[Federal Register Volume 60, Number 43 (Monday, March 6, 1995)]
[Notices]
[Pages 12261-12266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5335]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20926; File No. 812-9230]


The Equitable Life Assurance Society of the United States, et al.

February 27, 1995.
AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1940 (the ``1940 Act'').

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APPLICANTS: The Equitable Life Assurance Society of the United States 
(``Equitable''), Separate Account No. 45 of Equitable (the 
``Account''), any other separate account established by Equitable in 
the future to support certain deferred variable annuity contracts and 
certificates issued by equitable (``Other Account''), and Equitable 
Capital Securities Corporation (``ECCS'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act for exemptions from Sections 2(a)(35), 26(a)(2)(C) and 
27(c)(2) thereof.

SUMMARY OF APPLICATION: Applicants seek an order to permit the 
deduction of: (i) a mortality and expense risk charge from the assets 
of the Account in [[Page 12262]] connection with the offering of 
certain deferred variable annuity contracts and certificates 
(collectively, the ``Account Contracts'') issued by Equitable through 
the Account; (ii) a guaranteed minimum death benefit charge from a 
contract owner's account value; and (iii) a contribution-based 
distribution fee from a contract owner's account value. Applicants also 
seek an order to permit the deduction of a mortality and expense risk 
charge, guaranteed minimum death benefit charge and contribution-based 
distribution fee from the assets of, and account values held in, the 
Account and of any Other Account in connection with the offering in the 
future of deferred variable annuity contracts (the ``Other Contracts'') 
which are substantially similar in all material respect to the Account 
Contracts and are issued by Equitable through the Account or any Other 
Account.

FILING DATE: The Application was filed on September 16, 1994, and 
amended and restated on January 6, 1995.

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 must be received by the 
Commission by 5:30 p.m. on March 24, 1995, 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 may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, D.C. 
20549. Applicants, 787 Seventh Avenue, Area 36-K, New York, NY 10019.

FOR FURTHER INFORMATION CONTACT: Patrice M. Pitts, Attorney, or Wendy 
Finck Friedlander, Deputy 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 
Public Reference Branch of the Commission.

Applicants' Representations

    1. Equitable is a stock life insurance company organized under the 
laws of the State of New York. Equitable serves as depositor of the 
Account. Equitable may establish one or more Other Accounts in the 
future, for which it will serve as depositor.
    2. The Account was established on August 15, 1994, as a segregated 
asset account of Equitable. Any income, gains or losses, realized or 
unrealized, from assets allocated to the Account are credited to or 
charged against the Account without regard to other income, gains or 
losses of Equitable. The Account is registered with the Commission as a 
unit investment trust series investment company under the 1940 Act. The 
Account will fund the variable benefits available under the Account 
Contracts. Units of interest in the Account under the Account Contracts 
will be registered under the Securities Act of 1933. In the future, 
Equitable may issue Other Contracts through the Account or Other 
Accounts.
    3. The Account Contracts consist of a basic form of group annuity 
contract (the ``Group Contract''), a basic form of certificate 
(``Certificate'') issued under the Group Contract, and forms of 
Certificate endorsements (``Endorsements'') to be used for specific 
benefits under the Certificates. Certificates may be issued as 
individual contracts in certain states.
    4. The Account Contracts will be offered in the tax-qualified 
retirement plan (``Plan'') market and in non-qualified (``NQ'') 
markets. The Account Contracts initially will be offered in the 
rollover individual retirement annuity (``IRA'') Plan market and in NQ 
markets. In both the IRA Plan and NQ markets, the initial contribution 
must be at least $10,000; under IRA Certificates, that initial payment 
may come in the form of a minimum rollover contribution or direct 
transfer from another individual retirement arrangement. In both IRA 
Plan and NQ markets, additional contributions must be at least $1,000.
    5. Different minimum contribution amounts may be established for 
other Plan markets. Lower minimum amounts may be established for 
automatic investment programs. Maximum limitations on contributions 
also may be imposed. Contributions under the Certificates may be 
accumulated before annuitization, and annuity payments may be received 
after annuitization, on a variable basis. Annuity payments also may be 
received on a fixed basis.
    6. Under an Endorsement, the Certificates permit contributions to 
be allocated to guarantee periods expiring on specified dates. The 
guarantee periods will be funded through a ``non-unitized'' separate 
account established by Equitable; assets in such ``non-unitized'' 
separate account will be subject to the claims of Equitable's general 
creditors. Each guarantee period will provide a guarantee of the 
contribution allocated thereto and interest, which guarantee is 
supported by Equitable's general accounts assets, including those 
allocated to the ``non-unitized'' separate account. An upward or 
downward adjustment--a ``market value adjustment (``MVA'')''--will be 
made to the Annuity Account Value\1\ in a guarantee period upon a 
withdrawal, surrender or transfer from a guarantee period before its 
expiration. Death benefit amounts based on Annuity Account Value in a 
guarantee period only will reflect any upward MVA.

