[Federal Register Volume 66, Number 249 (Friday, December 28, 2001)]
[Notices]
[Pages 67338-67341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31916]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25323; 812-12348]


AXA Premier Funds Trust, et al.; Notice of Application

December 20, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application under: (a) Section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') requesting an exemption from sections 
12(d)(3) and 17(e) of the Act and rule 17e-1 under the Act; (b) 
sections 6(c) and 17(b) of the Act requesting an exemption from section 
17(a) of the Act; and (c) section 10(f) of the Act requesting an 
exemption from section 10(f) of the Act.

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SUMMARY OF THE APPLICATION: Applicants request an order to permit 
certain registered open-end management investment companies advised by 
several investment advisers to engage in principal and brokerage 
transactions with a broker-dealer affiliated with one of the investment 
advisers and to purchase securities in certain underwritings. The 
transactions would be between a broker-dealer and a portion of the 
investment company's portfolio not advised by the adviser affiliated 
with that broker-dealer. The order also would permit these investment 
companies not to aggregate certain purchases from an underwriting 
syndicate in which an affiliated person of one of the investment 
advisers is a principal underwriter. Further, applicants request relief 
to permit a portion of an investment company's portfolio to purchase 
securities issued by a broker-dealer which is an affiliated person of 
an investment adviser to another portion, subject to the limits in rule 
12d3-1 under the Act.

applicants: AXA Premier Funds Trust, AXA Premier VIP Trust, EQ Advisors 
Trust (collectively, the ``Trusts'') and The Equitable Life Assurance 
Society of the United States (``Equitable'' or the ``Manager'').

FILING DATES: The application was filed on December 6, 2000, and 
amended on December 19, 2001.

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 January 15, 
2002, 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-
0609. Applicants, 1290 Avenue of the Americas, New York, NY 10104.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 942-0634, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Office of Investment Company Regulation, Division of Investment 
Management).

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, NW, Washington, DC 
20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Trusts, each a Delaware business trust, are registered under 
the Act as open-end management investment companies and are comprised 
of multiple series (each series of the Trusts, a ``Fund''). Shares of 
the Funds of EQ Advisors Trust and AXA Premier VIP Trust are only 
offered for sale to insurance companies to fund variable insurance 
products and employee investment plans.
    2. The Manager is registered under the Investment Advisers Act of 
1940 (``Advisers Act'') and serves as investment adviser to each of the 
Funds. The assets of certain Funds (``Multi-Advised Funds'') are 
allocated by the Manager among two or more subadvisers 
(``Subadvisers''). Each Subadviser is registered under the Advisers Act 
or is exempt from registration. Each Subadviser has discretion to 
purchase and sell securities for a discrete portion of a Multi-Advised 
Fund's assets. The Manager pays each Subadviser a fee out of the 
advisory fee received by the Manager from the Multi-Advised Fund. 
Equitable or a Subadviser controlling, controlled by, or under common 
control with Equitable (an ``Equitable Affiliate'') may directly advise 
a discrete portion of a Multi-Advised Fund.
    3. Applicants request relief to permit: (a) A broker-dealer 
registered under the Securities Exchange Act of 1934 that serves as a 
Subadviser or is an affiliated person of a Subadviser (the broker-
dealer, an ``Affiliated broker-Dealer'' the Subadivser, and 
``Affiliated Subadviser'') to engage in principal transactions with a 
discrete portion of a Multi-Advised Fund that is advised by another 
Subadviser that is not an affiliated person of the Affiliated Broker-
Dealer or Affiliated Subadviser (the discrete portion, an 
``Unaffiliated Portion,'' the Subadviser, and ``Unaffiliated 
Subadviser''); (b) an Affiliated Broker-Dealer to provide brokerage 
services to an Unaffiliated Portion, and the Unaffiliated Portion to 
utilize such brokerage services, without complying with rule 17e-1(b) 
and (d) under the Act; (c) an Unaffiliated Portion to purchase 
securities during the existence of an underwriting syndicate, a 
principal underwriter of which is an Affiliated Subadviser, or a person 
of which an Affiliated Subadviser is an affiliated person (``Affiliated 
Underwriter''); (d) a discrete portion of the Multi-Advised Fund 
advised by an Affiliated Subadviser (``Affiliated Portion'') to 
purchase securities during the existence of an underwriting syndicate, 
a principal underwriter of which is an Affiliated Underwriter, in 
accordance with the conditions of rule 10f-3, except that paragraph 
(b)(7) of the rule would not require the aggregation of purchases by 
the Affiliated Portion with purchases by an Unaffiliated Portion; and 
(e) an Unaffiliated Portion to purchase securities issued by an 
Affiliated Subadviser, or an affiliated person of an Affiliated 
Subadviser, that is involved in securities-related activities

