[Federal Register Volume 59, Number 187 (Wednesday, September 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23991]
[Federal Register: September 28, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20568; File No. 812-8170]
The Equitable Life Assurance Society of the United States
September 22, 1994.
AGENCY: Securities and Exchange Commission (the ``Commission'' or the
``SEC'').
ACTION: Notice of application for Exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANT: The Equitable Life Assurance Society of the United States
(``Equitable'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for
exemptions from Section 9(a).
SUMMARY OF APPLICATION: Applicant seeks an order exempting itself and
its affiliates, in their respective capacities as investment advisers,
principal underwriters and depositors, from the disqualification
provisions of Section 9(a) with respect to Equitable's separate
accounts organized as unit investment trusts (``UITs'') that derive
assets from the sale of variable annuity contracts. The exemptions,
subject to certain conditions, would apply to Equitable's (and its
affiliates') officers, directors and employees who do not participate
directly in the management or administration of the separate accounts
or their underlying management investment companies, or in the sale of
their variable annuity contracts.
FILING DATE: The application was filed on December 18, 1992, and
amended on November 5, 1993 and August 30, 1994.
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 the Secretary of the SEC and
serving Applicant with a copy of the request, personally or by mail.
Hearing requests may be received by the Commission by 5:30 p.m. on
October 17, 1994 and should be accompanied by proof of service on
Applicant 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 issues contested. Persons may
request notification of a hearing by writing to the Secretary of the
SEC.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW. Washington, DC 20549. Applicant: The Equitable Life
Assurance Society of the United States, 787 Seventh Avenue, New York,
N.Y. 10019, Attn: Naomi Friedland-Wechsler, Vice President and Senior
Counsel.
FOR FURTHER INFORMATION CONTACT: Wendy Finck Friedlander, Senior
Attorney, at (202) 942-0670, Office of Insurance Products (Division of
Investment Management).
SUPPLEMENTARY INFORMATION: Following is a summary of the application;
the complete application is available for a fee from the Commission's
Public Reference Branch.
Applicant's Representations
1. Equitable is a New York Stock life insurance company that is
authorized to sell life insurance and annuities in all fifty states,
the District of Columbia, Puerto Rico and the Virgin Islands. Equitable
is a wholly-owned subsidiary of The Equitable Companies Incorporated,
(``Holding Company''), a publicly-traded holding company. AXA, a French
insurance holding company, is the largest stockholder of the Holding
Company. Equitable is registered under the Securities Exchange Act of
1934 (the ``1934 Act'') as a broker-dealer and under the Investment
Advisers Act of 1940 as an investment adviser. Equitable is the
depositor of two separate accounts that fund variable annuity contracts
(the ``Separate Accounts'').
2. The Separate Accounts are organized as UITs and are registered
under the Securities Act of 1933 and the 1940 Act. The Separate
Accounts fund benefits under certain group and individual variable
annuity contracts. The assets of the Separate Accounts are invested
exclusively in shares of the Hudson River Trust, a registered open-end
investment company.
3. Equico Securities, Inc. (``Equico''), an indirect wholly-owned
subsidiary of Equitable, is the principal underwriter of the Separate
Accounts. Equico is also registered as a broker-dealer and as an
investment adviser.
4. Alliance Capital Management L.P., an indirectly majority-owned
subsidiary of Equitable, provides administrative and advisory services
to the Hudson River Trust.
Applicant's Legal Analysis
1. Section 9(a) automatically disqualifies a company from serving
as an adviser, depositor or principal underwriter to a registered
investment company if the company or an affiliate has an employee,
officer or director who has been convicted of a securities-related
offense or enjoined by a court from serving in a securities-related
position. The purpose of Section 9(a) is to prevent persons of
questionable character from occupying positions of influence over
registered investment companies.
2. Rules 6e-2 and 6e-3(T) provide certain exemptions from the
automatic disqualification provisions of Section 9(a). Paragraphs
(b)(4) and (b)(15) of Rules 6e-2 and 6e-3(T) restrict the applicability
of Section 9(a) to persons who participate directly in the management
or administration of the separate account and the underlying fund, or
in the sale of the variable life contracts funded by the separate
account.
3. There is no rule affording similar relief with respect to
insurance company separate accounts funding variable annuity contracts,
such as the Separate Accounts.
4. Equitable has approximately 5,200 non-officer employees and
8,000 insurance agents who are registered representatives, in addition
to its officers and directors. Section 9(a) applies to Equitable, as
depositor and principal underwriter of the Separate Accounts, and to
its affiliates, as investment advisers and principal underwriters of
registered investment companies.
5. Section 9(a) would automatically disqualify Equitable and its
affiliates from serving as depositor, principal underwriter or
investment adviser if any one of their employees became disqualified
under Section 9(a), even if the employee worked in one of Equitable's
businesses not regulated under the 1940 Act and did not participate in
the management or administration of the Separate Accounts or the Hudson
River Trust, or in the sale of variable annuity contracts.
