[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