[Federal Register Volume 64, Number 164 (Wednesday, August 25, 1999)]
[Notices]
[Pages 46456-46462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22022]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23953; File No. 812-11602]


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

August 19, 1999.
Agency: Securities and Exchange Commission (the ``Commission'' or 
``Sec'').

Action: Notice of application for an order pursuant to Section 26(b) of 
the Investment Company Act of 1940 (the ``1940 Act'') approving certain 
substitutions of securities, and pursuant to Section 17(b) of the 1940 
Act exempting related transactions from Section 17(a) of the 1940 Act.

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    Summary of Application: Applicants request an order to permit 
certain registered unit investment trusts to substitute shares of EQ 
Advisors Trust, a registered open-end investment company, for shares of 
The Hudson River Trust, another registered open-end investment company, 
currently held by those unit investment trusts, and to permit certain 
in-kind redemptions of portfolio securities in connection with the 
substitutions.
    Applicants: For purposes of the order requested pursuant to Section 
26(b), The Equitable Life Assurance Society of the United States 
(``Equitable''), Separate Account A of Equitable (``SA A''), Separate 
Account No. 301 of Equitable (``SA 301''), Separate Account No. 45 of 
Equitable (``SA 45''), Separate Account No. 49 of Equitable (``SA 
49''), Separate Account I of Equitable (``SA I''), and Separate Account 
FP of Equitable (``SA FP'', and together with SA A, SA 301 SA 45, SA 
49, and SA I, the ``Equitable Accounts'') (collectively, the ``Section 
26 Applicants''). For purposes of the order pursuant to Section 17(b), 
Equitable, the Equitable Accounts, Separate Account No. 51 of Equitable 
(``SA 51''), and Separate Account No. 65

[[Page 46457]]

of Equitable (``SA 65'' and together with Equitable, the Equitable 
Accounts, and SA 51, the ``Section 17 Applicants'').
    Filing Date: The application was filed on April 30, 1999, and 
amended and restated on August 12, 1999.
    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 should be received by the 
Commission by 5:30 p.m. on September 13, 1999, 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 Secretary of the 
Commission.

Addresses: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549-0609. Applicants: c/o The 
Equitable Life Assurance Society of the United States, 1290 Avenue of 
the Americas, New York, New York 10104, Attn: Mary Joan Hoene, Esq., 
Vice President and Counsel.

For Further Information Contact: Kevin P. McEnery, Senior Counsel, or 
Susan M. Olson, Branch 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 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549-0102 (tel. (202) 942-8090).

