[Federal Register Volume 63, Number 64 (Friday, April 3, 1998)]
[Notices]
[Pages 16596-16598]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8779]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23093; 812-10490]


EQ Advisors Trust and EQ Financial Consultants, Inc.; Notice of 
Application

March 30, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 15(a) of the Act and rule 18f-2 under the Act.

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    Summary of Application: The order would permit the investment 
adviser to certain portfolios of a registered open-

[[Page 16597]]

end management investment company to enter into subadvisory agreements 
without obtaining shareholder approval.
    Applicants: EQ Advisors Trust (the ``Trust''), on behalf of its 
existing and future portfolios, EQ Financial Consultants, Inc. (the 
``Manager''), and any future registered open-end management investment 
companies or portfolios advised by the Manager, or any entity 
controlling, controlled by, or under common control (within the meaning 
of section 2(a)(9) of the Act) with the Manager.\1\
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    \1\ All existing registered open-end management investment 
companies that currently intend to rely on the order have been named 
as applicants, and any other existing or future open-end management 
investment companies that rely on the order in the future will 
comply with the terms and conditions in the application.
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    Filing Dates: The application was filed on January 13, 1997, and 
amended on December 12, 1997, and March 27, 1998.
    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 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 April 
23, 1998, 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 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549; 
the Trust, 1290 Avenue of the Americas, New York, New York 10104; and 
the Manager, 1755 Broadway, New York, New York 10019.

FOR FURTHER INFORMATION CONTACT: Brian T. Hourihan, Senior Counsel, at 
(202) 942-0526, or May Kay Frech, Branch Chief, 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 from 
the SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, 
DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. The Trust is an open-end management investment company 
registered under the Act. The Trust currently consists of eighteen 
separately managed portfolios (each a ``Portfolio''), each of which has 
its own investment objective, policies, and restrictions. The Trust is 
the underlying investment medium for variable annuity and variable life 
insurance contracts (``Variable Contracts'') issued by The Equitable 
Life Assurance Society of the United States (``Equitable'').\2\
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    \2\ The Trust may in the future offer its shares to separate 
accounts funding Variable Contracts of insurance companies 
unaffiliated with Equitable, and to tax-qualified pension and 
retirement plans that are not separate accounts.
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    2. The Manager is registered as an investment adviser under the 
Investment Advisers Act of 1940 (the ``Advisers Act''). The Trust and 
the Manager have entered into an investment management agreement 
(``Management Agreement'') pursuant to which the Manager advises the 
Trust and each Portfolio. The Manager has entered into separate 
advisory agreements (``Advisory Agreements'') with ten investment 
advisers (``Advisers''), each registered under the Advisers Act. Each 
Portfolio is advised by a single Adviser and may, as determined by the 
Manager, be advised in the future by two or more Advisers.
    3. Under the Management Agreement, one of the primary 
responsibilities of the Manager, subject to the supervision and 
direction of the board of trustees of the Trust (the ``Board'') is to 
provide the Trust with investment management evaluation services, 
principally by reviewing and recommending to the Board prospective 
Advisers for each Portfolio, and qualitative analysis, as well as 
periodic consultations with the Advisers. Each Adviser is approved by 
the Board, including a majority of the trustees who are not 
``interested persons'' within the meaning of section 2(a)(19) of the 
Act (the ``Independent Trustees'') of the Trust, the Manager or the 
Advisers. In evaluating prospective Advisers, the Manager considers, 
among other factors, each Adviser's level of expertise, relative 
performance, consistency of results relative to overall market 
performance, and investment discipline or philosophy, as well as its 
personnel, facilities, financial strength, reputation, and quality of 
service. The Manager monitors the compliance of each Adviser with the 
investment objectives and policies of each Portfolio and monitors the 
performance of each Adviser to assess overall competence. The Manager 
is responsible for communicating performance expectations and 
evaluations to each Adviser, and, determines whether the Advisory 
Agreement with each Adviser will be renewed, modified, or terminated.
    4. Subject to the general supervision and direction of the Manager 
and, ultimately, the Board, each Adviser to a Portfolio (i) furnishes 
an investment program that is in accordance with the Portfolio' stated 
investment objective and policies, (ii) makes investment decisions for 
the Portfolio, and (iii) places all orders to purchase and sell 
securities on the Portfolio' behalf. Each Adviser also performs certain 
limited administrative functions related to its services for the 
relevant Portfolio.
    5. The Trust's investment advisory arrangements differ from those 
of traditional investment companies in that the Manager does not make 
the day-to-day investment decisions for the Portfolios. Rather, the 
Manager is responsible for employing and then continuously evaluating 
and monitoring the performance of Advisers for the Portfolios, and 
making determinations concerning their replacement or the reallocation 
of a portion of the assets of a Portfolio to an additional Adviser. In 
addition to selecting and monitoring Advisers, the Manager provides the 
Portfolios with overall management services (except to the extent that 
these services are performed by other service providers selected by the 
Trust). The Trust pays the Manager a fee for its services with respect 
to each Portfolio that is computed daily and paid monthly based on the 
value of the average daily net assets of each Portfolio. The Manager 
pays each Adviser a fee that is computed daily and paid monthly based 
on the value of the average daily net assets of the Portfolio or the 
portion of the Portfolio managed by that Adviser. The Trust is not 
responsible for compensating any Adviser in any manner.

Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it unlawful for any person to act 
as an investment adviser to a registered investment company except 
pursuant to a written contract which has been approved by the vote of a 
majority of the outstanding voting securities of the registered 
investment company. Rule 18f-2 under the Act provides that each series 
or class of stock in a series company affected by a matter must approve 
the matter if the Act requires a shareholder vote.
    2. Section 6(c) authorizes the SEC to exempt persons or 
transactions from the provisions of the Act to the extent that the 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly

[[Page 16598]]

intended by the policies and provisions of the Act. Applicants request 
an order exempting them from section 15(a) and rule 18f-2 to the extent 
necessary to permit the Manager to enter into and materially amend the 
Advisory Agreements.
    3. Applicants believe that shareholders in the Portfolios rely on 
the Manager's experience and expertise in selecting, evaluating, and, 
if necessary, firing the Advisers. Applicants state that the expenses 
of convening a special meeting of shareholders and conducting a proxy 
solicitation to obtain shareholder approval of a new Adviser and/or an 
amendment of an Advisory Agreement would be a substantial burden on the 
affected Portfolio. Applicants submit that permitting the Manager to 
perform the activities that it is paid by the Portfolios to perform--
the selection, supervision, and evaluation of Advisers--without 
incurring unnecessary expense or delay is in the best interests of the 
shareholders and will allow each Portfolio to operate more efficiently. 
Applicants note that the Management Agreement between the Trust and the 
Manager will remain subject to shareholder approval.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Portfolio may rely on the order, the operation of the 
Portfolio as described in the application will be approved by a 
majority of the Portfolio's outstanding voting securities (or, if the 
Portfolio serves as a funding medium for any sub-account of a 
registered separate account, then pursuant to voting instructions 
provided by the unitholders of the sub-account), as defined in the Act, 
or, in the case of a new Portfolio whose public shareholders purchased 
shares on the basis of a prospectus containing the disclosure 
contemplated by condition 2 below, by the sole initial shareholder 
before offering shares of such Portfolio to the public.
    2. Each Portfolio will disclose in its prospectus the existence, 
substance, and effect of the order. In addition, each Portfolio will 
hold itself out to the public as employing the management structure 
described in the application. The prospectus will prominently disclose 
that the Manager has ultimate responsibility to oversee Advisers and 
recommend their hiring, termination, and replacement.
    3. At all times, a majority of the Trustees of the Trust will be 
Independent Trustees, and the nomination of new or additional 
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
    4. The Manager will not enter into an Advisory Agreement with an 
Adviser that is an ``affiliated person'' (as defined in section 2(a)(3) 
of the Act) of the Portfolio or the Manager, other than by reason of 
serving as an Adviser to a Portfolio (an ``Affiliated Adviser''), 
without the agreement, including the compensation to be paid 
thereunder, being approved by the shareholders of the applicable 
Portfolio (or, if the Portfolio serves as a funding medium for any sub-
account of a registered separate account, then pursuant to voting 
instructions by the unitholders of the sub-account).
    5. When an Adviser change is proposed for a Portfolio with an 
Affiliated Adviser, the Board, including a majority of the Independent 
Trustees, will make a separate finding, reflected in the Board's 
minutes, that the change is in the best interests of the Portfolio and 
its shareholders (or, if the Portfolio serves as a funding medium for 
any sub-account of a registered separate account, in the best interests 
of the Portfolio and the unitholders of any sub-account) and that the 
change does not involve a conflict of interest from which the Manager 
or the Affiliated Adviser derives an inappropriate advantage.
    6. Within 90 days of the hiring of any new Adviser, shareholders 
(or, if the Portfolio serves as a funding medium for any sub-account of 
registered separate account, the unitholders of the sub-account) will 
be furnished all information about the new Adviser or Advisory 
Agreement that would be included in a proxy statement. The information 
will include any change in the disclosure caused by the addition of a 
new Adviser. The Manager will meet this condition by providing 
shareholders (or, if the Portfolio serves as a funding medium for any 
sub-account of a registered separate account, then by providing the 
unitholders of the sub-account), within 90 days of the hiring of an 
Adviser, with an information statement meeting the requirements of 
Regulation 14C and Schedule 14C under the Securities Exchange Act of 
1934 (the ``Exchange Act''). The information statement will also meet 
the requirements of Schedule 14A of the Exchange Act.
    7. The Manager will provide general management services to each 
Portfolio, including overall supervisory responsibility for the general 
management and investment of each Portfolio's securities portfolios, 
and, subject to review and approval by the Board will (i) set each 
Portfolio's overall investment strategies, (ii) select Advisers, (iii) 
when appropriate, recommend to the Board, the allocation and 
reallocation of a Portfolio's assets among multiple Advisers, (iv) 
monitor and evaluate the investment performance of Advisers, and (v) 
implement procedures reasonably designed to ensure that the Advisers 
comply with the relevant Portfolio's investment objective, policies, 
and restrictions.
    8. No Trustee or officer of the Trust, or director or officer of 
the Manager will own directly or indirectly (other than through a 
pooled investment vehicle that is not controlled by that Trustee, 
director, or officer) any interest in an Adviser except for (i) 
ownership of interests in the Manager or any entity that controls, is 
controlled by, or is under common control with the Manager, or (ii) 
ownership of less than 1% of the outstanding securities of any class of 
equity or debt of a publicly traded company that is either an Adviser 
or an entity that controls, is controlled by, or is under common 
control with an Adviser.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-8779 Filed 4-2-98; 8:45 am]
BILLING CODE 8010-01-M