[Federal Register Volume 64, Number 164 (Wednesday, August 25, 1999)]
[Notices]
[Pages 46456-46462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22022]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23953; File No. 812-11602]
The Equitable Life Assurance Society of the United States, et al.
August 19, 1999.
Agency: Securities and Exchange Commission (the ``Commission'' or
``Sec'').
Action: Notice of application for an order pursuant to Section 26(b) of
the Investment Company Act of 1940 (the ``1940 Act'') approving certain
substitutions of securities, and pursuant to Section 17(b) of the 1940
Act exempting related transactions from Section 17(a) of the 1940 Act.
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Summary of Application: Applicants request an order to permit
certain registered unit investment trusts to substitute shares of EQ
Advisors Trust, a registered open-end investment company, for shares of
The Hudson River Trust, another registered open-end investment company,
currently held by those unit investment trusts, and to permit certain
in-kind redemptions of portfolio securities in connection with the
substitutions.
Applicants: For purposes of the order requested pursuant to Section
26(b), The Equitable Life Assurance Society of the United States
(``Equitable''), Separate Account A of Equitable (``SA A''), Separate
Account No. 301 of Equitable (``SA 301''), Separate Account No. 45 of
Equitable (``SA 45''), Separate Account No. 49 of Equitable (``SA
49''), Separate Account I of Equitable (``SA I''), and Separate Account
FP of Equitable (``SA FP'', and together with SA A, SA 301 SA 45, SA
49, and SA I, the ``Equitable Accounts'') (collectively, the ``Section
26 Applicants''). For purposes of the order pursuant to Section 17(b),
Equitable, the Equitable Accounts, Separate Account No. 51 of Equitable
(``SA 51''), and Separate Account No. 65
[[Page 46457]]
of Equitable (``SA 65'' and together with Equitable, the Equitable
Accounts, and SA 51, the ``Section 17 Applicants'').
Filing Date: The application was filed on April 30, 1999, and
amended and restated on August 12, 1999.
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 September 13, 1999, 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 who wish to be notified of a
hearing may request notification by writing to the Secretary of the
Commission.
Addresses: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549-0609. Applicants: c/o The
Equitable Life Assurance Society of the United States, 1290 Avenue of
the Americas, New York, New York 10104, Attn: Mary Joan Hoene, Esq.,
Vice President and Counsel.
For Further Information Contact: Kevin P. McEnery, Senior Counsel, or
Susan M. Olson, Branch 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
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549-0102 (tel. (202) 942-8090).
Applicant's Representations
1. Equitable is a New York stock life insurance company authorized
to sell life insurance and annuities in all fifty states, the District
of Columbia, Puerto Rico, and the Virgin Islands. Equitable is the
depositor and sponsor of SA A, 301, SA 45, SA 49, SA I, SA FP, SA 51
and SA 65, each a segregated asset account of Equitable.
2. Equitable is an investment adviser registered under the
Investment Advisers Act of 1940 (``Advisers Act''), as amended, and a
wholly-owned subsidiary of The Equitable Companies Incorporated
(``ECI''), a member of the global AXA Group, which is a holding company
for an international group of insurance and related financial services
companies. Alliance Capital Management L.P. (``Alliance''), an
investment adviser registered under the Advisers Act, is a majority-
owned publicly traded subsidiary of ECI.
3. Each of SA A, SA 301, SA 45, SA 49, SA I, and SA FP
(collectively, the ``Equitable Accounts'') is registered with the
Commission under the 1940 Act as a unit investment trust. The assets of
the Equitable Accounts support certain variable annuity contracts or
variable life insurance policies (collectively, the ``Contracts''). The
variable annuity contracts issued by Equitable include flexible premium
deferred variable annuity contracts and single premium immediate
variable annuity contracts. Some of the variable annuity contracts are
issued as group contracts, while the remaining annuity contracts are
issued to or on behalf of individuals. The variable life insurance
policies issued by Equitable include flexible premium, scheduled
premium and single premium individual variable life, second to die and
corporate variable life policies.
4. The Hudson River Trust (``HRT'') is organized as a Massachusetts
business trust. It is registered as an open-end management investment
company under the 1940 Act, and its shares are registered under the
Securities Act of 1933 (the ``Securities Act'') on Form N-1A. HRT is a
series investment company, as defined by Rule 18f-2 under the 1940 Act,
and currently offers shares of 14 separate portfolios (``Current
Funds''), all of which would be involved in the proposed substitutions.