Applicant's Representations

    1. Equitable is a New York stock life insurance company authorized 
to sell life insurance and annuities in all fifty states, the District 
of Columbia, Puerto Rico, and the Virgin Islands. Equitable is the 
depositor and sponsor of SA A, 301, SA 45, SA 49, SA I, SA FP, SA 51 
and SA 65, each a segregated asset account of Equitable.
    2. Equitable is an investment adviser registered under the 
Investment Advisers Act of 1940 (``Advisers Act''), as amended, and a 
wholly-owned subsidiary of The Equitable Companies Incorporated 
(``ECI''), a member of the global AXA Group, which is a holding company 
for an international group of insurance and related financial services 
companies. Alliance Capital Management L.P. (``Alliance''), an 
investment adviser registered under the Advisers Act, is a majority-
owned publicly traded subsidiary of ECI.
    3. Each of SA A, SA 301, SA 45, SA 49, SA I, and SA FP 
(collectively, the ``Equitable Accounts'') is registered with the 
Commission under the 1940 Act as a unit investment trust. The assets of 
the Equitable Accounts support certain variable annuity contracts or 
variable life insurance policies (collectively, the ``Contracts''). The 
variable annuity contracts issued by Equitable include flexible premium 
deferred variable annuity contracts and single premium immediate 
variable annuity contracts. Some of the variable annuity contracts are 
issued as group contracts, while the remaining annuity contracts are 
issued to or on behalf of individuals. The variable life insurance 
policies issued by Equitable include flexible premium, scheduled 
premium and single premium individual variable life, second to die and 
corporate variable life policies.
    4. The Hudson River Trust (``HRT'') is organized as a Massachusetts 
business trust. It is registered as an open-end management investment 
company under the 1940 Act, and its shares are registered under the 
Securities Act of 1933 (the ``Securities Act'') on Form N-1A. HRT is a 
series investment company, as defined by Rule 18f-2 under the 1940 Act, 
and currently offers shares of 14 separate portfolios (``Current 
Funds''), all of which would be involved in the proposed substitutions. 
HRT sells shares to the Equitable Accounts to serve as the investment 
medium for the Contracts. HRT currently offers two classes of shares, 
Class IA and Class IB shares, which differ only in that Class IB shares 
are subject to a distribution plan adopted and administered pursuant to 
Rule 12b-1 under the 1940 Act. Each Current Fund is advised by 
Alliance.
    5. EQ Advisors Trust (``EQAT'') is organized as a Delaware business 
trust. It is registered as an open-end management investment company 
under the 1940 Act and its shares are registered under the 1933 Act on 
Form N-1A. EQAT is a series investment company, as defined by Rule 18f-
2 under the 1940 Act, and currently offers 25 separate portfolios of 
shares. EQAT sells shares to the Equitable Accounts in connection with 
the Contracts.\1\ EQAT currently offers two classes of shares, Class IA 
and Class IB shares, which differ only in that Class IB shares are 
subject to a distribution plan adopted and administered pursuant to 
Rule 12b-1 under the 1940 Act. In connection with the proposed 
substitutions, EQAT has filed with the Commission post-effective 
amendment No. 11 to its registration statement in order to register 14 
new portfolios (``New Funds''). EQ Financial Consultants, Inc. (``EQ 
Financial''), an indirect wholly-owned subsidiary of Equitable, serves 
as investment manager of each of the current 25 portfolios of EQAT 
under an investment management agreement between EQAT and EQ 
Financial.\2\ EQ Financial is an investment adviser registered under 
the Advisers Act and a broker-dealer registered under the Securities 
Exchange Act of 1934, as amended. Pursuant to the investment management 
agreement, the investment manager (``Manager'') is responsible for the 
general management and administration of EQAT, including selecting the 
investment advisers for each of EQAT's portfolios (``Advisers''), 
monitoring their investment programs and results, reviewing brokerage 
matters, overseeing compliance issues, and carrying out the directives 
of the Board of Trustees. Alliance will serve as the Adviser to each of 
the New Funds. EQAT has received an exemptive order from the Commission 
(``Multi-Manager Order'') that permits EQ Financial, or any entity 
controlling, controlled by, or under common control (within the meaning 
of Section 2(a)(9) of the 1940 Act) with EQ Financial, subject to 
certain conditions, including approval of the Board of Trustees of 
EQAT, and without the approval of shareholders to: (a) employ a new 
Adviser or Advisers for any portfolio pursuant to the terms of a new 
Investment Advisory Agreement, in each case either as a replacement for 
an existing Adviser or as an additional Adviser; (b) change the terms 
of any Investment Advisory Agreement; and (c) continue the employment 
of an existing Adviser on the same contract terms where a contract has 
been assigned because of a change of control of the Adviser.\3\ In

[[Page 46458]]

such circumstances, Contract owners would receive notice of any such 
action, including information concerning any new Adviser that normally 
is provided in proxy materials.
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    \1\ An exemptive order was issued by the Commission granting 
exemptions from the 1940 Act to permit shares of EQAT to be offered 
to separate accounts of affiliated and unaffiliated insurance 
companies that offer either variable life insurance policies or 
annuity contracts (``EQAT Shared Funding Order''). See EQ Advisors 
Trust, Investment Company Act Rel. Nos. 22651 (April 30, 1997) 
(order) and 22602 (April 4, 1997) (notice).
    \2\ During 1999, EQ Financial plans to change its name to AXA 
Advisors, Inc. On July 12, 1999, the Board of Trustees of EQAT 
approved a transfer of the Investment Management Agreement between 
EQAT and EQ Financial to Equitable. That transfer of the Investment 
Management Agreement is expected to occur prior to October 1, 1999.
    \3\ See EQ Advisors Trust and EQ Financial Consultants, Inc., 
Investment Company Act Rel. Nos. 23128 (April 24, 1998) (order) and 
23093 (March 30, 1998) (notice). Before a New Fund may rely on the 
Multi-Manager Order, the operation of that New Fund as a multi-
manager fund, as described in the application for the Multi-Manager 
Order,will be approved, following the substitutions proposed in the 
application, by a majority of that New Fund's outstanding voting 
securities in a manner consistent with the EQAT Shared Funding 
Order.
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    6. Each of the Contracts expressly reserve to the Section 26(b) 
Applicants the right, subject to compliance with applicable law, to 
substitute shares of another portfolio for shares of the Current Funds 
held by the Equitable Accounts. The prospectuses describing the 
Contracts contain appropriate disclosure of this right.
    7. Equitable, on its own behalf and on behalf of the Equitable 
Accounts, proposes to substitute securities issued by the 14 New Funds 
for the securities issued by the 14 Current Funds. Specifically, 
Applicants propose to substitute: (i) Class IA Shares of each New Fund 
for Class IA Shares of each Current Fund; and (ii) Class IB Shares of 
each New Fund for Class IB Shares of each Current Fund. The Applicants 
represent that the substitutions are part of an overall business plan 
by Equitable to make the Contracts more competitive and attractive to 
potential customers and Contract owners and to enable Equitable to more 
efficiently administer and oversee the Contracts. The Section 26 
Applicants state that it is their belief that the substitutions will: 
(1) facilitate Contract owner understanding of the underlying 
investment options for the Contracts and reduce the potential for 
Contract owners to be confused by the two separate underlying 
investment vehicles (i.e., portfolios of HRT and portfolios of EQAT) 
that are used to fund the Contracts; (2) reduce the administrative 
burden of maintaining two separate underlying investment companies for 
the Contracts; and (3) consolidate the underlying investment vehicles 
in EQAT.
    8. The Section 26(b) Applicants represent that EQAT's Manager will 
serve as Manager of each New Fund and that Alliance will serve as 
Adviser to each New Fund. The Applicants also state that each New Fund 
will have investment objectives, investment strategies and anticipated 
risks that are identical in all material respects to those of the 
corresponding Current Fund. The investment objectives of each Current 
Fund and the corresponding New Fund are shown below.