    \1\A contract owner's ``Annuity Account Value'' is the sum of 
the amounts held for the owner in the ``Investment Options'' under 
the Account Contracts. The ``Investment Options'' include the 
variable investment options and each guarantee period account 
available through the Account Contracts.
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    7. Under an Endorsement, the Certificates may include a life 
contingent annuity option funded through Equitable's general account. 
The life contingent annuity provides guaranteed periodic fixed annuity 
benefits, generally commencing at later ages, for the life of the 
annuitant or a survivor annuitant. This form of benefit will be offered 
for use in conjunction with certain reallocations and withdrawal 
arrangements to be made available by Equitable.
    8. The Account currently is subdivided into nine subaccounts 
(``Investment Funds''), each of which will be available under the 
Certificates. Each Investment Fund will invest in the shares of a 
corresponding portfolio (``Portfolio'') of The Hudson River Trust (the 
``Trust''). The Trust is an open-end, diversified ``series'' management 
investment company, registered under the 1940 Act.
    9. In the future, Equitable may create additional Investment Funds 
of the Account to invest in any additional Portfolios, or other such 
underlying portfolios or other investments as may now or in the future 
be available. Investment Funds also may be combined or eliminated from 
time to time.
    10. ECSC is an indirect wholly-owned subsidiary of Equitable, and 
will be the principal underwriter of the Account and the distributor of 
the Account Contracts. ECSC is registered with the Commission as a 
broker-dealer under the Securities Exchange Act of 1934 (the ``1934 
Act''), and is a member of the National Association of Securities 
Dealers, Inc. (the ``NASD''). The Certificates will be offered through 
representatives of ECSC and its affiliates, as well as through 
unaffiliated broker-dealers who have entered into agreements with ECSC. 
All of such [[Page 12263]] affiliates and unaffiliated broker-dealers 
will be registered broker-dealers under the 1934 Act and NASD members.
    11. ECSC or any successor entity may act as principal underwriter 
for any Other Account and as distributor for any Other Contracts. A 
successor entity also may act as principal underwriter for the Account.
    12. The charges and fees described below are the maximum that may 
be imposed under the Certificates. The amount of the applicable charges 
and fees, as set forth in the Certificates and relevant offering 
prospectuses, may not be increased during the life of the Certificate 
without the owner's consent. Equitable may reserve the right to impose 
transfer charges not otherwise applicable when the Certificate is 
issued, subject to the maximum amounts described below.
    13. Equitable proposes to deduct a daily asset charge from the 
Account for assuming mortality and expense risks. Equitable assumes a 
mortality risk by its contractual obligation to continue to make 
annuity payments for the entire life of the annuitant under annuity 
options involving life contingencies, regardless of the annuitant's own 
longevity or an improvement in life expectancy generally. Equitable 
assumes the risk that annuitants as a group will live longer than 
Equitable's annuity tables predict, which would require Equitable to 
pay out more in annuity income than it planned.
    14. Equitable will assume an expense risk under the Certificates to 
the extent that the administrative charges applicable under the 
Certificates--including the annual contract fee, the asset-based 
administrative charge, the withdrawal processing charge, and the 
transfer charges--may be insufficient to cover actual administrative 
expenses.
    15. As compensation for assuming mortality and expense risks, 
Equitable will assess a daily charge, equal on an annual basis to 0.90% 
of the assets of each Investment Fund of the Account. Approximately 
0.60% of the charge is for assumption of mortality risks, and 
approximately 0.30% is for assumption of expense risks. (Equitable 
reserves the right to revise the percentages so allocated.)
    16. The Certificates provide for a death benefit which is the sum 
of (a) the Annuity Account Value or, if greater, the ``guaranteed 
minimum death benefit, '' and (b) the death benefit provided in an 
Endorsement (including a ``Market Value Adjustment Terms Endorsement'' 
proposed to offered by Equitable).
    17. On the Contract Date,\2\ the guaranteed minimum death benefit 
applicable to Certificates issued in all states except New York will 
equal the portion of the initial contribution allocated to the Account. 
Thereafter (except as adjusted at the end of the seventh Contract 
year), the guaranteed minimum death benefit will equal (i) the prior 
guaranteed minimum death benefit, (ii) plus any subsequent 
contributions to and transfers into the Account, (iii) less any 
transfers out of, and any withdrawals from, the Account, (iv) plus 
interest credited on each Processing Date.\3\ At the end of the seventh 
Contract year, the guaranteed minimum death benefit will be set at the 
then current guaranteed minimum death benefit or, if greater, the 
current Annuity Account Value in the Account.

