[Federal Register Volume 62, Number 223 (Wednesday, November 19, 1997)]
[Notices]
[Pages 61855-61857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30297]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22883/812-10536]


EQ Advisors Trust; Notice of Application

November 12, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for an order under (i) section 6(c) of 
the Investment Company Act of 1940 (the ``Act'') granting relief from 
sections 13(a)(2), 18(f)(1), 22(f), and 22(g) of the Act; and (ii) 
section 17(d) of the Act and rule 17d-1 to permit certain joint 
transactions.

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    Summary of Application: Applicants request an order to permit EQ 
Advisors Trust to implement a deferred compensation plan for certain of 
its trustees.
    Applicants: HQ Advisors Trust (the ``Trust'') and EQ Financial 
Consultants, Inc. (the ``Manager'').
    FILING DATES: The application was filed on April 7, 1997, and 
amendments were filed on July 14, 1997 and November 10, 1997.
    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 SEC's Secretary and 
serving applicant with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on December 
8, 1997, 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 the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. EQ Advisors Trust, 1290 Avenue of the Americas, New York, New 
York 10104.

FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Nadya B. Roytblat, 
Assistant Director, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Trust is an open-end management investment company 
registered under the Act and organized as a Delaware business trust. 
The Trust is currently composed of several, separately managed series 
(``Portfolios''). The Trust offers shares in each of its Portfolios 
only to insurance companies and their separate accounts that fund 
variable annuity and variable life insurance contracts (``Variable 
Contracts''). The Trust is currently serving as the underlying 
investment medium for Variable Contracts issued by the Equitable Life 
Assurance Society of the United States (``Equitable''). The Trust may 
in the future offer its shares to separate accounts funding Variable 
Contracts of insurance companies unaffiliated with Equitable or 
directly to tax qualified pension and retirement plans outside the 
separate account context.
    2. The Manager, an indirect wholly-owned subsidiary of Equitable, 
has overall responsibility for the investment management and 
administration of the Trust and its Portfolios. Rowe Price-Fleming 
International, Inc., T. Rowe Price Associates, Inc., Putnam Investment 
Management, Inc., Massachusetts Financial Services Company, Morgan 
Stanley Asset Management, Inc., Warburg Pincus Counsellors, Inc., and 
Merrill Lynch Asset Management, L.P. serve as the sub-advisers (each an 
``Adviser'') to one or more Portfolios. Applicants request that the 
relief apply to the Trust and any registered open-end management 
investment company that in the future is advised by the Manager or any 
entity controlled by the Manager.\1\
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    \1\ The Manager is an investment adviser to the Trust and serves 
in such capacity pursuant to a contract subject to section 15 of the 
Act. All registered open-end investment companies that currently 
intend to rely on the order have been named as applicants. Any other 
existing or future investment company that relies on the order will 
comply with the terms and conditions of the order.
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    3. The Trust's board of trustees (``Trustees'') currently consists 
of six members, two of whom are ``interested persons'' of the Trust 
within the meaning of Section 2(a)(19) of the Act. The four non-
interested Trustees (``Eligible Trustees'') will receive an annual 
retainer fee, a fee for each board meeting and committee meeting 
attended, and an additional fee for performing special services for the 
Trust.
    4. The deferred compensation plan for Eligible Trustees (the 
``Plan'') was ratified by the Trustees on March 31, 1997. The purpose 
of the Plan is to permit Eligible Trustees to defer receipt of all or a 
portion of their fees to enable them to defer payment of income taxes, 
to avoid a loss or reduction of Social Security benefits, or for other 
reasons. Applicants believe that the Plan will better enable the Trust 
to attract and retain high caliber trustees. The Plan may be amended 
from time to time, provided that, any amendments are not inconsistent 
with the relief granted pursuant to this application.
    5. Under the Plan, each Eligible Trustee who elects to defer 
receipt of