HRT sells shares to the Equitable Accounts to serve as the investment
medium for the Contracts. HRT currently offers two classes of shares,
Class IA and Class IB shares, which differ only in that Class IB shares
are subject to a distribution plan adopted and administered pursuant to
Rule 12b-1 under the 1940 Act. Each Current Fund is advised by
Alliance.
5. EQ Advisors Trust (``EQAT'') is organized as a Delaware business
trust. It is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the 1933 Act on
Form N-1A. EQAT is a series investment company, as defined by Rule 18f-
2 under the 1940 Act, and currently offers 25 separate portfolios of
shares. EQAT sells shares to the Equitable Accounts in connection with
the Contracts.\1\ EQAT currently offers two classes of shares, Class IA
and Class IB shares, which differ only in that Class IB shares are
subject to a distribution plan adopted and administered pursuant to
Rule 12b-1 under the 1940 Act. In connection with the proposed
substitutions, EQAT has filed with the Commission post-effective
amendment No. 11 to its registration statement in order to register 14
new portfolios (``New Funds''). EQ Financial Consultants, Inc. (``EQ
Financial''), an indirect wholly-owned subsidiary of Equitable, serves
as investment manager of each of the current 25 portfolios of EQAT
under an investment management agreement between EQAT and EQ
Financial.\2\ EQ Financial is an investment adviser registered under
the Advisers Act and a broker-dealer registered under the Securities
Exchange Act of 1934, as amended. Pursuant to the investment management
agreement, the investment manager (``Manager'') is responsible for the
general management and administration of EQAT, including selecting the
investment advisers for each of EQAT's portfolios (``Advisers''),
monitoring their investment programs and results, reviewing brokerage
matters, overseeing compliance issues, and carrying out the directives
of the Board of Trustees. Alliance will serve as the Adviser to each of
the New Funds. EQAT has received an exemptive order from the Commission
(``Multi-Manager Order'') that permits EQ Financial, or any entity
controlling, controlled by, or under common control (within the meaning
of Section 2(a)(9) of the 1940 Act) with EQ Financial, subject to
certain conditions, including approval of the Board of Trustees of
EQAT, and without the approval of shareholders to: (a) employ a new
Adviser or Advisers for any portfolio pursuant to the terms of a new
Investment Advisory Agreement, in each case either as a replacement for
an existing Adviser or as an additional Adviser; (b) change the terms
of any Investment Advisory Agreement; and (c) continue the employment
of an existing Adviser on the same contract terms where a contract has
been assigned because of a change of control of the Adviser.\3\ In
[[Page 46458]]
such circumstances, Contract owners would receive notice of any such
action, including information concerning any new Adviser that normally
is provided in proxy materials.
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\1\ An exemptive order was issued by the Commission granting
exemptions from the 1940 Act to permit shares of EQAT to be offered
to separate accounts of affiliated and unaffiliated insurance
companies that offer either variable life insurance policies or
annuity contracts (``EQAT Shared Funding Order''). See EQ Advisors
Trust, Investment Company Act Rel. Nos. 22651 (April 30, 1997)
(order) and 22602 (April 4, 1997) (notice).
\2\ During 1999, EQ Financial plans to change its name to AXA
Advisors, Inc. On July 12, 1999, the Board of Trustees of EQAT
approved a transfer of the Investment Management Agreement between
EQAT and EQ Financial to Equitable. That transfer of the Investment
Management Agreement is expected to occur prior to October 1, 1999.
\3\ See EQ Advisors Trust and EQ Financial Consultants, Inc.,
Investment Company Act Rel. Nos. 23128 (April 24, 1998) (order) and
23093 (March 30, 1998) (notice). Before a New Fund may rely on the
Multi-Manager Order, the operation of that New Fund as a multi-
manager fund, as described in the application for the Multi-Manager
Order,will be approved, following the substitutions proposed in the
application, by a majority of that New Fund's outstanding voting
securities in a manner consistent with the EQAT Shared Funding
Order.