    \2\The ``Contract Date'' is the date on which an annuitant is 
enrolled under a Group Contract, or the effective date of an 
individual contract form of Account Contract in states requiring 
individual contracts.
    \3\The ``Processing Date'' is each anniversary of the Contract 
Date, but may occur quarterly.
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    18. Interest for the guaranteed minimum death benefit calculation 
under NQ Certificates will be credited at rates determined by the 
annuitant's ``issue age'' (the annuitant's age at issue of the 
Certificate)--6% for issue ages 0 through 69, 3% for issue ages 70 
through 74, and 0% for issue ages 75 and older. For amounts in the 
money market Investment Fund, the rate will be based on the lesser of 
those guaranteed minimum death benefit interest rates and the actual 
rate of return.
    19. Under IRA Certificates, interest will be credited at the 
applicable effective annual guaranteed minimum death benefit interest 
rate for an ``attained age'' (the owner's age at issue of the 
Certificate plus the number of Contract years that have elapsed since 
the Contract Date)--6% for attained ages 0 through 70, and 0% for 
attained ages 71 through 85. For amounts in the money market Investment 
Fund, the rate will be based on the lesser of those guaranteed minimum 
death benefit interest rates and the actual rate of return.
    20. For Certificates sold in New York, the guaranteed minimum death 
benefit is calculated on a basis different from that for Certificates 
sold in all other states, but will not be less than (i) the initial and 
any subsequent contributions and transfers into the Account, (ii) less 
any transfers out of, and any withdrawals from, the Account, (iii) plus 
interest credited on each Processing Date in the same manner as under 
Certificates sold in all other states.
    21. Equitable will impose a charge for providing the guaranteed 
minimum death benefit and assuming related mortality risks. The charge 
will not be asset-based, but will be based on the amount of the 
guaranteed minimum death benefit, and will compensate Equitable for the 
risk that the annuitant may die at a time when the cash value of the 
Account is less than the amount of the guaranteed minimum death 
benefit. Because the Certificates do not impose any withdrawal charge 
on the payment of a death benefit, Equitable assumes the risk that the 
owner will die at a time when the withdrawal charge would otherwise 
have been applicable. Equitable also will assume the risk that, at the 
time of death, the Annuity Account Value will not have increased by at 
least the amount of interest credited to contributions in determining 
the amount of the guaranteed minimum death benefit.
    22. The maximum guaranteed minimum death benefit charge is 0.35% of 
the amount of the guaranteed minimum death benefit as of each 
Processing Date. The applicable charge will be deducted from the 
Annuity Account Value held in the Investment Funds on each Processing 
Date, and will be the same for all Certificates.
    23. No sales charges will be deducted at the time contributions are 
applied under a Certificate. A distribution fee, or sales load, equal 
to a maximum of 1.00% of the amount of each contribution made, and not 
withdrawn, may be deducted from the Annuity Account Value held in the 
Investment Funds annually on each of the seven Processing Dates 
following the receipt by Equitable of each contribution. The 
distribution fee, if any, will be deducted from the Investment Funds on 
a pro-rata basis, unless the Certificate owner specifies otherwise. If, 
at any time before the seventh Processing Date, the Certificate owner 
surrenders the Certificate for its cash value (i.e., the Annuity 
Account Value less any applicable charges) or annuitizes, the 
Certificate is terminated, or a death benefit is payable, no further 
distribution fee deductions will be made. If a partial withdrawal is 
taken before the seventh Processing Date, the distribution fee will be 
applied only to the remaining amount of the contribution. The 
distribution fee and the withdrawal charge (described below) combined 
will never exceed the amount of the maximum withdrawal charge. Any 
amounts realized from the distribution fee will be used to defray a 
portion of the sales expenses. [[Page 12264]] 
    24. Depending upon the distribution channels used and other factors 
affecting marketing costs, Equitable may offer Certificates at 
distribution fee levels below 1.00%, or without a distribution fee. In 
addition, Equitable may increase the number of Processing Dates over 
which the distribution fee may be imposed.
    25. A withdrawal charge will be imposed upon a surrender of a 