----------------------------------------------------------------------------------------------------------------
         Current portfolio             Investment objective         New portfolio         Investment objective
----------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock.........  Seeks to achieve long-term  Alliance Aggressive    Seeks to achieve long-
                                     growth of capital.          Stock.                 term growth of capital.
Alliance Balanced.................  Seeks to achieve a high     Alliance Balanced....  Seeks to achieve a high
                                     return through both                                return through both
                                     appreciation of capital                            appreciation of capital
                                     and current income.                                and current income.
Alliance Common Stock.............  Seeks long-term growth of   Alliance Common Stock  Seeks long-term growth of
                                     its capital and increase                           its capital and increase
                                     in income.                                         in income.
Alliance Conservative Investors...  Seeks to achieve a high     Alliance Conservative  Seeks to achieve a high
                                     total return without, in    Investors.             total return without, in
                                     the opinion of the                                 the opinion of the
                                     Adviser, undue risk to                             Adviser, undue risk to
                                     principal.                                         principal.
Alliance Equity Index.............  Seeks a total return        Alliance Equity Index  Seeks a total return
                                     before expenses that                               before expenses that
                                     approximates the total                             approximates the total
                                     return performance of the                          return performance of
                                     S&P 500 Index, including                           the S&P 500 Index,
                                     reinvestment of                                    including reinvestment
                                     dividends, at a risk                               of dividends, at a risk
                                     level consistent with                              level consistent with
                                     that of the S&P 500 Index.                         that of the S&P 500
                                                                                        Index.
Alliance Global...................  Seeks long-term growth of   Alliance Global......  Seeks long-term growth of
                                     capital.                                           capital.
Alliance Growth and Income........  Seeks to provide a high     Alliance Growth and    Seeks to provide a high
                                     total return through a      Income.                total return through a
                                     combination of current                             combination of current
                                     income and capital                                 income and capital
                                     appreciation by investing                          appreciation by
                                     primarily in income-                               investing primarily in
                                     producing common stocks                            income-producing common
                                     and securities                                     stocks and securities
                                     convertible into common                            convertible into common
                                     stocks.                                            stocks.
Alliance Growth Investors.........  Seeks to achieve the        Alliance Growth        Seeks to achieve the
                                     highest total return        Investors.             highest total return
                                     consistent with the                                consistent with the
                                     Adviser's determination                            Adviser's determination
                                     of reasonable risk.                                of reasonable risk.
Alliance High Yield...............  Seeks to achieve a high     Alliance High Yield..  Seeks to achieve a high
                                     return by maximizing                               return by maximizing
                                     current income and, to                             current income and, to
                                     the extent consistent                              the extent consistent
                                     with that objective,                               with that objective,
                                     capital appreciation.                              capital appreciation.
Alliance Intermediate Government    Seeks to achieve high       Alliance Intermediate  Seeks to achieve high
 Securities.                         current income consistent   Government             current income
                                     with relative stability     Securities.            consistent with relative
                                     of principal through                               stability of principal
                                     investment primarily in                            through investment
                                     debt securities issued or                          primarily in debt
                                     guaranteed as a principal                          securities issued or
                                     and interest by the U.S.                           guaranteed as to
                                     Government or its                                  principal and interest
                                     agencies or                                        by the U.S. Government
                                     instrumentalities.                                 or its agencies or
                                                                                        instrumentalities.
Alliance International............  Seeks to achieve long-term  Alliance               Seeks to achieve long-
                                     growth of capital by        International.         term growth of capital
                                     investing primarily in a                           by investing primarily
                                     diversified portfolio of                           in a diversified
                                     equity securities                                  portfolio of equity
                                     selected principally to                            securities selected
                                     permit participation in                            principally to permit
                                     non-U.S. companies with                            participation in non-
                                     prospects for growth.                              U.S. companies with
                                                                                        prospects for growth.
Alliance Money Market.............  Seeks to obtain a high      Alliance Money Market  Seeks to obtain a high
                                     level of current income,                           level of current income,
                                     preserve its assets and                            preserve its assets and
                                     maintain liquidity.                                maintain liquidity.
Alliance Quality Bond.............  Seeks to achieve high       Alliance Quality Bond  Seeks to achieve high
                                     current income consistent                          current income
                                     with preservation of                               consistent with
                                     capital by investing                               preservation of capital
                                     primarily in investment                            by investing primarily
                                     grade fixed income                                 in investment grade
                                     securities.                                        fixed income securities.

