[Federal Register Volume 61, Number 183 (Thursday, September 19, 1996)]
[Notices]
[Pages 49365-49367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23978]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22220; File No. 812-10078]
Equitable Life Insurance Company of Iowa, et al.
September 12, 1996.
AGENCY: U.S. Securities and Exchange Commission (``SEC'' or
``Commission'').
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ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
APPLICANT: Equitable Life Insurance Company of Iowa (``Equitable'') and
Equitable Life Insurance Company of Iowa Separate Account A (``Separate
Account A'').
RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 26(b)
of the 1940 Act approving the substitution of portfolio shares.
[[Page 49366]]
SUMMARY OF APPLICATION: Applicants seek an order approving the
substitution of shares of the International Equity Portfolio (``IE
Portfolio'') of the Warburg Pincus Trust (``WP Trust'') for shares of
the International Stock Portfolio (``IS Portfolio'') of the Equi-Select
Series Trust (``ES Trust''). Each portfolio is an investment option
underlying Separate Account A.
FILING DATE: The application was filed on April 4, 1996, and amended
and restated on August 9, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the Secretary of the SEC and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on October 7, 1996,
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 SEC.
ADDRESSES: SEC, Secretary, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicant, c/o Mr. John A. Merriman, General Counsel &
Secretary, Equitable Life Insurance Company of Iowa, 604 Locust Street,
Des Moines, IA 50309. Copies to: Raymond A. O'Hara III, Blazzard, Grodd
& Hasenauer, P.C., P.O. Box 5108, Westport, CT 06881; and Mr. G. Thomas
Sullivan, Nyemaster, Goode, McLaughlin, Voigts, West, Hansell &
O'Brien, P.C., 1900 Hub Tower, Des Moines, IA 50309.
FOR FURTHER INFORMATION CONTACT: Edward P. Macdonald, Staff Attorney,
or Patrice M. Pitts, Special Counsel, 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 may be obtained for a fee from
the Public Reference Branch of the SEC.
Applicants' Representations
1. Equitable, a stock life insurance company and wholly-owned
subsidiary of Equitable of Iowa Companies, is engaged primarily in the
writing of traditional, universal, and term life and fixed insurance
policies, and variable annuity contracts on an individual and group
basis.
2. Separate Account A, a segregated asset account registered under
the 1940 Act as a unit investment trust, funds certain individual
flexible purchase payment deferred variable annuity and fixed annuity
contracts (``Contracts'') issued by Equitable. Separate Account A
currently is divided into sixteen sub-accounts (``Sub-Accounts'') which
reflect the investment performance of a specific series of the WP
Trust, ES Trust, or another underlying mutual fund available under the
Contracts.
3. The IS Portfolio, an investment option under the Contracts, has
as its primary investment objective capital growth. The IS Portfolio
invests at least 65% of its total assets in equity securities of
issuers located outside the United States. On February 29, 1996, the IS
Portfolio had approximately $12 million in net assets (of which
approximately $4 million in net assets consisted of Equitable's seed
money and working capital contributions). The total expenses of the IS
Portfolio for the year ended December 31, 1995, were 2.88% of its
average net assets, without regard to waiver or reimbursement of
expenses.
4. Equitable Investment Services, Inc. (``EISI''), a registered
investment adviser and wholly-owned subsidiary of Equitable of Iowa
Companies and an affiliate of Equitable, provides overall management of
the investment strategies and policies of the IS Portfolio. EISI
receives an annual investment advisory fee, accrued daily and payable
monthly, based on .80% of the first $300 million and .55% over and
above $300 million of the IS Portfolio's average daily net assets.
5. Pursuant to a subadvisory agreement between EISI and Strong
Capital Management, Inc. (``Strong''), EISI pays to Strong for
subadvisory services .40% of the first $300 million and .25% over and
above $300 million of the IS Portfolio's average daily net assets. This
fee is accrued daily and payable monthly. The subadvisory agreement
between EISI and Strong will be terminated when the IS Portfolio has no
assets.
6. The IE Portfolio of the WP Trust has as its primary investment
objective long-term capital appreciation. The IE Portfolio invests
primarily in equity securities of non-U.S. issuers. On December 31,
1995, the IE Portfolio had approximately $66 million in net assets and
total expenses of 2.21% of its average net assets, without regard to
waiver or reimbursement of expenses.
7. Warburg Pincus Counsellors, Inc. (``Warburg'') is the investment
adviser of the IE Portfolio. Warburg receives an annual investment
advisory fee of 1.00% of the IE Portfolio's average daily net assets.
The fee is accrued daily and payable monthly.
8. Equitable and Separate Account A propose to effect a
substitution of shares of the IE Portfolio for all shares of the IS
Portfolio attributable to the Contracts (``Substitution''). Equitable
will pay all expenses and transaction costs of the Substitution,
including any applicable brokerage commissions. On April 12, 1996,
Equitable supplemented the prospectus for Separate Account A to reflect
the proposed Substitution.