Certificate, upon annuitization, or upon any partial withdrawal. The 
charge will apply to amounts in excess of a ``free corridor amount'' 
and will be deducted from the Annuity Account Value held in the 
Investment Funds from which the withdrawal is made. The withdrawal 
charge is a percentage of each contribution received by Equitable, and 
depends on the Contract year in which the Certificate is surrendered, 
or a partial withdrawal is taken. The maximum withdrawal charge during 
the first Contract year--i.e., when Equitable receives the 
contribution--is 7% and declines by 1% each Contract year thereafter to 
zero in the eighth and subsequent Contract years.
    26. A ``free corridor amount'' equal to 15% of the Annuity Account 
Value under a Certificate at the beginning of the Contract year, less 
prior withdrawals made in that Contract year, may be withdrawn during 
that Contract year without being subject to the withdrawal charge. The 
``free corridor amount'' is not applicable upon the surrender of a 
Certificate.
    27. When computing the withdrawal charge, amounts shall be 
considered withdrawn on a ``first-in, first-out'' basis. The withdrawal 
charge is not applicable upon the payment of any death benefit. The 
amounts obtained from the withdrawal charge, together with the 
distribution fee, will be used to help defray expenses incurred in the 
sale of Certificates. The withdrawal charges will not exceed the 
percentages discussed above. Based on marketing considerations, 
Equitable may reduce the percentages charged or increase the number of 
Contract years over which the charges are imposed. During the life of 
the Certificate, the schedule of withdrawal charges shown in a 
Certificate will not be increased, nor will the charge period be 
abbreviated.
    28. The administrative charges which may be assessed under the 
Certificates include: a maximum annual contract fee, equal to the 
greater of 0.15% of the amount of each contribution made and $30 per 
Contract Year, which is incurred by the Certificate owner at the 
beginning of each Contract Year and deducted annually on each 
Processing Date; and a daily asset-based administrative charge, at a 
maximum annual rate of 0.25%, assessed against the Investment Funds. 
Unless the Certificate owner directs otherwise, the annual contract fee 
will be deducted pro-rata from amounts held in the Investment Funds. 
The annual contract fee may be inapplicable if the total contributions 
received under a Certificate exceed specified amounts.
    29. The administrative charges also include a charge, equal to the 
lesser of $25 or 2% of the amount withdrawn, for processing each 
partial withdrawal (other than withdrawals under certain flexible 
payment distribution options) after the first in a Contract year. This 
charge will be deducted pro-rata from the Investment Funds from which 
each withdrawal is made. This charge does not apply upon the surrender 
of a Certificate.
    30. The Certificates provide for five free transfers during a 
Contract year. For each additional transfer in excess of the free 
transfers, Equitable may charge $25 at the time the transfer is 
processed. The charge will be deducted pro-rata from the Investment 
Funds from which the transfer is made. Equitable also may deduct a $25 
transfer charge for a direct transfer to a third party of amounts under 
the Certificate, or for an exchange for the contract of another 
insurance carrier.
    31. Equitable expects that, over the period that the Certificates 
are in force, the revenues from the administrative charges--including 
the annual contract fee, the daily asset-based administrative charge, 
the withdrawal processing charge, and the transfer charges--will not 
exceed its total expected costs of administering the Certificates, on 
average, excluding costs that are properly categorized as distribution 
expenses. Applicants represent that these administrative charges will 
be deducted in reliance upon and in compliance with Rule 26a-1 under 
the 1940 Act.
    32. Unless the Certificate owner specifies otherwise, charges for 
premium taxes generally are deducted from the Annuity Account Value in 
the Investment Funds upon annuitization. Under Certificates sold in 
certain states, however, a deduction for premium taxes is made from the 
Annuity Account Value in the Investment Funds at the time the 
contribution is received. Whether premium taxes are applicable depends 
on the owner's current place of residence; such taxes generally range 
from 0% to 5% of contributions or the amount annuitized, as 
appropriate. Equitable represents that the amount that it will recover 
for premium taxes will not exceed the amount of premium taxes required 
to be paid.\4\