[[Page 46459]]

 
Alliance Small Cap Growth.........  Seeks to achieve long-term  Alliance Small Cap     Seeks to achieve long-
                                     growth of capital.          Growth.                term growth of capital.
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    9. The Section 26(b) Applicants state that it is expected that: (i) 
the management fees (i.e., the total management fees and investment 
advisory fees paid to the Manager and the Adviser) with respect to each 
New Fund will be the same as the management fees currently applicable 
to the corresponding Current Funds; and (ii) there may be a slight 
increase in the total expense ratios of each of the New Funds as 
compared to those of the Current Funds. The Applicants also represent 
that the charts below show: (i) the management fees and total expenses 
for Class IA and Class IB shares of each of the Current Funds for the 
year ending December 31, 1998; and (ii) the estimated management fees 
and total expenses of Class IA and Class IB shares of each of the New 
Funds following the proposed substitutions. Estimated management fees 
and total expenses of the Class IA and Class IB shares of each of the 
New Funds are presented on a pro forma basis and are based upon the 
audited financial statements of HRT for the year ending December 31, 
1998.

                                                 Class IA Shares
                                   [Year ending December 31, 1998, pro forma]
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                                                                                   Management &
                                 Advisory fees  Total expenses                     advisory fees  Total expenses
                                (as percentage  (as percentage                    (as percentage  (as percentage
         Current fund             of average      of average        New fund        of average      of average
                                   daily net       daily net                         daily net       daily net
                                    assets)         assets)                           assets)         assets
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Alliance Aggressive Stock.....            0.54            0.56  Alliance                    0.54            0.57
                                                                 Aggressive
                                                                 Stock.
Alliance Balanced.............            0.41            0.45  Alliance                    0.41            0.46
                                                                 Balanced.
Alliance Common Stock.........            0.36            0.39  Alliance Common             0.36            0.40
                                                                 Stock.
Alliance Conservative                     0.48            0.53  Alliance                    0.48            0.54
 Investors.                                                      Conservative
                                                                 Investors.
Alliance Equity Index.........            0.31            0.34  Alliance Equity             0.31            0.35
                                                                 Index.
Alliance Global...............            0.64            0.71  Alliance Global.            0.64            0.72
Alliance Growth and Income....            0.55            0.58  Alliance Growth             0.55            0.59
                                                                 and Income.
Alliance Growth Investors.....            0.51            0.55  Alliance Growth             0.51            0.56
                                                                 Investors.
Alliance High Yield...........            0.60            0.63  Alliance High               0.60            0.64
                                                                 Yield.
Alliance Intermediate                     0.50            0.55  Alliance                    0.50            0.56
 Government Securities.                                          Intermediate
                                                                 Government
                                                                 Securities.
Alliance International........            0.90            1.06  Alliance                    0.90            1.07
                                                                 International.
Alliance Money Market.........            0.35            0.37  Alliance Money              0.35            0.38
                                                                 Market.
Alliance Quality Bond.........            0.53            0.57  Alliance Quality            0.53            0.58
                                                                 Bond.
Alliance Small Cap Growth.....            0.90            0.96  Alliance Small              0.90            0.97
                                                                 Cap Growth.
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                                                                     Class IB Shares
                                                       [Year ending December 31, 1998, Pro Forma]
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                                                                                                           Management &
                                     Advisory fees                  Total expenses                         advisory fees                  Total expenses
                                    (as percentage    12b-1 fees    (as percentage                        (as percentage                  (as percentage
           Currend fund               of average       (percent)      of average          New fund          of average      12b-1 fees      of average
                                       daily net                       daily net                             daily net                       daily net
                                        assets)                         assets)                               assets)                         assets)
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Alliance Aggressive stock.........            0.54            0.25            0.82  Alliance Aggressive             0.54            0.25            0.82
                                                                                     Stock.
Alliance Balanced.................            0.41            0.25            0.70  Alliance Balanced...            0.41            0.25            0.71
Alliance Common Stock.............            0.36            0.25            0.64  Alliance Common                 0.36            0.25            0.65
                                                                                     Stock.
Alliance Conservative Investors...            0.48            0.25            0.78  Alliance                        0.48            0.25            0.79
                                                                                     Conservative
                                                                                     Investors.
Alliance Equity Index.............            0.31            0.25            0.59  Alliance Equity                 0.31            0.25            0.60
                                                                                     Index.
Alliance Global.                              0.64            0.25            0.96  Alliance Global.                0.64            0.25            0.97
Alliance Growth and Income........            0.55            0.25            0.83  Alliance Growth and             0.55            0.25            0.84
                                                                                     Income.
Alliance Growth Investors.........            0.51            0.25            0.80  Alliance Growth                 0.51            0.25            0.81
                                                                                     Investors.
Alliance High Yield...............            0.60            0.25            0.88  Alliance High Yield.            0.60            0.25            0.89
Alliance Intermediate Government              0.50            0.25            0.80  Alliance                        0.50            0.25            0.81
 Securities.                                                                         Intermediate
                                                                                     Government
                                                                                     Securities.
Alliance International............            0.90            0.25            1.31  Alliance                        0.90            0.25            1.32
                                                                                     International.

