[Federal Register Volume 60, Number 136 (Monday, July 17, 1995)]
[Notices]
[Pages 36449-36452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17451]



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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-21196; File No. 812-9466]


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

July 10, 1995.
AGENCY: Securities and Exchange Commission (the ``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 A of The Equitable Life Assurance 
Society of the United States (the ``Separate Account''), and Equico 
Securities, Inc. (``Equico'').\1\

    \1\ Applicants represent that, during the notice period, the 
application will be amended regarding the identity of the 
Applicants.

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

SUMMARY OF APPLICATION: Applicants seek an order permitting the 
deduction of a mortality and expense risk charge:
    (1) From the assets of the Separate Account in connection with the 
offering of certain new series of group deferred variable annuity 
contracts and certificates, including certificate endorsements, issued 
by Equitable through the Separate Account (the contracts and 
certificates being referred to herein as the ``1995 Series Contracts'' 
and the ``New Series Contracts,'' respectively, and collectively as the 
``Contracts''); and
    (2) in connection with the offering in the future of deferred 
variable annuity contracts issued by Equitable through the Separate 
Account or any other separate account established by Equitable in the 
future to support certain deferred variable annuity contracts and 
certificates issued by Equitable (``Other Account''), which contracts 
shall be substantially similar in all material respects to the 1995 
Series or New Series Contracts (the ``Other Contracts'').

FILING DATE: The application was filed on February 3, 1995, and amended 
and restated on May 26, 1995, and June 16, 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 August 4, 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, N.W., Washington, D.C., 
20549. 

[[Page 36450]]
Equitable and its separate account(s), 787 Seventh Avenue, Area 36-K, 
New York, New York 10019. Equico, 1755 Broadway, New York, New York 
10019.

FOR FURTHER INFORMATION CONTACT:
Joseph G. Mari, Senior Special Counsel, or Patricia M. Pitts, Special 
Counsel, Office of Insurance Products, Division of Investment 
Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: 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, a stock life insurance company organized under the 
laws of the State of New York, serves as depositor of the Separate 
Account. Equitable may establish one or more Other Accounts in the 
future, for which it will serve as depositor.
    2. The Separate Account, established on August 1, 1968, is 
registered with the Commission under the 1940 Act as a unit investment 
trust. It is used to fund benefits under group variable annuity 
contracts and certificates, as well as individual variable annuity 
contracts, issued by Equitable. The Separate Account will be used to 
fund the variable benefits available under the 1995 Series Contracts 
and the New Series Contracts. Units of interest in the Separate Account 
under the Contracts will be registered under the Securities Act of 
1933.
    3. The portion of the assets of the Separate Account equal to the 
reserves and other liabilities relating to the contracts funded by the 
Separate Account, including the Contracts, is not chargeable with 
liabilities arising out of any other business Equitable conducts. Any 
income, gains or losses, realized or unrealized, from assets allocated 
to the Separate Account are, in accordance with the applicable 
contracts, credited to or charged against the Separate Account without 
regard to other income, gains or losses of Equitable.
    4. The Separate Account currently is subdivided into thirteen 
subaccounts (``Investment Funds''), each of which will be available 
under the Contracts. Each Investment Fund invests solely in the shares 
of a corresponding portfolio of The Hudson River Trust (the ``Trust''). 
The Trust, an open-end management investment company registered under 
the 1940 Act, currently is divided into thirteen separate portfolios.
    5. Contributions under the Contracts may be allocated to any one or 
more of the Investment Funds and the Guaranteed Interest Account, which 
is part of Equitable's General Account (together with the Investment 
Funds, the ``Investment Options''). The 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 
in the case of the New Series Contracts, forms of Certificate 
endorsements (``Endorsements'') to be used for specific forms of 
benefits under the Certificates. Certificates may be issued as 
individual contracts in certain states. The Contracts will be offered 
in the tax-qualified retirement plan markets and in non-qualified 
markets.
    6. Equico, a wholly-owned subsidiary of Equitable, is the principal 
underwriter of the Separate Account and distributor of the Contracts. 
In the future, Equitable may organize other wholly-owned subsidiaries 
which are members of the National Association of Securities Dealers, 
Inc., and may act as principal underwriters for the Separate Account or 
Other Accounts (each, a ``Future Underwriter''). Equico is, and any 
Future Underwriter will be, registered as a broker-dealer under the 
Securities Exchange Act of 1934.
    7. Equitable will deduct various fees and expenses under the 
Contracts. Except as otherwise noted, the charges and fees described 
below are the maximums that may be imposed under the Contracts. 
Different charge structures may apply to different markets, and some 
charges that apply to the New Series Contracts do not apply to the 1995 
Series Contracts.
    8. Deductions from account value include charges for (i) 
administration of the Contracts, (ii) loan processing, (iii) transfers 
among Investment Options and third party transfers and exchanges, (iv) 
premium taxes, and (v) distribution expenses through a contingent 
deferred sales charge (``withdrawal charge'').
    9. Equitable may deduct an annual contract fee up to a maximum of 
$65 per contract year for administration of the New Series Contracts. 
Equitable currently intends to charge the lesser of $30 per contract 
year or 2% of account value for the first two contract years, and $30 
per contract year thereafter under the New Series Contracts, and the 
lesser of $30 or 2% of account value in each contract year under the 
1995 Series Contracts. Equitable has reserved the right to eliminate 
this charge for Certificates that have a specified minimum account 
value.
    10. In markets that permit loans, Equitable has reserved the right, 
under the New Series Contracts, to assess a maximum loan set-up charge 
equal to the lesser of $150 or 1% of the loan amount, and a maximum 
loan recordkeeping charge of $65 per year.
    11. Equitable may impose a charge for any transfer among Investment 
Options up to $65 per transfer under the New Series Contracts. 
Equitable currently makes no charge for transfers. Under the New Series 
Contracts, Equitable also may charge up to $65 for a direct transfer to 
a third party of amounts under a Certificate or an exchange for another 
contract of another insurance carrier. Equitable currently intends to 
charge $25 for such transfers or exchanges.
    12. Although Equitable's current practice is to deduct a charge for 
premium taxes from the amount applied to provide an annuity benefit, it 
has reserved the right to deduct any such charge from contributions or 
from amounts withdrawn or surrendered. Equitable does not expect to 
profit from this charge.
    13. Equitable also may assess a daily asset-based administrative 
charge against the Separate Account at an effective annual rate not to 
exceed .30% for administrative expenses associated with the New Series 
Contracts and .25% for administrative expenses associated with the 1995 
Series Contracts.
    14. Applicants do not expect that, over the period that the 
Contracts are in force, the total revenues from the administrative 
charges, including the annual contract fee, the daily asset-based 
administrative charge and, for the New Series Contracts, the loan 
processing charge and the transfer charges, will exceed the expected 
costs of the administrative services rendered under the 1995 Series or 
New Series Contracts, on average, excluding costs which are properly 
categorized as distribution expenses.
    15. Equitable may assess each Investment Fund of the Separate 
Account a daily asset-based charge for mortality and expense risks not 
to exceed an effective annual rate of 1.25% (.65% for mortality risks 
and .60% for expense risks) under the New Series Contracts, and 1.15% 
(.60% for mortality risks and .55% for expense risks) under the 1995 
Series Contracts.
    16. Equitable assumes a mortality risk by its contractual 
obligation to pay a death benefit equal to the greater of (i) the 
account value as of the date Equitable receives due proof of death or 
(ii) the total value of all contributions made, less any applicable 
taxes, adjusted for withdrawals. Equitable assumes an additional 
mortality risk by its contractual obligation to make annuity payments 
for the entire life of the annuitant under guaranteed fixed annuity 
options involving life 