    \4\Equitable represents that, to the extent necessary, it will 
assess charges for premium taxes in reliance upon Rule 26a-2(d) 
under the 1940 Act.
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    33. Applicants represent that if the mortality and expense risk 
charge and the guaranteed minimum death benefit charge are insufficient 
to cover the expenses and costs assumed, the loss will be borne by 
Equitable; if the amounts deducted prove more than sufficient, the 
excess will be profit to Equitable. Equitable expects to earn a profit 
over the expected life of the Certificates from the mortality and 
expense risk and the guaranteed minimum death benefit charges. If the 
distribution fee and withdrawal charge are insufficient to cover the 
actual costs of distribution, the expenses will be paid from 
Equitable's general account assets, which will include any profit 
derived from the mortality and expense risk and the guaranteed minimum 
death benefit charges.

Applicants' Legal Analysis

    1. Applicants request that the Commission, pursuant to Section 6(c) 
of the 1940 Act, grant exemptions from Sections 2(a)(35), 26(a)(2)(C) 
and 27(c)(2) thereof to the extent necessary to permit the assessment 
of a mortality and expense risk charge, a guaranteed minimum death 
benefit charge, and a distribution fee under the Account Contracts and 
Other Contracts.
    2. Section 6(c) of the 1940 Act provides, in relevant part, that 
the Commission may issue an order exempting any person, security or 
transaction, or any class or classes thereof, from any provisions of 
the 1940 Act as may be 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 1940 Act.
    3. Applicants believe that the terms of the relief requested with 
respect to any Other Contracts funded by the Account or any Other 
Account are consistent with the standards set forth in Section 6(c) of 
the 1940 Act. Applicants undertake that the Other Contracts funded by 
the Account or any Other Account will be substantially similar in all 
material respects to the Account Contracts. Applicants state that 
without the requested relief Applicants would have to request and 
obtain exemptive relief in connection with Other Contracts and/or Other 
Accounts. Any such additional request for exemption would present no 
issues under the 1940 Act that have not already been addressed in this 
Application. [[Page 12265]] 
    4. Applicants submit that the requested relief is appropriate in 
the public interest because it would promote competitiveness in the 
variable annuity contract market by eliminating the need for Equitable 
to file redundant exemptive applications, thereby reducing its 
administrative expenses and maximizing the efficient use of its 
resources. The delay and expense involved in having to repeatedly seek 
exemptive relief would impair Equitable's ability to effectively take 
advantage of business opportunities as they arise.
    5. Applicants submit that the reasons cited above also explain why 
the requested relief is consistent with the purposes of the 1940 Act 
and the protection of investors. In this regard, Applicants submit that 
investors would not receive any benefit or additional protection if 
Equitable were required repeatedly to seek exemptive relief with 
respect to the same issues addressed in this Application. Indeed, 
investors might be disadvantaged as a result of Equitable's increased 
overhead expenses.
    6. Section 2(a)(35) defines ``sales load'' as the difference 
between the price of a security to the public and that portion of the 
proceeds from its sale which is received and invested by the issuer, 
less any portion of such difference deducted for trustee's or 
custodian's fees, insurance premiums, issue taxes, or administrative 
expenses or fees which are not properly chargeable to sales or 
promotional activities.
    7. The literal wording of Section 2(a)(35) contemplates a front-end 
sales charge. Although Rule 6c-8 permits the deduction of a contingent 
deferred sales load, such as the withdrawal charge provided for in the 
Certificates, that rule is not available for the periodic deduction of 
a contribution-based deferred distribution fee. Applicants, therefore, 
request an exemption from Section 2(a)(35) to the extent necessary to 
permit the assessment of a contribution-based deferred distribution fee 
under the Accounts.
    8. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act require, among 
other things, that all payments received under a periodic payment plan 
certificate sold by a registered unit investment trust, any depositor 
thereof or underwriter therefor, be held by a qualified bank as trustee 
or custodian, under arrangements which prohibit any payment to the 
depositor or principal underwriter except for the payment of a fee, not 
exceeding such reasonable amount as the Commission may prescribe, for 
bookkeeping and other administrative services.
    9. Applicants submit that because the distribution fee is designed 