[[Page 61856]]

fees will enter into an agreement with the Trust (``Agreement''). The 
election will continue in effect unless the Eligible Trustee delivers 
to the Trust a written modification of such election at least 60 days 
prior to January 1 in any given year. Pursuant to the Agreement, a 
bookkeeping account will be established by the Trust for each Eligible 
Trustee that elects to defer compensation (``Deferral Account''), and 
the amount of fees deferred will be credited to the Deferral Account. 
Although the Trust expects the Plan to remain in effect indefinitely, 
the Trust has reserved the right to unilaterally modify or terminate 
the Plan at any time. However, any modification or termination would 
not affect amounts already credited to an Eligible Trustee's Deferral 
Account.
    6. In addition to deferred fees, the Trust will periodically credit 
to the Deferral Account interest in an amount equal to the interest 
rate credited to fixed income accounts under the Equitable Investment 
Plan for Employees, Managers, and Agents \2\ (the ``Equitable Rate''). 
The Equitable Rate is a blended rate based on a weighted average of the 
separate interest rates payable under the Fixed Income Fund's various 
investments.\3\ The Equitable Rate is adjusted periodically as GICs in 
the Fixed Income Fund mature and are reinvested at current rates and as 
the returns on the Fixed Income Fund's variable rate investments 
change. The amounts to be paid under the Plan will not depend upon, or 
in any way reflect, the investment performance of any Portfolio. In 
that regard, the Equitable Rate will merely be used as a reference the 
Trust believes to be fair in crediting interest to the Deferral 
Account.
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    \2\ The Equitable Investment Plan for Employees, Managers, and 
Agents (the ``Equitable Investment Plan'') is a tax-qualified 
profit-sharing plan that contains a cash-or-deferred arrangement. As 
administrator of the Equitable Investment Plan, Equitable's Officers 
Committee on Benefit Plans has authority to control and manage the 
Plan's operation and administration.
    \3\ The Fixed Income Fund is one of seven investment funds 
available to participants in the Equitable Investment Plan, and 
invests primarily in guaranteed investment contracts (``GICs'') 
issued by insurance companies and synthetic GICs managed by 
investment management firms. The Fixed Income Fund also invests in 
short-term securities to ensure the availability of adequate funds 
to cover participant transfers, withdrawals, and distributions.
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    7. The Trust has reserved the right to change the rate of interest 
credited to a Deferral Account (``Account Rate'') in accordance with 
changes that may be made periodically to the Equitable Rate.\4\ The 
Trust need not change the Account Rate each time the Equitable Rate 
changes but it is the present intention of the Trust to do so only in 
accordance with the Equitable Rate. Instances when the Account rate 
would not be in accordance with the Equitable Rate would be (i) in any 
interim period between a change in the Equitable Rate and the time it 
takes to effectuate any change in the Account Rate, or (ii) if the 
Trustees determine that it is not in the best interests of the Trust's 
shareholders to change the Account Rate to the Equitable Rate.
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    \4\ In addition, the Trust has reserved the right to use a 
different index for crediting interest.
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    8. An Eligible Trustee will specify a date for the initial 
disbursement of payments from the Deferral Account. The disbursement 
date may not be sooner than five years following the election of 
deferral, or the Eligible Trustee's anticipated retirement from the 
board. Payments will be made in a lump sum or in annual or semiannual 
installments for the number of years elected by the Eligible Trustee, 
or until the Deferral Account is exhausted. The Deferral Account will 
continue to be credited with interest during the payout period. 
Notwithstanding any elections, an Eligible Trustee's Deferral Account 
will be distributed (i) in the event of a Trustee's death, or (ii) upon 
the dissolution, liquidation, or transfer of all or substantially all 
of the Trust's assets. In the event of an Eligible Trustee's death, the 
amount of the Deferral Account will be paid to the Eligible Trustee's 
executors or administrators in a single lump sum distribution. In the 
event of a discontinuance of deferment or an Eligible Trustee's 
retirement, the Deferred Account will continue to be paid out in 
installments. The Trustees in their sole discretion may accelerate 
payments out of a Deferral Account at any time after termination of the 
Eligible Trustee's service, provided that the Eligible Trustee does not 
participate in the Trustees' determination.
    9. The administrator of the Plan will maintain the Deferral 
Accounts. The amounts credited to an Eligible Trustee's Deferral 
Account will be payable solely from the Trust's general assets and will 
represent an unsecured obligation of the Trust. Eligible Trustees will 
have the status of general creditors. The Trust will not purchase any 
of its shares for any Deferral Account, nor will it create any 
specified fund or segregate any of its assets for purposes of the Plan. 
The Trust's liabilities for deferred fees are expected to be de minimis 
in relation to the Trust's net assets.