[[Page 46460]]

 
Alliance Money Market.............            0.35            0.25            0.62  Alliance Money                  0.35            0.25            0.63
                                                                                     Market.
Alliance Quality Bond.............            0.53            0.25            0.81  Alliance Quality                0.53            0.25            0.82
                                                                                     Bond.
Alliance Small Cap Growth.........            0.90            0.25            1.20  Alliance Small Cap              0.90            0.25            1.21
                                                                                     Growth.
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    10. The Section 26 Applicants state that they have filed with the 
Commission prospectuses or prospectus supplements that describe the 
proposed substitutions. The Section 26 Applicants have sent the 
appropriate prospectus or supplement (or other notice, in the case of 
Contracts no longer actively marketed and for which there are a 
relatively small number of existing Contract owners (``Inactive 
Contracts'')) \4\ containing this disclosure to all existing and new 
Contract owners and participants. Such disclosure described each of the 
New Funds, identified each Current Fund that is being replaced, and 
disclosed the impact of the substitutions on fees and expenses at the 
underlying fund level. In addition, management and counsel for EQAT 
have filed with the Commission a post-effective amendment to the 
current registration statement of EQAT on Form N-1A in order to 
register the 14 New Funds under the 1940 Act and to register shares in 
each New Fund under the 1933 Act. Applicants state that on or about 
August 30, 1999, all existing Contract owners and participants will be 
sent an additional Contract prospectus or supplement thereto (or other 
notice in the case of Inactive Contracts) that notifies them of the 
fact that the application has been noticed. Together with this 
disclosure, Applicants state that all existing Contract owners and 
participants also will be sent a prospectus for each of the New Funds 
into which their Current Funds will be substituted. New purchasers of 
Contracts will be provided with the Contract prospectuses or 
supplements containing disclosure that the application has been 
noticed, as well as a prospectus for each of such New Funds. These 
Contract prospectuses/supplements and New Fund prospectuses will be 
delivered to purchasers of new Contracts in accordance with all 
applicable legal requirements. Confirmation of the substitutions will 
be sent to affected Contract owners and participants within five days 
after the substitutions are effected.
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    \4\ Applicants state that in reliance on the relief provided in 
Great-West Life Insurance Company (pub. avail. Oct. 23, 1990) 
(``Great-West'') and in The Equitable Life Assurance Society of the 
United States (pub. avail. Oct. 4, 1990) (``The Equitable''), 
certain information about Inactive Contracts, the relevant Equitable 
Account, and the underlying fund are provided to Inactive Contract 
owners in lieu of filing post-effective amendments to the 
registration statements relating to those Inactive Contracts or 
delivering updated prospectuses to those Contract owners.
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    11. Applicants state that the substitutions will be effected by 
redeeming shares of the Current Funds on the date the substitutions 
will take place (``Substitution Date'') at net asset value and using 
the proceeds to purchase shares of the New Funds at net asset value on 
the same date. No transfer or similar charges will be imposed and, on 
the Substitution Date, all Contract values will remain unchanged and 
fully invested. The Applicants expect that the substitutions will be 
effected by redeeming the shares of each Current Fund in-kind. Those 
assets will then be contributed in-kind to the corresponding New Fund 
to purchase shares of that New Fund. Redemptions and contributions in-
kind (``In-Kind Transactions'') will reduce the brokerage costs that 
otherwise would be incurred and will ensure that Contract values remain 
fully invested. In-kind redemptions and contributions will be done in a 
manner consistent with the investment objectives, policies and 
diversification requirements of each corresponding New Fund. The 
Manager of each New Fund will review the in-kind transactions to assure 
that the assets are suitable for the New Fund. All assets subject to 
in-kind redemption and purchase will be valued based on the normal 
valuation procedures of the redeeming and purchasing Funds, as set 
forth in the HRT and EQAt registration statements.
    12. The significant terms of the substitutions describe above 
include:
    a. The New Funds have investment objectives, investment strategies, 
and anticipated risks that are identical in all material respects to 
those of the Current Funds. In this regard, the Section 26 Applicants 
note that the New Funds will continue to employ the same portfolio 
managers currently employed by the Current Funds and are intended to 
mirror the investment options provided by the Current Funds.
    b. The fees and expenses of the New Funds will in all cases be 
substantially similar to those of the Current Funds, assuming that the 
asset levels of the New Funds do not decrease significantly from the 
Current Funds' present asset levels. Again, the Section 26 Applicants 
note in this regard that given the substantial similarity of the 
Current Funds and the New Funds, Applicants do not expect there to be a 
reduction in the asset levels of the New Funds as a result of the 
proposed substitutions.
    c. Contract owners and participants may transfer assets from the 
Current or New Funds to another investment option available under their 
Contract without the imposition of any fee, charge, or other penalty 
that might otherwise be imposed from the date of the initial notice 
through a date at least thirty days following the Substitution Date.
    d. The substitutions, in all cases, will be effected at the net 
asset value of the respective shares of the Current Fund and the 
corresponding New Fund in conformity with Section 22(c) of the 1940 Act 
and Rule 22c-1 thereunder, without the imposition of any transfer or 
similar charge by the Section 26 Applicants, and with no change in the 
amount of any Contract owner's or participant's Contract value or in 
the dollar value of his or her investment in such Contract.
    e. Contract owners and participants will not incur any fees or 
charges as a