[[Page 67339]]

(``Securities Affiliate''), subject to the limits in rule 12d3-1 under 
the Act.\1\
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    \1\ The terms ``Unaffiliated Subadviser,'' ``Subadviser'' and 
``Unaffiliated Portion'' include Equitable or an Equitable Affiliate 
and the discrete portion of a Multi-Advised Fund directly advised by 
Equitable or an Equitable Affiliate, respectively, provided that 
Equitable or the Equitable Affiliate manages its portion of the 
Multi-Advised Fund independently of the portions managed by the 
other Subdvisers to the Multi-Advised Fund, and Equitable or the 
Equitable Affiliate does not control or influence any other 
Subadviser's investment decisions for its portion of the Multi-
Advised Fund. [FN3, p.6]
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    4. Applicants request that the exemptive relief apply to the Trusts 
and any existing or future registered open-end management investment 
company or series thereof that is (a) advised by Equitable or an 
Equitable Affiliate and (b) advised by more than one Subadviser. The 
relief also would apply to any existing or future entity that serves as 
an Affiliated Subadviser, Affiliated Broker-Dealer, or Affiliated 
Underwriter to a Multi-Advised Fund. Any investment company that 
currently intends to rely on the order is named as an applicant. Any 
other existing or future entity that relies on the order will comply 
with the terms and conditions of the application.