Applicants' Legal Analysis

    1. Applicants request an order pursuant to (i) section 6(c) of the 
Act to exempt the Trust from the provisions of sections 13(a)(2), 
18(f)(1), 22(f) and 22(g) to the extent necessary to permit the Trust 
to enter into deferred fee arrangements with the Eligible Trustees; and 
(ii) section 17(d) of the Act and rule 17d-1 thereunder to permit the 
Trust and the Eligible Trustees to effect certain transactions incident 
to the deferred fee arrangements.
    2. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction from any provision of the Act, if and 
to the extent that such exemption is 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 Act. 
Applicants believe that the requested relief is necessary and 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the Act.
    3. Section 18(f)(1) of the Act generally prohibits a registered 
open-end investment company from issuing senior securities. In 
addition, section 13(a)(2) of the Act requires that a registered 
investment company obtain shareholder authorization before issuing any 
senior security not contemplated by the recitals of policy in its 
registration statement. Applicants state that the Plan does not give 
rise to any of the concerns that prompted the enactment of sections 
13(a)(2) and 18(f)(1). Applicants state that the Trust will not be 
borrowing from its Eligible Trustees, and all liabilities for deferred 
fees are expected to be de minimis in relation to the Trust's net 
assets. Applicants assert that the Plan will not induce speculative 
investments by the Trust or provide opportunity for manipulation of 
expenses and profits. In addition, applicants assert that the control 
of the Trust will not be affected, and the Plan will not confuse 
investors.
    4. Section 22(f) prohibits restrictions on the transferability or 
negotiability of redeemable securities issued by an open-end investment 
company unless the restrictions are disclosed in its registration 
statement and do not contravene SEC rules and regulations. Applicants 
state that the Plan will plainly set forth the applicable restrictions 
against the assignment, commutation, and encumbrance of any amounts 
credited to a Deferral Account. Applicants assert that these 
restrictions are designed to benefit the Eligible Trustees and would 
not adversely affect

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the interests of the Eligible Trustees or the Trust's shareholders.
    5. Section 22(g) generally prohibits registered open-end investment 
companies from issuing any of their securities for services or for 
property other than cash or securities. Applicants assert that the 
legislative history of section 22(g) was primarily concerned with the 
dilutive effect on the equity and voting power of common stock of, or 
units of beneficial interest in, an investment company if the company's 
securities are issued for consideration not readily valued. Applicants 
contend that the Plan does not raise these concerns because any rights 
issued under the Plan to Eligible Trustees will not be issued for 
services but in consideration for the Trust not being required to pay 
the fees on a current basis. In addition, applicants state that the 
Eligible Trustees' compensation arrangements, including the right to 
defer fees, will be described in the Trust's proxy statements.
    6. Section 17(d) and rule 17d-1 prohibit affiliated persons from 
participating in joint arrangements with a registered investment 
company unless authorized by the SEC. In passing on applications for 
such orders, rule 17-d provides that the SEC will consider whether the 
participation of such investment company is consistent with the 
provisions, policies, and purposes of the Act and the extent to which 
such participation is on a basis different from or less advantageous 
than that of other participants. Applicants acknowledge that the Plan 
may be deemed to constitute a joint arrangement within the meaning of 
rule 17d-1. Applicants state that the Eligible Trustees will not share 
in any increase or decrease in the value of amounts retained by the 
Trust or otherwise participate in that investment experience. Except 
for accrued interest to be paid on Deferral Accounts, Eligible Trustees 
will receive the same fixed amounts that would have been received if 
fees were paid on a current basis. Therefore, applicants assert that 
the Trust's obligation to make payments to Trustees under the Plan will 
not be based upon a level of the Trust's income, its realized gains or 
losses on investments, or the unrealized appreciation or depreciation 
of its assets. Applicants believe that the selection of the Equitable 
Rate is inherently no different from the selection of a prime rate, the 
interest rate on U.S. Treasury Bills, or other assumed interest rates 
for fixed retirement type obligations. Thus, Applicants contend that 
the selection of the Equitable Rate as a convenient reference point 
does not represent a participation in the Equitable Investment Plan or 
in the performance of the Trust.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-30297 Filed 11-18-97; 8:45 am]
BILLING CODE 8010-01-M