[[Page 46461]]

result of the proposed substitutions, nor will their rights or 
Equitable's obligations under the Contracts be altered in any way. 
Equitable will bear all expenses incurred in connection with the 
proposed substitutions and related filings and notices, including 
legal, accounting and other fees and expenses. The proposed 
substitutions will not cause the contract fees and charges currently 
being paid by existing Contract owners to be greater after the proposed 
substitutions than before the proposed substitutions.
    f. Redemptions in-kind and contributions in-kind will be done in a 
manner consistent with the investment objectives, polices and 
diversification requirements of the applicable Current and New Funds, 
and the Manager will review in-kind transactions to assure that the 
assets are suitable for the New Fund. Consistent with Rule 17a-7(d) 
under the 1940 Act, no brokerage commissions, fees (except customary 
transfer fees) or other remuneration will be paid in connection with 
the in-kind transactions.
    g. The substitutions will not be counted as new investment 
selections in determining the limit, if any, on the total number of 
funds that Contract owners and participants can select during the life 
of a Contract.
    h. The substitutions will not alter in any way the annuity or life 
benefits, tax benefits or any contractual obligations of the Section 26 
Applicants under the Contracts.
    i. Contract owners and participants may withdraw amounts under the 
Contracts or terminate their interest in a Contract, under the 
conditions that currently exist, including payment of any applicable 
withdrawal or surrender charge.
    j. Contract owners and participants affected by the substitutions 
will be sent written confirmation of the substitutions that identify 
each substitution made on behalf of that Contract owner or participant 
within five days following the Substitution Date.
    k. Before a New Fund may rely on the Multi-Manager Order, the 
operation of that New Fund as a multi-manager fund, as described in the 
application for the Multi-Manager Order, will be approved, following 
the substitutions proposed herein, by a majority of that New Fund's 
outstanding voting securities in a manner consistent with the EQAT 
Shared Funding Order.
    13. The Section 26(b) Applicants state that they will not complete 
the substitutions as described in the application unless all of the 
following conditions are met:
    a. The Commission will have issued an order approving the 
substitutions under Section 26(b) of the 1940 Act.
    b. The Commission will have issued an order exempting the in-kind 
transactions from the provisions of Section 17(a) of the 1940 Act, to 
the extent necessary to carry out the substitutions as described 
herein.
    c. The amendments to the registration statements for the Contracts 
describing the substitutions shall have become effective.
    d. The amendments to the registration statement for EQAT adding the 
14 New Funds shall have become effective.
    e. Each Contract owner or participant will have been mailed 
effective prospectuses with respect to the New Funds and the effective 
amended/supplemented prospectus for the applicable Contracts (or other 
notice in the case of Inactive Contracts) \5\ at least thirty days 
prior to the Substitution Date (Applicants state that Contract owners 
and participants were sent initial disclosure of the proposed 
substitutions following the initial filing of this application). In 
addition, in conjunction with this mailing, at least thirty days prior 
to the Substitution Date, each Contract owner or participant will have 
been sent a notice that describes the terms of the proposed 
substitutions and Contract owners' and participants' rights in 
connection with them.
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    \5\ The Section 26 Applicants state that they have sent and will 
continue to send Inactive Contract owners all relevant information 
about the proposed substitutions in accordance with the terms of 
Great-West and The Equitable. Applicants state that the substance of 
the disclosures about the substitutions that they will make to 
owners of Inactive Contracts will be essentially identical to the 
disclosures about the substitutions that they make to owners of all 
other outstanding Contracts. Applicants state that certain of these 
disclosures already have been delivered and that all such further 
disclosures will be sent at approximately the same time to owners of 
Inactive Contracts as to all other owners of outstanding Contracts.
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    f. The Section 26 Applicants will have satisfied themselves, based 
on advice of counsel familiar with insurance laws, that the Contracts 
allow the substitution of portfolios as described in the application, 
and that the transactions can be consummated as described therein under 
applicable insurance laws and under the various Contracts.
    g. The Section 26 Applicants will have complied with any regulatory 
requirements they believe are necessary to complete the transactions in 
each jurisdiction where the Contracts are qualified for sale.