Applicants' Legal Analysis

A. Principal Transactions Between an Unaffiliated Portion and an 
Affiliated Broker-Dealer

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and an affiliated 
person of, promotor of, or principal underwriter for such company, or 
any affiliated person of an affiliated person, promoter, or principal 
underwriter (``second-tier affiliate''). Section 2(a)(3)(E) of the Act 
defines an affiliated person to be any investment adviser of an 
investment company, and section 2(a)(3)(C) of the Act defines an 
affiliated person of another person to include any person directly or 
indirectly controlling, controlled by, or under common control with 
such person. Applicants state that an Affiliated Subadviser would be an 
affiliated person of a Multi-Advised Fund, and an Affiliated Broker-
Dealer would be either an Affiliated Subadviser or an affiliated person 
of the Affiliated Subadviser, and thus a second-tier affiliate of a 
Multi-Advised Fund, including the Unaffiliated Portion. Accordingly, 
applicants state that any principal transactions to be effected by an 
Unaffiliated Subadviser on behalf of an Unaffiliated Portion of a 
Multi-Advised Fund with an Affiliated Broker-Dealer are subject to the 
prohibitions of section 17(a).
    2. Applicants seek relief under sections 6(c) and 17(b) to exempt 
principal transactions prohibited by section 17(a) because an 
Affiliated Broker-Dealer is deemed to be an affiliated person or a 
second-tier affiliate of an Unaffiliated Portion soley because an 
Affiliated Subadviser is the Subadviser to another discrete portion of 
the same Multi-Advised Fund. The requested relief would not be 
available if the Affiliated Broker-Dealer (except by virtue of serving 
as a Subadviser) is an affiliated person or a second-tier affiliate of 
(a) Equitable; (b) the Unaffiliated Subadviser making the investment 
decision with respect to the Unaffiliated Portion of the Multi-Advised 
Fund; (c) any principal underwriter or promoter of the Multi-Advised 
Fund; or (d) any officer, trustee or employee of the Multi-Advised 
Fund.
    3. Section 17(b) of the Act authorizes the SEC to grant an order 
permitting a transaction otherwise prohibited by section 17(a) if it 
finds that the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned, and the proposed transaction is consistent with the policy 
of each registered investment company and the general purposes of the 
Act. Section 6(c) of the Act permits the SEC to exempt any person or 
transaction from any provision of the Act if the exemption is necessary 
or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the 
policies and provisions of the Act.
    4. Applicants contend that section 17(a) is intended to prevent 
persons who have the power to control an investment company from using 
that power to the person's own pecuniary advantage. Applicants assert 
that when the person acting on behalf of an investment company has no 
direct or indirect pecuniary interest in a party to a principal 
transaction, the abuses that section 17(a) is designed to prevent are 
not present. Applicants state that if an Unaffiliated Subadviser 
purchases securities on behalf of an Unaffiliated Portion in a 
principal transaction with an Affiliated Broker-Dealer, any benefit 
that might inure to the Affiliated Broker-Dealer would not be shared by 
the Unaffiliated Subadviser. In addition, applicants state that 
Subadvisers are paid on the basis of a percentage of the value of the 
assets allocated to their management. The execution of a transaction to 
the disadvantage of the Unaffiliated Portion would disadvantage the 
Unaffiliated Subadviser to the extent that it diminishes the value of 
the Unaffiliated Portion. Applicants further submit that the Manager's 
power to dismiss Subadvisers or to change the portion of a Multi-
Advised Fund allocated to each Subadviser reinforces a Subadviser's 
incentive to maximize the investment performance of its discrete 
portion of a Multi-Advised Fund.
    5. Applicants state that each Subadviser's contract assigns it 
responsibility to manage a discrete portion of a Multi-Advised Fund. 
Each Subadviser is responsible for making independent investment and 
brokerage allocation decisions. Applicants represent that the Manager 
will not dictate brokerage allocation or investment decisions to any 
Multi-Advised Fund advised by a Subadviser nor will it have the 
contractual right to do so, except with respect to any portion of a 
Multi-Advised Fund that the Manager may advise directly. Applicants 
contend that, in managing a discrete portion of a Multi-Advised Fund, 
each Subadviser acts for all practical purposes as though it is 
managing a separate investment company.
    6. Applicants state that the proposed transactions will be 
consistent with the policies of the Multi-Advised Fund, since each 
Unaffiliated Subadviser is required to manage the Unaffiliated Portion 
in accordance with the investment objectives and related investment 
policies of the Multi-Advised Fund as described in its registration 
statement. Applicants also assert that permitting the transactions will 
be consistent with the general purposes of the Act and in the public 
interest because the ability to engage in the transactions increases 
the likelihood of a Multi-Advised Fund achieving best price and 
execution on its principal transactions, while giving rise to none of 
the abuses that section 17(a) was designed to prevent.

B. Payment of Brokerage Compensation by an Unaffiliated Portion to an 
Affiliated Broker-Dealer

    1. Section 17(d)(2) of the Act prohibits an affiliated person or a 
second-tier affiliate of a registered investment company from receiving 
compensation for acting as broker in connection with the sale of 
securities to or by the investment company if the compensation exceeds 
the limits prescribed by the section unless otherwise permitted by rule 
17e-1 under the Act. Rule 17e-1 sets forth the conditions under which 
an affiliated person or a second-tier affiliate of an investment 
company may receive a commission which would not exceed the ``usual and 
customary broker's

[[Page 67340]]