to compensate for sales related expenses, not bookkeeping or other 
administrative services, it could be argued that Section 26(a)(2)(C) 
precludes the deduction of the distribution fee from the Annuity 
Account Value in the Account. Applicants also submit that Section 
27(c)(2) may be construed to prohibit a registered investment company 
or a depositor or underwriter for such a company from selling any 
periodic payment plan certificate (such as the Certificates) unless the 
proceeds of all the payments under such a certificate are held by a 
trustee or custodian under an agreement containing the substance of the 
provisions of Section 26(a)(2). For this reason, Applicants state that 
it could be argued that the Account, by virtue of the deduction of the 
distribution fee, does not meet the requirements of Section 26(a)(2)(C) 
and, therefore, the sale of the Certificates violates Section 27(c)(2). 
Accordingly, Applicants request exemption from Sections 2(a)(35), 
26(a)(2)(C) and 27(c)(2) to the extent necessary to permit the 
deduction of the distribution fee in the manner described in this 
Application.
    10. Applicants submit that the imposition of a sales load in the 
form of a contribution-based charge that is deducted over an extended 
period is more favorable to Certificate owners than the deduction of 
the equivalent charge as a front-end sales load (as contemplated by 
Section 2(a)(35)). In this regard, Applicants note that the full amount 
of a contribution is available for investment in the Account, thereby 
providing each Certificate owner with more investment dollars than if 
an equivalent front-end sales charge were deducted from the 
contribution.
    11. Applicants also state that deferring a sales charge can benefit 
Certificate owners by permitting them to receive any positive 
investment experience on the portion of the charge that is deferred. 
Applicants further state that, because the distribution fee is not 
deducted from death benefit proceeds, deducting the distribution fee 
over time, rather than at issue of the Certificate, can favorably 
affect the amount of the death benefit payable if death occurs during 
the first seven Contract years. Applicants also state that the total 
amount charged to a Certificate owner when the distribution fee is 
deducted over time is no greater than the amount that would be charged 
if the distribution fee were deducted from the contribution as a front-
end sales load.
    12. Applicants state that the Commission previously has promulgated 
regulations permitting the deduction of sales charges from cash value, 
but only in connection with variable life insurance policies pursuant 
to Rule 6e-3(T) under the 1940 Act. Applicants submit that the 
reasoning that justifies the exemptions provided by that rule in 
connection with variable life insurance policies also justifies 
exemptive relief in this instance.
    13. Applicants represent that the distribution fee may not exceed 
7% of the contribution made, and the total sales load will never be 
more than the maximum withdrawal charge of 7%. In this regard, 
Applicants assert that if a Certificate owner does not withdraw a 
contribution in the seven-year period after the contribution is made, 
no withdrawal charge will be applicable, but the 1% maximum 
distribution fee will be imposed on each Processing Date, for a maximum 
total of 7% of the contribution made. Applicants further assert that if 
a partial withdrawal of a contribution is made during that seven-year 
period, the amount withdrawn will be subject to a withdrawal charge, 
but will no longer be part of the contribution base upon which the 
distribution fee is assessed on a Processing Date. That is, the amount 
withdrawn would not be subject to any further distribution fee, and the 
balance of the contribution would not be subject to a withdrawal 
charge, but would be charged a distribution fee on the Processing Date. 
Accordingly, Applicants represent that, as the withdrawal charge is 
reduced 1% in each of the years following the year in which the 
contribution is made, and the distribution fee only applies to the 
remaining amount of a contribution after a withdrawal, the sum of the 
distribution fee and the withdrawal charge (as applicable) will never 
exceed 7% of the contribution made. Applicants also represent that the 
sum of the distribution fee and the withdrawal charge (as applicable) 
always will be lower than the 9% maximum permitted by Rule 6c-8 and the 
provisions of Section 27(a)(1) of the 1940 Act regarding maximum sales 
loads for variable insurance products or periodic payments plan 
certificates.
    14. Applicants assert that the maximum guaranteed minimum death 
benefit charge is reasonable in relation to the risk assumed by 
Equitable under the Certificates. In arriving at this determination, 
Equitable states that it conducted a large number of trials at 