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6. Each of the Contracts expressly reserve to the Section 26(b)
Applicants the right, subject to compliance with applicable law, to
substitute shares of another portfolio for shares of the Current Funds
held by the Equitable Accounts. The prospectuses describing the
Contracts contain appropriate disclosure of this right.
7. Equitable, on its own behalf and on behalf of the Equitable
Accounts, proposes to substitute securities issued by the 14 New Funds
for the securities issued by the 14 Current Funds. Specifically,
Applicants propose to substitute: (i) Class IA Shares of each New Fund
for Class IA Shares of each Current Fund; and (ii) Class IB Shares of
each New Fund for Class IB Shares of each Current Fund. The Applicants
represent that the substitutions are part of an overall business plan
by Equitable to make the Contracts more competitive and attractive to
potential customers and Contract owners and to enable Equitable to more
efficiently administer and oversee the Contracts. The Section 26
Applicants state that it is their belief that the substitutions will:
(1) facilitate Contract owner understanding of the underlying
investment options for the Contracts and reduce the potential for
Contract owners to be confused by the two separate underlying
investment vehicles (i.e., portfolios of HRT and portfolios of EQAT)
that are used to fund the Contracts; (2) reduce the administrative
burden of maintaining two separate underlying investment companies for
the Contracts; and (3) consolidate the underlying investment vehicles
in EQAT.
8. The Section 26(b) Applicants represent that EQAT's Manager will
serve as Manager of each New Fund and that Alliance will serve as
Adviser to each New Fund. The Applicants also state that each New Fund
will have investment objectives, investment strategies and anticipated
risks that are identical in all material respects to those of the
corresponding Current Fund. The investment objectives of each Current
Fund and the corresponding New Fund are shown below.
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Current portfolio Investment objective New portfolio Investment objective
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Alliance Aggressive Stock......... Seeks to achieve long-term Alliance Aggressive Seeks to achieve long-
growth of capital. Stock. term growth of capital.
Alliance Balanced................. Seeks to achieve a high Alliance Balanced.... Seeks to achieve a high
return through both return through both
appreciation of capital appreciation of capital
and current income. and current income.
Alliance Common Stock............. Seeks long-term growth of Alliance Common Stock Seeks long-term growth of
its capital and increase its capital and increase
in income. in income.
Alliance Conservative Investors... Seeks to achieve a high Alliance Conservative Seeks to achieve a high
total return without, in Investors. total return without, in
the opinion of the the opinion of the
Adviser, undue risk to Adviser, undue risk to
principal. principal.
Alliance Equity Index............. Seeks a total return Alliance Equity Index Seeks a total return
before expenses that before expenses that
approximates the total approximates the total
return performance of the return performance of
S&P 500 Index, including the S&P 500 Index,
reinvestment of including reinvestment
dividends, at a risk of dividends, at a risk
level consistent with level consistent with
that of the S&P 500 Index. that of the S&P 500
Index.
Alliance Global................... Seeks long-term growth of Alliance Global...... Seeks long-term growth of
capital. capital.
Alliance Growth and Income........ Seeks to provide a high Alliance Growth and Seeks to provide a high
total return through a Income. total return through a
combination of current combination of current
income and capital income and capital
appreciation by investing appreciation by
primarily in income- investing primarily in
producing common stocks income-producing common
and securities stocks and securities
convertible into common convertible into common
stocks. stocks.
Alliance Growth Investors......... Seeks to achieve the Alliance Growth Seeks to achieve the
highest total return Investors. highest total return
consistent with the consistent with the
Adviser's determination Adviser's determination
of reasonable risk. of reasonable risk.
Alliance High Yield............... Seeks to achieve a high Alliance High Yield.. Seeks to achieve a high
return by maximizing return by maximizing
current income and, to current income and, to
the extent consistent the extent consistent
with that objective, with that objective,
capital appreciation. capital appreciation.
Alliance Intermediate Government Seeks to achieve high Alliance Intermediate Seeks to achieve high
Securities. current income consistent Government current income
with relative stability Securities. consistent with relative
of principal through stability of principal
investment primarily in through investment
debt securities issued or primarily in debt
guaranteed as a principal securities issued or
and interest by the U.S. guaranteed as to
Government or its principal and interest
agencies or by the U.S. Government
instrumentalities. or its agencies or
instrumentalities.