[[Page 36451]]
contingencies, and by its contractual guarantees related to annuity 
purchase rates. Equitable also assumes a mortality risk by its 
contractual obligation to waive the withdrawal charge upon payment of 
the death benefit.
    17. Equitable assumes the expense risk that the administrative 
charges deducted under the Contracts may be insufficient to cover 
actual administrative expenses.
    18. Equitable expects a profit from the mortality and expense risk 
charge, and if the amount deducted proves more than sufficient, the 
excess will be profit to Equitable. If the administrative charges and 
the mortality and expense risk charge are insufficient to cover the 
expenses and costs assumed, the loss will be borne by Equitable.
    19. No front-end sales charge will be imposed when contributions 
are made. A withdrawal charge will be assessed against certain full or 
partial withdrawals. Different withdrawal charges will apply to 
different markets. Under the New Series Contracts, the withdrawal 
charge will be no greater than either: (i) 7% of the amount withdrawn, 
declining to 0% at the end of the fifteenth contract year (subject to a 
maximum of 8% of all contributions made during the current and nine 
prior contract years); or (ii) 8% of contributions received in the 
current and eleven prior contract years. Under the 1995 Series 
Contracts, the withdrawal charge will be no greater than either: (i) 6% 
of the amount withdrawn, declining to 0% at the end of the twelfth 
contract year; or (ii) 6% of contributions received in the current and 
five prior contract years. Equitable has reserved the right to waive 
the withdrawal charge with respect to amounts withdrawn up to 30% of 
the account value at the time of the withdrawal (less any amounts 
previously withdrawn in that contract year) under the New Series 
Contracts, and up to 10% of the account value under the 1995 Series 
Contracts.
    20. The amounts obtained from the withdrawal charge will be used to 
reimburse Equitable for sales expenses including commissions and other 
promotional or distribution expenses associated with printing and 
distributing prospectuses and sales literature. To the extent the 
withdrawal charge is insufficient to cover the actual costs of 
distribution, the expenses will be paid from Equitable's general 
assets, which will include profit, if any, derived from the mortality 
and expense risk charge.