9. Equitable will schedule the Substitution to occur as soon as
practicable following the issuance of an order by the Commission so
that Contract owners can maximize benefits of the Substitution.
10. For those Contract owners who continue to have any of their
Contract values invested in shares of the IS Portfolio on the effective
date of the Substitution, Equitable will substitute shares of that
portfolio for shares of the IE Portfolio in the following manner: as of
the effective date of the Substitution the shares of the IS Portfolio
representing Contract values would be redeemed by Equitable, and on the
same day, Equitable will use the proceeds to purchase the appropriate
number of shares of the IE Portfolio. The Substitution will take place
at relative net asset values of the Portfolios, with no change in the
amount of any Contract owner's Contract value.
11. Within five (5) days after the completion of the Substitution
(pursuant to the order of the SEC approving the Substitution),
Equitable will send to the Contract owners written notice of the
Substitution (``Notice'') stating that shares of the IS Portfolio have
been eliminated and that shares of the IE Portfolio have been
substituted. Applicants state that Equitable will include in this
mailing the prospectus supplement (the ``Supplement'') for Separate
Account A describing the Substitution.
12. Contract owners will be advised in the Notice that for a period
of thirty (30) days from the mailing of the Notice, they may transfer
all assets, as substituted, to any other available Sub-Account, without
limitation and without charge. The period from the date of the
Supplement to thirty (30) days from the mailing of the Notice is the
``Free Transfer Period.''
13. Following the Substitution, Contract owners will be afforded
the same contractual rights as they currently have--including surrender
and other transfer rights-- with regard to amounts invested under the
Contracts. Currently, there are no applicable surrender fees or
redemption charges under the Contracts; applicable deferred sales
charges, however, will be imposed.
[[Page 49367]]
Applicants' Legal Analysis and Conditions
1. Section 26(b) of the 1940 Act provides, in pertinent part, that
``[i]t 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.'' The purpose of Section 26(b)
is to protect the expectation of investors in a unit investment trust
that the unit investment trust will accumulate the shares of a
particular issuer, and to prevent unscrutinized substitutions which
might, in effect, force shareholders dissatisfied with the substituted
security to redeem their shares, thereby possibly incurring either a
loss of the sales load deducted from initial purchase payments, an
additional sales load upon reinvestment of the redemption proceeds, or
both. Section 26(b) affords protection to investors by preventing a
depositor or trustee of a unit investment trust holding the shares of
one issuer from substituting for those shares the shares of another
issuer, unless the Commission approves that substitution.
2. Applicants assert that the purposes, terms and conditions of the
Substitution are consistent with the principles and purposes of Section
26(b) and do not entail any of the abuses that Section 26(b) is
designed to prevent. Applicants further assert that the Substitution is
an appropriate solution to the limited Contract owner interest or
investment in the IS Portfolio which currently is, and in the future
may be expected to be, of insufficient size to promote consistent
investment performance or to reduce operating expenses.
3. Applicants assert that the Substitution will not result in the
type of costly forced redemption that Section 26(b) was intended to
guard against and is consistent with the protection of investors and
the purposes fairly intended by the 1940 Act because: (a) The
Substitution is of shares of the IE Portfolio whose objective, policies
and restrictions are substantially similar to the objective, policies
and restrictions of the IS Portfolio so as to continue fulfilling
Contract owners' objectives and risk expectations; (b) while the
advisory fees incurred by the IE Portfolio are higher than those
applicable to the IS Portfolio, the total expenses of the IE
Portfolio--as a percentage of the net assets--are lower than those of
the IS Portfolio; (c) the Substitution will, in all cases, be at net
asset value of the respective shares, without the imposition of any
transfer or similar charge; (d) Equitable has undertaken to assume the
expenses and transaction costs, including, among others, legal and
accounting fees and any brokerage commissions relating to the
Substitution; (e) within five (5) days after the completion of the
Substitution, the Company will send to the Contract Owners written
notice of the Substitution and the Supplement stating that shares of
the IS Portfolio have been eliminated and that the shares of the IE
Portfolio have been substituted; (f) if a Contract owner so requests,
during the Free Transfer Period, assets will be reallocated for
investment in a Contract owner-selected sub-account; (g) the
Substitution will not alter the insurance benefits to Contract owners
or the contractual obligations of Equitable; (h) the Substitution will
not alter the tax benefits to Contract owners; (i) Contract owners may
choose to withdraw amounts credited to them following the Substitution
under the conditions that currently exist, subject to any applicable
deferred sales charge; and, (j) the Substitution is expected to confer
certain economic benefits to Contract owners by virtue of the enhanced
asset size.
Conclusion
For the reasons set forth above, Applicants represent that the
order requested approving the proposed Substitution, meets the
standards set forth in Section 26(b) of the 1940 Act and should be
granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-23978 Filed 9-18-96; 8:45 am]
BILLING CODE 8010-01-M