Alliance International............ Seeks to achieve long-term Alliance Seeks to achieve long-
growth of capital by International. term growth of capital
investing primarily in a by investing primarily
diversified portfolio of in a diversified
equity securities portfolio of equity
selected principally to securities selected
permit participation in principally to permit
non-U.S. companies with participation in non-
prospects for growth. U.S. companies with
prospects for growth.
Alliance Money Market............. Seeks to obtain a high Alliance Money Market Seeks to obtain a high
level of current income, level of current income,
preserve its assets and preserve its assets and
maintain liquidity. maintain liquidity.
Alliance Quality Bond............. Seeks to achieve high Alliance Quality Bond Seeks to achieve high
current income consistent current income
with preservation of consistent with
capital by investing preservation of capital
primarily in investment by investing primarily
grade fixed income in investment grade
securities. fixed income securities.
[[Page 46459]]
Alliance Small Cap Growth......... Seeks to achieve long-term Alliance Small Cap Seeks to achieve long-
growth of capital. Growth. term growth of capital.
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9. The Section 26(b) Applicants state that it is expected that: (i)
the management fees (i.e., the total management fees and investment
advisory fees paid to the Manager and the Adviser) with respect to each
New Fund will be the same as the management fees currently applicable
to the corresponding Current Funds; and (ii) there may be a slight
increase in the total expense ratios of each of the New Funds as
compared to those of the Current Funds. The Applicants also represent
that the charts below show: (i) the management fees and total expenses
for Class IA and Class IB shares of each of the Current Funds for the
year ending December 31, 1998; and (ii) the estimated management fees
and total expenses of Class IA and Class IB shares of each of the New
Funds following the proposed substitutions. Estimated management fees
and total expenses of the Class IA and Class IB shares of each of the
New Funds are presented on a pro forma basis and are based upon the
audited financial statements of HRT for the year ending December 31,
1998.
Class IA Shares
[Year ending December 31, 1998, pro forma]
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Management &
Advisory fees Total expenses advisory fees Total expenses
(as percentage (as percentage (as percentage (as percentage
Current fund of average of average New fund of average of average
daily net daily net daily net daily net
assets) assets) assets) assets
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Alliance Aggressive Stock..... 0.54 0.56 Alliance 0.54 0.57
Aggressive
Stock.
Alliance Balanced............. 0.41 0.45 Alliance 0.41 0.46
Balanced.
Alliance Common Stock......... 0.36 0.39 Alliance Common 0.36 0.40
Stock.
Alliance Conservative 0.48 0.53 Alliance 0.48 0.54
Investors. Conservative
Investors.
Alliance Equity Index......... 0.31 0.34 Alliance Equity 0.31 0.35
Index.
Alliance Global............... 0.64 0.71 Alliance Global. 0.64 0.72
Alliance Growth and Income.... 0.55 0.58 Alliance Growth 0.55 0.59
and Income.
Alliance Growth Investors..... 0.51 0.55 Alliance Growth 0.51 0.56
Investors.
Alliance High Yield........... 0.60 0.63 Alliance High 0.60 0.64
Yield.
Alliance Intermediate 0.50 0.55 Alliance 0.50 0.56
Government Securities. Intermediate
Government
Securities.
Alliance International........ 0.90 1.06 Alliance 0.90 1.07
International.
Alliance Money Market......... 0.35 0.37 Alliance Money 0.35 0.38
Market.
Alliance Quality Bond......... 0.53 0.57 Alliance Quality 0.53 0.58
Bond.
Alliance Small Cap Growth..... 0.90 0.96 Alliance Small 0.90 0.97
Cap Growth.
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Class IB Shares
[Year ending December 31, 1998, Pro Forma]
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Management &
Advisory fees Total expenses advisory fees Total expenses
(as percentage 12b-1 fees (as percentage (as percentage (as percentage
Currend fund of average (percent) of average New fund of average 12b-1 fees of average
daily net daily net daily net daily net
assets) assets) assets) assets)
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Alliance Aggressive stock......... 0.54 0.25 0.82 Alliance Aggressive 0.54 0.25 0.82
Stock.
Alliance Balanced................. 0.41 0.25 0.70 Alliance Balanced... 0.41 0.25 0.71
Alliance Common Stock............. 0.36 0.25 0.64 Alliance Common 0.36 0.25 0.65
Stock.