Applicants' Legal Analysis

    1. Section 26(b) of the 1940 Act provides that it shall be unlawful 
for any depositor or trustee of a registered unit investment trust 
holding the security of a single issuer to substitute another security 
for such security unless the Commission shall have approved such 
substitution. Section 26(b) further provides that the Commission shall 
issue an order approving such substitution if the evidence establishes 
that it is consistent with the protection of investors and the purposes 
fairly intended by the policies and provisions of the 1940 Act.
    2. The Section 26 Applicants submit that the Contracts expressly 
reserve to the Applicants the right, subject to compliance with 
applicable law, to substitute shares of another portfolio for shares of 
the Current Funds held by the Equitable Accounts, and that appropriate 
disclosure of this right is contained in the prospectuses describing 
the Contracts. The Applicants assert that they have reserved this right 
of substitution both to protect themselves and their Contract owners in 
situations where either might be harmed by events affecting the issuer 
of the securities held by a Separate Account and to preserve the 
opportunity to replace such shares where a substitution could benefit 
the Contract owners.
    3. The Section 26 Applicants maintain that the proposed 
substitutions protect the Contract owners who have allocated Contract 
value to the Current Funds by: (1) providing an underlying investment 
option that is substantially similar in all material aspects to the 
current investment option; and (2) providing such Contract owners with 
simpler and more focused disclosure documents.
    4. The Section 26 Applicants submit that the proposed substitutions 
meet the standards that the Commission and its staff generally have 
applied to other substitutions that have been approved. In addition, 
the Applicants contend that none of the proposed substitutions is the 
type of substitution that Section 26(b) was designed to prevent. Unlike 
traditional unit investment trusts, the Contracts provide each Contract 
owner with the right to exercise his own judgment and transfer Contract 
values into any other available variable and/or fixed investment 
options. Additionally, Applicants state that the proposed substitutions 
will not, in any manner, reduce the number, nature or quality of the 
available investment options. The Applicants assert that the Contract 
owners will be offered the opportunity to transfer amounts out of the 
affected subaccounts without any cost or penalty that may otherwise 
have been imposed until thirty days after the Substitution Date. For 
these reasons, the Applicants

