain and attract retirement assets and maintain 
significant economies of scale.
    6. Applicants submit that the proposed allocation of Covered 
Expenses and voting rights relating to the Covered Expenses applicable 
to the classes of Units in Fortune V is equitable and will not 
discriminate against any group of participants. Applicants state that 
Fortune V will comply with the requirements of rule 18f-3 under the 
Act. Applicants further state that Fortune V will disclose in its 
prospectus the fees, charges, estimated expenses and other 
characteristics of each class of Units offered for sale by the 
prospectus, as is required for open-end investment companies offering 
multiple classes under Form N-1A; and Fortune V will disclose expenses 
borne by Contract owners during the reporting period in annual and 
semi-annual reports as if it were an open-end investment company 
registered on Form N-1A.
    7. Applicants further state that the Board has adopted the Rule 
12b-1 Plan which complies with rule 12b-1 under the Act except for the 
initial shareholder approval requirement in rule 12b-1(b)(1). 
Applicants state that, when the Fortune V was established under the 
laws of Puerto Rico in 2007, it was exempt from the Act pursuant to 
section 6(a)(1) thereof, and only became subject to section 12(b) on 
May 24, 2021, long after the Contracts were offered and sold to the 
Contract owners. Applicants state that the Rule 12b-1 Plan does not 
change the rights or benefits of Contract owners, but reflects the 
current terms and provisions of the Contracts. Applicants also note 
that the Rule 12b-1 Plan was adopted prior to any public offering of 
shares of Fortune V as a registered investment company.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Fortune V will disclose in its prospectus the estimated expenses 
and other characteristics of each class of Units offered for sale by 
the prospectus, as is required for open-end, multiple class funds under 
Form N-1A. Fortune V will disclose expenses borne by Contract owners 
during the reporting period in annual and semi-annual reports as if it 
were an open-end management investment company registered on Form N-1A.
    2. Fortune V will comply with rule 18f-3 under the Act.
    3. Fortune V will comply with section 12(b) of the Act and rule 
12b-1 under the Act (except with respect to the initial shareholder 
approval requirement in rule 12b-1(b)(1) for the Rule 12b-1 Plan 
adopted on November 12, 2021 and amended on November 29, 2021).
    For the Commission, by the Division of Investment Management, under 
delegated authority.

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-26328 Filed 12-3-21; 8:45 am]
BILLING CODE 8011-01-P