Alliance Conservative Investors... 0.48 0.25 0.78 Alliance 0.48 0.25 0.79
Conservative
Investors.
Alliance Equity Index............. 0.31 0.25 0.59 Alliance Equity 0.31 0.25 0.60
Index.
Alliance Global. 0.64 0.25 0.96 Alliance Global. 0.64 0.25 0.97
Alliance Growth and Income........ 0.55 0.25 0.83 Alliance Growth and 0.55 0.25 0.84
Income.
Alliance Growth Investors......... 0.51 0.25 0.80 Alliance Growth 0.51 0.25 0.81
Investors.
Alliance High Yield............... 0.60 0.25 0.88 Alliance High Yield. 0.60 0.25 0.89
Alliance Intermediate Government 0.50 0.25 0.80 Alliance 0.50 0.25 0.81
Securities. Intermediate
Government
Securities.
Alliance International............ 0.90 0.25 1.31 Alliance 0.90 0.25 1.32
International.
[[Page 46460]]
Alliance Money Market............. 0.35 0.25 0.62 Alliance Money 0.35 0.25 0.63
Market.
Alliance Quality Bond............. 0.53 0.25 0.81 Alliance Quality 0.53 0.25 0.82
Bond.
Alliance Small Cap Growth......... 0.90 0.25 1.20 Alliance Small Cap 0.90 0.25 1.21
Growth.
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10. The Section 26 Applicants state that they have filed with the
Commission prospectuses or prospectus supplements that describe the
proposed substitutions. The Section 26 Applicants have sent the
appropriate prospectus or supplement (or other notice, in the case of
Contracts no longer actively marketed and for which there are a
relatively small number of existing Contract owners (``Inactive
Contracts'')) \4\ containing this disclosure to all existing and new
Contract owners and participants. Such disclosure described each of the
New Funds, identified each Current Fund that is being replaced, and
disclosed the impact of the substitutions on fees and expenses at the
underlying fund level. In addition, management and counsel for EQAT
have filed with the Commission a post-effective amendment to the
current registration statement of EQAT on Form N-1A in order to
register the 14 New Funds under the 1940 Act and to register shares in
each New Fund under the 1933 Act. Applicants state that on or about
August 30, 1999, all existing Contract owners and participants will be
sent an additional Contract prospectus or supplement thereto (or other
notice in the case of Inactive Contracts) that notifies them of the
fact that the application has been noticed. Together with this
disclosure, Applicants state that all existing Contract owners and
participants also will be sent a prospectus for each of the New Funds
into which their Current Funds will be substituted. New purchasers of
Contracts will be provided with the Contract prospectuses or
supplements containing disclosure that the application has been
noticed, as well as a prospectus for each of such New Funds. These
Contract prospectuses/supplements and New Fund prospectuses will be
delivered to purchasers of new Contracts in accordance with all
applicable legal requirements. Confirmation of the substitutions will
be sent to affected Contract owners and participants within five days
after the substitutions are effected.
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\4\ Applicants state that in reliance on the relief provided in
Great-West Life Insurance Company (pub. avail. Oct. 23, 1990)
(``Great-West'') and in The Equitable Life Assurance Society of the
United States (pub. avail. Oct. 4, 1990) (``The Equitable''),
certain information about Inactive Contracts, the relevant Equitable
Account, and the underlying fund are provided to Inactive Contract
owners in lieu of filing post-effective amendments to the
registration statements relating to those Inactive Contracts or
delivering updated prospectuses to those Contract owners.
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11. Applicants state that the substitutions will be effected by
redeeming shares of the Current Funds on the date the substitutions
will take place (``Substitution Date'') at net asset value and using
the proceeds to purchase shares of the New Funds at net asset value on
the same date. No transfer or similar charges will be imposed and, on
the Substitution Date, all Contract values will remain unchanged and
fully invested. The Applicants expect that the substitutions will be
effected by redeeming the shares of each Current Fund in-kind. Those
assets will then be contributed in-kind to the corresponding New Fund
to purchase shares of that New Fund. Redemptions and contributions in-
kind (``In-Kind Transactions'') will reduce the brokerage costs that
otherwise would be incurred and will ensure that Contract values remain
fully invested. In-kind redemptions and contributions will be done in a
manner consistent with the investment objectives, policies and
diversification requirements of each corresponding New Fund. The
Manager of each New Fund will review the in-kind transactions to assure
that the assets are suitable for the New Fund. All assets subject to
in-kind redemption and purchase will be valued based on the normal
valuation procedures of the redeeming and purchasing Funds, as set
forth in the HRT and EQAt registration statements.