[[Page 46462]]

maintain that the proposed substitutions will not result in the type of 
forced redemptions that Section 26(b) was designed to prevent.
    5. The Section 26 Applicants further submit that the proposed 
substitutions also are unlike the type of substitution that Section 
26(b) was designed to prevent in that by purchasing a Contract, 
Contract owners and participants select much more than a particular 
underlying fund in which to invest. The Contract owners also select the 
specific type of insurance coverage offered under the Contract, as well 
as other rights and privileges set forth in the Contract. The 
Applicants state that, in choosing to buy a Contract, the Contract 
owner also may have considered Equitable's size, financial condition, 
and reputation for service, and that none of those considerations and 
factors will change as a result of the proposed substitutions.
    6. The Section 26 Applicants submit that, for all reasons stated 
above, the proposed substitutions are consistent with the protection of 
investors and the purposes fairly intended by the policy and provisions 
of the 1940 Act.
    7. Section 17(a)(1) of the 1940 Act, in relevant part, prohibits 
any affiliated person of a registered investment company, or any 
affiliated person of such a person, acting as principal, from knowingly 
selling any security or other property to such registered investment 
company. Section 17(a)(2) of the 1940 Act prohibits such affiliated 
persons from knowingly purchasing any security or other property from 
such registered investment company.
    8. Section 17(b) of the 1940 Act Authorizes the Commission to issue 
an order exempting a proposed transaction from Section 17(a) if: (a) 
the terms of the proposed transaction are fair and reasonable and do 
not involve overreaching on the part of any person concerned; (b) the 
proposed transaction is consistent with the policy of each registered 
investment company concerned; and (c) the proposed transaction is 
consistent with the general purposes of the 1940 Act.
    9. The Section 17 Applicants submit that each of the Current Funds 
may be deemed to be an affiliated person of an affiliated person 
(Equitable or the Equitable Separate Accounts) of the New Funds, and 
vice versa. In addition, each of the Current Funds and each of the New 
Funds may be deemed to be under the common control of Equitable or the 
Equitable Separate Accounts and, therefore, to be affiliated persons of 
each other. If viewed as such, the proposed In-Kind Transactions may be 
deemed to contravene Section 17(a) due to the affiliated status of the 
participants.
    10. The Section 17 Applicants maintain that the terms of the 
proposed substitutions, including the consideration to be paid and 
received, are reasonable, fair, and do not involve overreaching 
because: (1) the transactions will not adversely affect or dilute the 
interests of Contract owners and participants; (2) with respect to 
those securities for which market quotations are readily available, the 
transactions will comply with the conditions set forth in Rule 17a-7, 
other than the requirement relating to cash consideration; and (3) with 
respect to those securities for which market quotations are not readily 
available, the transactions will be effected in accordance with each 
Fund's normal valuation procedures, as set forth in the HRT and EQAT 
registration statements. The Applicants assert that the In-Kind 
Transactions will be effected at the respective net asset values of the 
Current Funds and the New Funds and that, after the proposed In-Kind 
Transactions, the value of an Equitable Separate Account's investment 
in the New Funds will equal the value of its investment in the Current 
Funds before the In-Kind Transactions. The Applicants further maintain 
that none of the parties will be in a position to ``dump'' undesirable 
securities on either the Current or New Funds or to transfer desirable 
securities to other advisory clients because virtually all of the 
portfolio securities of each of the Current Funds will be transferred 
to the corresponding New Fund, and the portfolio securities were 
selected and retained, or will be selected between the date of the 
amended and restated application and the Substitution Date, without 
regard to the proposed In-Kind Transactions.
    11. The Section 17 Applicants submit that the proposed redemption 
of shares of the Current Funds will be consistent with the investment 
policies of HRT and the Current Funds provided that the shares are 
redeemed at their net asset value in conformity with Rule 22c-1 under 
the 1940 Act. The Applicants also submit that the proposed sale of 
shares of the New Funds for investment securities is consistent with 
the investment policy of EQAT and will be consistent with the 
investment policy of each of the New Funds provided that: (1) the 
shares are sold at their net asset value; and (2) the investment 
securities are of the type and quality that each of the New Funds could 
have acquired, respectively, with the proceeds from the sale of its 
shares had the shares been sold for cash. The Applicants assert that 
the second of these conditions is met because for the proposed In-Kind 
Transactions: (1) the New Funds are substantially similar to the 
Current Funds; (2) the Adviser for the New Funds will be the same as 
the current investment adviser for the corresponding Current Funds; and 
(3) the Adviser will have retained or selected each portfolio security 
for the corresponding Current Fund without regard to the proposed In-
Kind Transaction.
    12. The Section 17 Applicants assert that the proposed In-Kind 
Transactions are consistent with the general purposes of the 1940 Act 
as stated in the Findings and Declaration of Policy in Section 1 of the 
1940 Act and do not present any conditions or abuses that the 1940 Act 
was designed to prevent.

Conclusion

    Applicants assert that, for the reasons summarized above, the 
requested order approving the substitutions and related transactions 
involving the In-Kind Transactions should be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-22022 Filed 8-24-99; 8:45 am]
BILLING CODE 8010-01-M