commission'' for purposes of section 17(d)(2). Rule 17e-1(b) requires 
the investment company's board of directors, including a majority of 
the directors who are not interested persons under section 2(a)(19) of 
the Act, to adopt certain procedures and to determine at least 
quarterly that all transactions effected in reliance on the rule 
compiled with the procedures. Rule 17e-1(d) specifies the records that 
must be maintained by each investment company with respect to any 
transaction effected pursuant to rule 17e-1.
    2. As discussed above, applicants state that an Affiliated Broker-
Dealer is either an affiliated person (as Subadviser to another 
discrete portion of a Multi-Advised Fund) or a second-tier affiliate of 
an Unaffiliated Portion and thus subject to section 17(e). Applicants 
request an exemption under section 6(c) from section 17(e) and rule 
17e-1 to the extent necessary to permit an Unaffiliated Portion to pay 
brokerage compensation to an Affiliated Broker-Dealer acting as broker 
in the ordinary course of business in connection with the sale of 
securities to or by such Unaffiliated Portion, without complying with 
the requirements of rule 17e-1(b) and (d). The requested exemption 
would apply only where an Affiliated Broker-Dealer is deemed to be an 
affiliated person or a second-tier affiliate of an Unaffiliated Portion 
solely because an Affiliated Subadviser is the Subadviser to another 
discrete portion of the same Multi-Advised Fund. The requested relief 
would not be available if the Affiliated Broker-Dealer (except by 
virtue of serving as a Subadviser) is an affiliated person or a second-
tier affiliate of (a) Equitable; (b) the Unaffiliated Subadviser making 
the investment decision with respect to the Unaffiliated Portion of the 
Multi-Advised Fund; (c) any principal underwriter or promoter of the 
Multi-Advised Fund; or (d) any officer, trustee or employee of the 
Multi-Advised Fund.
    3. Applicants believe that the proposal brokerage transactions 
involve no conflicts of interest or possibility of self-dealing and 
will meet the standards of section 6(c). Applicants assert that the 
interests of an Unaffiliated Subadviser are directly aligned with the 
interests of the Unaffiliated Portion it advises, and an Unaffiliated 
Subadviser will enter into brokerage transactions with Affiliated 
Broker-Dealers only if the fees charged are reasonable and fair as 
required by rule 17e-1(a). Applicants also note that an Unaffiliated 
Subadviser has a fiduciary duty to obtain best price and execution for 
the Unaffiliated Portion.

C. Purchases of Securities From Offerings With Affiliated Underwriters

    1. Section 10(f) of the Act, in relevant part, prohibits a 
registered investment company from knowingly purchasing or otherwise 
acquiring, during the existence of any underwriting or selling 
syndicate, any security (except a security of which the company is the 
issuer) a principal underwriter of which is an officer, director, 
member of an advisory board, investment adviser or employee of the 
company, or an affiliated person of any of these persons. Section 10(f) 
also provides that the SEC may exempt by order any transaction or 
classes of transactions from any of the provisions of section 10(f), if 
and to the extent that such exemption is consistent with the protection 
of investors. Rule 10f-3 under the Act exempts certain transactions 
from the prohibitions of section 10(f) if specified conditions are met. 
Paragraph (b)(7) of rule 10f-3 limits the securities purchased by the 
investment company, or by two or more investment companies having the 
same investment adviser, to 25% of the principal amount of the offering 
of the class of securites.
    2. Applicants state that each Subadviser, although under contract 
to manage only a discrete portion of a Multi-Advised Fund, is 
considered an investment adviser to the entire Multi-Advised Fund. As a 
result, applicants believe that all purchases of securities by an 
Unaffiliated Portion from an underwriting syndicate a principle 
underwriter of which is an Affiliated Underwriter would be subject to 
section 10(f).
    3. Applicants request relief under section 10(f) from that section 
to permit an Unaffiliated Portion to purchase securities during the 
existence of an underwriting or selling syndicate, a principal 
underwriter of which is an Affiliated Underwriter. Applicants request 
relief from section 10(f) only to the extent those provisions apply 
solely because an Affiliated Subadviser is an investment adviser to the 
Multi-Advised Fund. The requested relief would not be available if the 
Affiliated Underwriter (except by virtue of serving as a Subadviser) is 
an affiliated person or a second-tier affiliate of (a) Equitable; (b) 
the Unaffiliated Subadviser making the investment decision with respect 
to the Unaffiliated Portion of the Multi-Advised Fund; (c) any 
principal underwriter or promoter to the Multi-Advised Fund; or (d) any 
officer, trustee or employee of the Multi-Advised Fund. Applicants also 
seek relief from section 10(f) to permit an Affiliated Portion to 
purchase securities during the existence of an underwriting syndicate, 
a principal underwriter of which is an Affiliated Underwriter, provided 
that the purchase will be in accordance with the conditions of rule 
10f-3, except that paragraph (b)(7) of the rule will not require the 
aggregation of purchases by the Affiliated Portion with purchases by an 
Unaffiliated Portion.
    4. Applicants state that section 10(f) was adopted in response to 
concerns about the ``dumping'' of otherwise unmarketable securities on 
investment companies, either by forcing the investment company to 
purchase unmarketable securities from its underwriting affiliate, or by 
forcing or encouraging the investment company to purchase the 
securities from another member of the syndicate. Applicants submit that 
these abuses are not present in the context of the Multi-Advised Funds 
because a decision by an Unaffiliated Subadviser to purchase securities 
from an underwriting syndicate, a principal underwriter of which is an 
Affiliated Underwriter, involves no potential for ``dumping.'' In 
addition, applicants assert that aggregating purchases would serve no 
purpose because there is no collaboration among Subadvisers, and any 
common purchases by an Affiliated Subadviser and an Unaffiliated 
Subadviser would be coincidence.