12. The significant terms of the substitutions describe above
include:
a. The New Funds have investment objectives, investment strategies,
and anticipated risks that are identical in all material respects to
those of the Current Funds. In this regard, the Section 26 Applicants
note that the New Funds will continue to employ the same portfolio
managers currently employed by the Current Funds and are intended to
mirror the investment options provided by the Current Funds.
b. The fees and expenses of the New Funds will in all cases be
substantially similar to those of the Current Funds, assuming that the
asset levels of the New Funds do not decrease significantly from the
Current Funds' present asset levels. Again, the Section 26 Applicants
note in this regard that given the substantial similarity of the
Current Funds and the New Funds, Applicants do not expect there to be a
reduction in the asset levels of the New Funds as a result of the
proposed substitutions.
c. Contract owners and participants may transfer assets from the
Current or New Funds to another investment option available under their
Contract without the imposition of any fee, charge, or other penalty
that might otherwise be imposed from the date of the initial notice
through a date at least thirty days following the Substitution Date.
d. The substitutions, in all cases, will be effected at the net
asset value of the respective shares of the Current Fund and the
corresponding New Fund in conformity with Section 22(c) of the 1940 Act
and Rule 22c-1 thereunder, without the imposition of any transfer or
similar charge by the Section 26 Applicants, and with no change in the
amount of any Contract owner's or participant's Contract value or in
the dollar value of his or her investment in such Contract.
e. Contract owners and participants will not incur any fees or
charges as a
[[Page 46461]]
result of the proposed substitutions, nor will their rights or
Equitable's obligations under the Contracts be altered in any way.
Equitable will bear all expenses incurred in connection with the
proposed substitutions and related filings and notices, including
legal, accounting and other fees and expenses. The proposed
substitutions will not cause the contract fees and charges currently
being paid by existing Contract owners to be greater after the proposed
substitutions than before the proposed substitutions.
f. Redemptions in-kind and contributions in-kind will be done in a
manner consistent with the investment objectives, polices and
diversification requirements of the applicable Current and New Funds,
and the Manager will review in-kind transactions to assure that the
assets are suitable for the New Fund. Consistent with Rule 17a-7(d)
under the 1940 Act, no brokerage commissions, fees (except customary
transfer fees) or other remuneration will be paid in connection with
the in-kind transactions.
g. The substitutions will not be counted as new investment
selections in determining the limit, if any, on the total number of
funds that Contract owners and participants can select during the life
of a Contract.
h. The substitutions will not alter in any way the annuity or life
benefits, tax benefits or any contractual obligations of the Section 26
Applicants under the Contracts.
i. Contract owners and participants may withdraw amounts under the
Contracts or terminate their interest in a Contract, under the
conditions that currently exist, including payment of any applicable
withdrawal or surrender charge.
j. Contract owners and participants affected by the substitutions
will be sent written confirmation of the substitutions that identify
each substitution made on behalf of that Contract owner or participant
within five days following the Substitution Date.
k. Before a New Fund may rely on the Multi-Manager Order, the
operation of that New Fund as a multi-manager fund, as described in the
application for the Multi-Manager Order, will be approved, following
the substitutions proposed herein, by a majority of that New Fund's
outstanding voting securities in a manner consistent with the EQAT
Shared Funding Order.
13. The Section 26(b) Applicants state that they will not complete
the substitutions as described in the application unless all of the
following conditions are met:
a. The Commission will have issued an order approving the
substitutions under Section 26(b) of the 1940 Act.
b. The Commission will have issued an order exempting the in-kind
transactions from the provisions of Section 17(a) of the 1940 Act, to
the extent necessary to carry out the substitutions as described
herein.
c. The amendments to the registration statements for the Contracts
describing the substitutions shall have become effective.
d. The amendments to the registration statement for EQAT adding the
14 New Funds shall have become effective.
e. Each Contract owner or participant will have been mailed
effective prospectuses with respect to the New Funds and the effective
amended/supplemented prospectus for the applicable Contracts (or other
notice in the case of Inactive Contracts) \5\ at least thirty days
prior to the Substitution Date (Applicants state that Contract owners
and participants were sent initial disclosure of the proposed
substitutions following the initial filing of this application). In
addition, in conjunction with this mailing, at least thirty days prior
to the Substitution Date, each Contract owner or participant will have
been sent a notice that describes the terms of the proposed
substitutions and Contract owners' and participants' rights in
connection with them.