different issue ages to determine the expected cost of the guaranteed 
minimum death benefit. By analyzing [[Page 12266]] the results of a 
statistically valid number of such simulations, Equitable was able to 
determine actuarially the level cost of providing the benefit. Based on 
this analysis, Equitable determined that the 0.35% charge was a 
reasonable charge for providing the guaranteed minimum death benefit 
under the Certificates. Equitable undertakes to maintain at its home 
office a memorandum, available to the Commission upon request, setting 
forth in detail the methodology used in making that determination.
    15. Applicants represent that the aggregate mortality and expense 
risk and guaranteed minimum death benefit charges under the 
Certificates are reasonable in relation to the risks by Equitable under 
the Certificates, and reasonable in amount as determined by industry 
practice for comparable contracts. Applicants represent that they have 
reviewed publicly available information regarding the aggregate level 
of the mortality and expense risk and guaranteed minimum death benefit 
charges under comparable variable annuity contracts currently being 
offered in the insurance industry, taking into consideration such 
factors as current charge levels, the manner in which charges are 
imposed, the presence of charge level or annuity rate guarantees, and 
the markets in which the Certificate will be offered. Applicants will 
maintain and make available to the Commission upon request a memorandum 
outlining the methodology underlying the foregoing representations.
    16. Equitable will assess a mortality and expense risk charge not 
to exceed an annual rate of 0.90%, and a maximum annual charge of 0.35% 
of the guaranteed minimum death benefit. Assuming a hypothetical gross 
investment return in the Account of 5.0%, the 0.35% maximum guaranteed 
minimum death benefit charge would, if expressed as a daily charge 
against Account assets, add approximately 0.35% to the 0.90% mortality 
and expense risk charge, for a total charge, on an annual basis, of 
approximately 1.25% of the assets in the Investment Funds.
    17. For higher hypothetical gross returns, the guaranteed minimum 
death benefit charge, when expressed as an asset-based charge, would be 
less; for lower hypothetical gross returns, it would be more. 
Applicants assert that this is because the charge base--which is 
essentially contributions plus interest--is a relative constant in 
dollar amount compared to the fluctuating values of an Investment Fund. 
Thus, as a percentage of the assets of an Investment Fund, which 
(assets) change with investment performance, positive performance 
results in a reduction of the guaranteed minimum death benefit charge 
when expressed as an asset-based charge; negative performance will 
result in an increase in the guaranteed minimum death charge when 
expressed as an asset-based charge.
    18. Applicants acknowledge that the withdrawal charge and 
distribution fee, as applicable, may be insufficient to cover all costs 
relating to the distribution of the Certificates. Applicants further 
acknowledge that if a profit is realized from the mortality and expense 
risk and guaranteed minimum death benefit charges, all or a portion of 
such profit may be offset by distribution expenses not reimbursed by 
the withdrawal charge and distribution fee. In such circumstances, a 
portion of such charges might be viewed as providing for costs relating 
to distribution of the Certificates.
    19. Notwithstanding the foregoing, Equitable has concluded that 
there is a reasonable likelihood that the proposed distribution 
financing arrangements made with respect to the Certificates will 
benefit the Account and Certificate owners and annuitants. Equitable 
represents that it will maintain at its principal office, and make 
available on request to the Commission, a memorandum setting forth the 
basis for such conclusion.
    20. Equitable represents that the Account will invest only in an 
underlying mutual fund which has undertaken to have a board of 
directors, a majority of the members of which are not ``interested 
persons'' of such fund within the meaning of Section 2(a)(19) of the 
Act, formulate and approve any plan to finance distribution expenses in 
accordance with Rule 12b-1 under the 1940 Act.

Conclusion

    Applicants submit that for the reasons and based upon the facts set 
forth above, the requested exemptions from Sections 2(a)(35), 
26(a)(2)(C) and 27(c)(2) of the 1940 Act to permit the assessment of a 
mortality and expense risk charge, a guaranteed minimum death benefit 
charge, and a distribution fee under the Account Contracts and Other 
Contracts meet the statutory standards of Section 6(c) of the 1940 Act. 
Accordingly, Applicants assert that the requested exemptions are 
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 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-5335 Filed 3-3-95; 8:45 am]
BILLING CODE 8010-01-M