D. Purchases of Securities Issued by Securities Affiliates

    1. Section 12(d)(3) of the Act, in relevant part, generally 
prohibits a registered investment company from acquiring any security 
issued by any person who is a broker, dealer, investment adviser, or 
engaged in the business of underwriting (collectively, ``securities-
related activities''). Rule 12d3-1 under the Act exempts certain 
transactions from the prohibitions of section 12(d)(3) if specified 
conditions are met. One of these conditions, paragraph (c) of rule 
12d3-1, generally provides that the exemption provided by the rule is 
not available when the issuer of the securities is the investment 
company's investment adviser, promoter, or principal underwriter, or an 
affiliated person of the investment company's investment adviser, 
promoter, or principal underwriter.
    2. Applicants state that each Subadviser is considered to be an 
affiliated person of an entire Multi-Advised Fund. Thus, an 
Unaffiliated Portion may not purchase securities of a Securities 
Affiliate in reliance on rule 12d3-1 because of paragraph (c). 
Applicants request relief under section 6(c) from section 12(d)(3) to 
permit an Unaffiliated Portion of a Multi-Advised

[[Page 67341]]

Fund to acquire securities of a Securities Affiliate within the limits 
of rule 12d3-1. The requested exemption would apply only where a 
Securities Affiliate is deemed to be an affiliated person or a second-
tier affiliate of an Unaffiliated Portion within the meaning of Rule 
12d3-1(c) solely because an Affiliated Adviser is the Adviser to 
another portion of the same Multi-Advised Fund.
    3. Applicants state that their proposal does not raise the 
conflicts of interest that rule 12d3-1(c) was designed to address 
because of the nature of the affiliation between a Securities Affiliate 
and the Unaffiliated Portion. Applicants submit that each Subadviser 
acts independently of the other Subadvisers in making investment 
decisions for the assets allocated to its portion of the Multi-Advised 
Fund. Further, applicants submit that prohibiting the Unaffiliated 
Portions from purchasing securities issued by Securities Affiliates 
could harm the interests of a Fund's shareholders by preventing the 
Unaffiliated Subadviser from achieving optimal investment results.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each Multi-Advised Fund relying on the requested order will be 
advised by an Affiliated Subadviser and at least one Unaffiliated 
Subadviser and will be operated in the manner described in the 
application.
    2. No Affiliated Subadviser, Affiliated Broker-Dealer, Securities 
Affiliate or Affiliated Underwriter (except by virtue of serving as 
Subadviser to a discrete portion of a Multi-Advised Fund) will be an 
affiliated person or a second-tier affiliate of: (a) Equitable or any 
Equitable Affiliate; (b) any Unaffiliated Subadviser; (c) any principal 
underwriter or promoter of a Multi-Advised Fund; or (d) any officer, 
trustee or employee of a Multi-Advised Fund.
    3. No Affiliated Subadviser will directly or indirectly consult 
with any Unaffiliated Subadviser concerning allocation of principal or 
brokerage transactions.
    4. No Affiliated Subadviser will participate in any arrangement 
whereby the amount of its subadvisory fees will be affected by the 
investment performance of an Unaffiliated Subadviser.
    5. With respect to purchases of securities by an Affiliated Portion 
during the existence of any underwriting or selling syndicate a 
principal underwriter of which is an Affiliated Underwriter, the 
conditions of rule 10f-3 will be satisfied except that paragraph (b)(7) 
will not require the aggregation of purchases by the Affiliated Portion 
with purchases by Unaffiliated Portions.
    6. With respect to purchases by an Unaffiliated Portion of 
securities issued by a Securities Affiliate, the conditions of rule 
12d3-1 will be satisfied except for paragraph (c) to the extent such 
paragraph is applicable solely because such issuer is an Affiliated 
Adviser or an affiliated person of an Affiliated Adviser.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-31916 Filed 12-27-01; 8:45 am]
BILLING CODE 8010-01-M