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\5\ The Section 26 Applicants state that they have sent and will
continue to send Inactive Contract owners all relevant information
about the proposed substitutions in accordance with the terms of
Great-West and The Equitable. Applicants state that the substance of
the disclosures about the substitutions that they will make to
owners of Inactive Contracts will be essentially identical to the
disclosures about the substitutions that they make to owners of all
other outstanding Contracts. Applicants state that certain of these
disclosures already have been delivered and that all such further
disclosures will be sent at approximately the same time to owners of
Inactive Contracts as to all other owners of outstanding Contracts.
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f. The Section 26 Applicants will have satisfied themselves, based
on advice of counsel familiar with insurance laws, that the Contracts
allow the substitution of portfolios as described in the application,
and that the transactions can be consummated as described therein under
applicable insurance laws and under the various Contracts.
g. The Section 26 Applicants will have complied with any regulatory
requirements they believe are necessary to complete the transactions in
each jurisdiction where the Contracts are qualified for sale.
Applicants' Legal Analysis
1. Section 26(b) of the 1940 Act provides that it shall be unlawful
for any depositor or trustee of a registered unit investment trust
holding the security of a single issuer to substitute another security
for such security unless the Commission shall have approved such
substitution. Section 26(b) further provides that the Commission shall
issue an order approving such substitution if the evidence establishes
that it is consistent with the protection of investors and the purposes
fairly intended by the policies and provisions of the 1940 Act.
2. The Section 26 Applicants submit that the Contracts expressly
reserve to the Applicants the right, subject to compliance with
applicable law, to substitute shares of another portfolio for shares of
the Current Funds held by the Equitable Accounts, and that appropriate
disclosure of this right is contained in the prospectuses describing
the Contracts. The Applicants assert that they have reserved this right
of substitution both to protect themselves and their Contract owners in
situations where either might be harmed by events affecting the issuer
of the securities held by a Separate Account and to preserve the
opportunity to replace such shares where a substitution could benefit
the Contract owners.
3. The Section 26 Applicants maintain that the proposed
substitutions protect the Contract owners who have allocated Contract
value to the Current Funds by: (1) providing an underlying investment
option that is substantially similar in all material aspects to the
current investment option; and (2) providing such Contract owners with
simpler and more focused disclosure documents.
4. The Section 26 Applicants submit that the proposed substitutions
meet the standards that the Commission and its staff generally have
applied to other substitutions that have been approved. In addition,
the Applicants contend that none of the proposed substitutions is the
type of substitution that Section 26(b) was designed to prevent. Unlike
traditional unit investment trusts, the Contracts provide each Contract
owner with the right to exercise his own judgment and transfer Contract
values into any other available variable and/or fixed investment
options. Additionally, Applicants state that the proposed substitutions
will not, in any manner, reduce the number, nature or quality of the
available investment options. The Applicants assert that the Contract
owners will be offered the opportunity to transfer amounts out of the
affected subaccounts without any cost or penalty that may otherwise
have been imposed until thirty days after the Substitution Date. For
these reasons, the Applicants
[[Page 46462]]
maintain that the proposed substitutions will not result in the type of
forced redemptions that Section 26(b) was designed to prevent.
5. The Section 26 Applicants further submit that the proposed
substitutions also are unlike the type of substitution that Section
26(b) was designed to prevent in that by purchasing a Contract,
Contract owners and participants select much more than a particular
underlying fund in which to invest. The Contract owners also select the
specific type of insurance coverage offered under the Contract, as well
as other rights and privileges set forth in the Contract. The
Applicants state that, in choosing to buy a Contract, the Contract
owner also may have considered Equitable's size, financial condition,
and reputation for service, and that none of those considerations and
factors will change as a result of the proposed substitutions.