6. Equitable seeks an order limiting the automatic disqualification
provisions of Section 9(a) with respect to the Separate Accounts to the
same basis available to separate accounts funding variable life
insurance contracts by Rules 6e-2 and 6e-3(T). Equitable asserts that
the intended focus of Section 9(a) is on the operation of investment
companies and not on ancillary businesses unrelated to investment
company operations and management. Equitable states that its requested
relief is consistent with the purpose of Section 9(a).
7. Equitable contends that the Commission already has recognized
the appropriateness of limiting the disqualification provisions of
Section 9(a) with respect to variable annuity operations by granting
applications permitting ``mixed funding.''\1\ As a result, underlying
management investment companies that will be used to fund both variable
annuity contracts and variable life insurance contracts have been
required to file applications under Section 6(c). The Commission has
granted numerous such exemptive orders under delegated authority.\2\
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\1\The use of a common underlying investment management company
to fund both variable life insurance contracts and variable annuity
contracts is known as ``mixed funding.'' In order to qualify for
exemptions from the requirements of Section 9(a), Rule 6e-2(b)(15)
prohibits mixed funding and Rule 6e-3(T)(b)(15) permits mixed
funding only if several conditions are met. The conditions are that
the underlying management investment company's board of directors, a
majority of whom are not interested persons of the company, will
monitor for the existence of any material irreconcilable conflict
between the interests of variable annuity contractholders and
variable life scheduled or flexible contractholders investing in
such company. The life insurer must agree to report any potential or
existing conflicts to the directors. If a conflict arises, the life
insurer must, at its own cost, remedy such conflict up to and
including establishing a new registered management investment
company and segregating the assets underlying the variable annuity
contracts and the variable life scheduled or flexible contracts.
\2\E.g., The Quest for value Accumulation Trust, et al.,
Investment Company Act Release Nos. 19670 (Sept. 1, 1993) (Notice)
and 19749 (Sept. 29, 1993) (Order); Maxim Series Fund, Inc., et al.,
Investment Company Act Release Nos. 19616 (Aug. 6, 1993) (Notice)
and 19676 (Sept. 2, 1993) (Order); New York Life MFA Series Fund,
Inc., Investment Company Act Release Nos. 19010 (Oct. 8, 1992)
(Notice) and 19069 (Oct. 30, 1993) (Order).
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8. Presently, whenever an officer, director or employee of
Equitable is subject to the automatic disqualification provisions of
Section 9(a), Equitable must apply for a Commission order pursuant to
Section 9(c) of the 1940 Act to exempt the person and Equitable from
the disqualification provisions of Section 9(a).
The circumstances under which the Commission has limited the
disqualification provisions of Section 9(a) pursuant to Section 9(c)
have become standardized.\3\ These conditions include a requirement
that, in cases where the disqualification arises solely because an
applicant employs a person who is disqualified under Section 9(a) (1)
or (2), the disqualified employee will not be involved in investment
company or investment advisory activities. The requirement to submit
such applications places an undue burden on both Equitable and the
Commission without any public benefit if the individual does not
participate in the operations or management of a registered investment
company or in the sale of variable insurance contracts.
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\3\Delegation of Authority to Director of Division of Investment
Management, Investment Company Act Release No. 18055 (Mar. 20,
1991).
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9. Equitable currently maintains monitoring procedures to identify
any insurance agent subject to a statutory disqualification. Similar
monitoring procedures will remain in effect for officers, directors,
and employees of Equitable who do not function as insurance agents or
registered representatives. These procedures include:
a. Insurance agents of Equitable are required to complete the
disciplinary questions on Form U-4 (Uniform Application for Securities
Industry Registration or Transfer) before entering into a contract with
Equitable; and
b. If the response to any question on page 3 of Form U-4 is
affirmative, a copy of the response is sent to Equitable's compliance
department. Equitable then determines whether the insurance agent is
subject to statutory disqualification under Section 15(b) of the 1934
Act or Section 9(a) of the 1940 Act and whether to proceed with the
hiring process.
Conditions for Relief
Equitable agrees that if the requested exemptions are granted,
Equitable will maintain its current monitoring procedures to identify
officers, directors and employees subject to disqualification.
Equitable will maintain a list of its officers, directors and employees
who participate directly in the management or administration of any
variable annuity separate account of Equitable and any registered
investment company underlying Equitable's variable annuity separate
accounts. Equitable also will maintain a list of its agents who, as
registered representatives of Equico, offer and sell variable annuity
contracts. These lists will be available to the staff of the
Commission. The individuals named on the lists will remain subject to
the automatic disqualification provisions of Section 9(a).
Conclusion
Applicant submits that, for all of the reasons stated herein, the
requested exemptions from Section 9(a) of the 1940 Act meet the
standards set out in Section 6(c) of the 1940 Act. Applicant asserts
that the exemptions requested are necessary and appropriate in the
public interest and consistent with the protection of investors and the
policies and provisions of the 1940 Act.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-23991 Filed 9-27-94; 8:45 am]
BILLING CODE 8010-01-M