Applciants' Legal Analysis

    1. Applciants request that the Commission, pursuant to Section 6(c) 
of the 1940 Act, grant exemptions from Section 26(a)(2)(C) and 27(c)(2) 
thereof to the extent necessry to permit the assessment of a mortality 
and expense risk charge under the Contracts and Other Contracts.
    2. Section 6(c) of the 1940 Act, in relevant part, provides that 
the Commission may issue an order exempting any person, security or 
transaction, or any class or classes of persons, securities or 
transactions, from any provision or 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 requested exemptions meet the 
standards of Section 6(c) of the 1940 Act, and that the terms of the 
relief requested with respect to any Other Contracts funded by the 
Separate Account or any Other Account and distributed by Equico or any 
Future Underwriter are consistent with the standards set forth in 
Section 6(c) of the 1940 Act.
    4. Applicants undertake that the Other Contracts funded by the 
Separate Account or any Other Account will be substantially similar in 
all material respects to the Contracts. Applicants state that, without 
the requested relief, Applicants may have to request and obtain 
exemptive relief in connection with Other Contracts and/or Other 
Accounts to the extent required. Any such additional requests for 
exemptive relief would present no issues under the 1940 Act that have 
not been addressed already in this Application.
    5. 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 seek exemptive 
relief repeatedly would impair Equitable's ability effectively to take 
advantage of business opportunities as they arise. If Equitable were 
required repeatedly to seek exemptive relief with respect to the same 
issues addressed in this Application, investors would not receive any 
benefit or additional protection thereby. Indeed, they might be 
disadvantaged as a result of Equitable's increased overhead expenses.
    6. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act prohibit a 
registered unit investment trust, and any depositor thereof or 
principal underwriter therefor, from selling periodic payment plan 
certificates unless the proceeds of all payments (other than sales 
load) are deposited with a qualified trustee or custodian and held 
under an agreement that provides that no payment to the depositor or 
principal underwriter shall be allowed except as a fee, not exceeding 
such reasonable amount as the Commission may prescribe, for bookkeeping 
and other administrative services.
    7. Applicants represent that the level of the mortality and expense 
risk charge is within the range of industry practice for comparable 
annuity contracts. This representation is based on Applicants' review 
of publicly available information regarding products of other 
companies, taking into consideration such factors as: Guaranteed 
minimum death benefits; the existence of guaranteed annuity purchase 
rates; market sector; current charge levels; the existence of charge 
level guarantees; and the manner in which charges are imposed. 
Equitable represents that it will maintain at its principal office, and 
make available on request to the Commission or its staff, a memorandum 
setting forth in detail the variable annuity products analyzed and the 
methodology and results of Equitable's comparative review.
    8. Applicants acknowledge that the withdrawal charge may be 
insufficient to cover all distribution costs relating to either the 
1995 Series or the New Series Contracts, and that if a profit is 
realized over time from the mortality and expense risk charge, all or a 
portion of the mortality and expense risk charge might be viewed as 
providing for a portion of these distribution costs. Notwithstanding 
the foregoing, Equitable has concluded that there is a reasonable 
likelihood that the proposed distribution financing arrangements will 
benefit the Separate Account and Contract owners. Equitable represents 
that it will maintain at its principal office and make available on 
request to the Commission or its staff, a memorandum setting forth the 
basis for that conclusion.
    9. Similarly, Applicants represent, with respect to any Other 
Contracts, that the mortality and expense risk charges under any Other 
Contracts will be within the range of industry practice for comparable 
products and that, with regard to such Other Contracts, there will be a 
reasonable likelihood that the proposed distribution financing 

[[Page 36452]]
arrangements will benefit the Separate Account (or Other Account) and 
owners of the Other Contracts. Equitable will maintain and make 
available on request to the Commission or its staff a memorandum 
setting forth in detail the products analyzed, and the methodology and 
results of, the comparative review.
    10. Equitable also represents that the Separate Account will invest 
only in an underlying mutual fund which would undertake, in the event 
it should adopt any plan under Rule 12b-1 to finance distribution 
expenses, to have such plan formulated and approved by 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 
1940 Act.

Conclusion

    Applciants submit, for the reasons stated herein, that the 
requested exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 
Act to permit the assessment of the mortality and expense risk charge 
under the Contracts and Other Contracts meet the standards set out in 
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. 95-17451 Filed 7-14-95; 8:45 am]
BILLING CODE 8010-01-M