6. The Section 26 Applicants submit that, for all reasons stated
above, the proposed substitutions are consistent with the protection of
investors and the purposes fairly intended by the policy and provisions
of the 1940 Act.
7. Section 17(a)(1) of the 1940 Act, in relevant part, prohibits
any affiliated person of a registered investment company, or any
affiliated person of such a person, acting as principal, from knowingly
selling any security or other property to such registered investment
company. Section 17(a)(2) of the 1940 Act prohibits such affiliated
persons from knowingly purchasing any security or other property from
such registered investment company.
8. Section 17(b) of the 1940 Act Authorizes the Commission to issue
an order exempting a proposed transaction from Section 17(a) if: (a)
the terms of the proposed transaction are fair and reasonable and do
not involve overreaching on the part of any person concerned; (b) the
proposed transaction is consistent with the policy of each registered
investment company concerned; and (c) the proposed transaction is
consistent with the general purposes of the 1940 Act.
9. The Section 17 Applicants submit that each of the Current Funds
may be deemed to be an affiliated person of an affiliated person
(Equitable or the Equitable Separate Accounts) of the New Funds, and
vice versa. In addition, each of the Current Funds and each of the New
Funds may be deemed to be under the common control of Equitable or the
Equitable Separate Accounts and, therefore, to be affiliated persons of
each other. If viewed as such, the proposed In-Kind Transactions may be
deemed to contravene Section 17(a) due to the affiliated status of the
participants.
10. The Section 17 Applicants maintain that the terms of the
proposed substitutions, including the consideration to be paid and
received, are reasonable, fair, and do not involve overreaching
because: (1) the transactions will not adversely affect or dilute the
interests of Contract owners and participants; (2) with respect to
those securities for which market quotations are readily available, the
transactions will comply with the conditions set forth in Rule 17a-7,
other than the requirement relating to cash consideration; and (3) with
respect to those securities for which market quotations are not readily
available, the transactions will be effected in accordance with each
Fund's normal valuation procedures, as set forth in the HRT and EQAT
registration statements. The Applicants assert that the In-Kind
Transactions will be effected at the respective net asset values of the
Current Funds and the New Funds and that, after the proposed In-Kind
Transactions, the value of an Equitable Separate Account's investment
in the New Funds will equal the value of its investment in the Current
Funds before the In-Kind Transactions. The Applicants further maintain
that none of the parties will be in a position to ``dump'' undesirable
securities on either the Current or New Funds or to transfer desirable
securities to other advisory clients because virtually all of the
portfolio securities of each of the Current Funds will be transferred
to the corresponding New Fund, and the portfolio securities were
selected and retained, or will be selected between the date of the
amended and restated application and the Substitution Date, without
regard to the proposed In-Kind Transactions.
11. The Section 17 Applicants submit that the proposed redemption
of shares of the Current Funds will be consistent with the investment
policies of HRT and the Current Funds provided that the shares are
redeemed at their net asset value in conformity with Rule 22c-1 under
the 1940 Act. The Applicants also submit that the proposed sale of
shares of the New Funds for investment securities is consistent with
the investment policy of EQAT and will be consistent with the
investment policy of each of the New Funds provided that: (1) the
shares are sold at their net asset value; and (2) the investment
securities are of the type and quality that each of the New Funds could
have acquired, respectively, with the proceeds from the sale of its
shares had the shares been sold for cash. The Applicants assert that
the second of these conditions is met because for the proposed In-Kind
Transactions: (1) the New Funds are substantially similar to the
Current Funds; (2) the Adviser for the New Funds will be the same as
the current investment adviser for the corresponding Current Funds; and
(3) the Adviser will have retained or selected each portfolio security
for the corresponding Current Fund without regard to the proposed In-
Kind Transaction.
12. The Section 17 Applicants assert that the proposed In-Kind
Transactions are consistent with the general purposes of the 1940 Act
as stated in the Findings and Declaration of Policy in Section 1 of the
1940 Act and do not present any conditions or abuses that the 1940 Act
was designed to prevent.
Conclusion
Applicants assert that, for the reasons summarized above, the
requested order approving the substitutions and related transactions
involving the In-Kind Transactions should be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-22022 Filed 8-24-99; 8:45 am]
BILLING CODE 8010-01-M
