[Federal Register Volume 67, Number 159 (Friday, August 16, 2002)]
[Notices]
[Pages 53629-53634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-20854]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25698; File No. 812-12835]


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

August 12, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order of approval pursuant to 
section 26(c) of the Investment Company Act of 1940 (the ``1940 Act'') 
and an order of exemption pursuant to section 17(b) of the 1940 Act 
from section 17(a) of the 1940 Act.

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    Applicants: For purposes of the order requested pursuant to Section 
26(c), The Equitable Life Assurance Society of the United States 
(``Equitable''), Separate Account A of Equitable (``Separate Account 
A''), Separate Account FP of Equitable (``Separate Account FP''), 
Separate Account No. 45 of Equitable (``Separate Account 45) and 
Separate Account No. 301 of Equitable (``Separate Account 301'') 
(collectively, the ``Section 26 Applicants''). For purposes of the 
order pursuant to Section 17(b), Equitable, Separate Account A, 
Separate Account FP, Separate Account 45, Separate Account 301, 
Separate Account No. 66 of Equitable (``Separate Account 66'') (the 
separate accounts are collectively referred to herein as the ``Separate 
Accounts'' and individually as a ``Separate Account'') and EQ Advisors 
Trust (the ``Trust'') (collectively with Equitable and the Separate 
Accounts, the ``Section 17 Applicants;'' together with the Section 26 
Applicants, ``Applicants'').
    Summary of Application: Applicants request an order (a) approving 
the proposed substitution by certain insurance company separate 
accounts of Class IA shares of the EQ/Balanced Portfolio for Class IA 
shares of the EQ/Alliance Growth Investors Portfolio and Class IB 
shares of the EQ/Balanced Portfolio for Class IB shares of the EQ/
Alliance Growth Investors Portfolio (the ``Substitution'') and (b) to 
permit certain in-kind transactions in connection with the proposed 
Substitution. (The EQ/Balanced Portfolio is referred to herein as the 
``Replacement Portfolio.'' The EQ/Alliance Growth Investors Portfolio 
is referred to herein as the ``Removed Portfolio.'')
    Filing Date: The application was filed on May 30, 2002.
    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 5, 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 may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549. Applicants: c/o Peter D. Noris, 
Executive Vice President and Chief Investment Officer, The Equitable 
Life Assurance Society of the United States, 1290 Avenue of the 
Americas, New York, New York 10104, and Mark C. Amorosi, Esq., 
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, NW., Washington, 
DC 20036.

FOR FURTHER INFORMATION CONTACT: Mark Cowan, Senior Counsel, or Zandra 
Bailes, 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 may be obtained for a fee from 
the Public Reference Branch of the Commission, 450 Fifth Street, NW., 
Washington, DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Equitable is a New York stock life insurance company that has 
been in business since 1859. Equitable is a wholly owned subsidiary of 
AXA Financial, Inc., which is a wholly owned subsidiary of the AXA 
Group, the holding company for an international group of insurance and 
related financial services companies.
    2. Equitable serves as sponsor and depositor for each of the 
Separate Accounts. Separate Account A, Separate Account 45 and Separate 
Account 301 fund certain variable annuity contracts. Separate Account 
FP funds certain variable life insurance policies. Separate Account 66 
funds group pension and profit-sharing plans under group

[[Page 53630]]

annuity contracts issued by Equitable. (The variable annuity contracts 
and variable life insurance policies funded by the Separate Accounts 
are collectively referred to herein as the ``Contracts.'')
    3. Each Separate Account is a segregated asset account of Equitable 
and, with the exception of Separate Account 66, is registered with the 
Commission as a unit investment trust under the 1940 Act. Separate 
Account 66 is excluded from registration under the 1940 Act pursuant to 
Section 3(c)(11) of the 1940 Act. Separate Account 66 is not a Section 
26 Applicant.
    4. The Trust is organized as a Delaware business trust and 
registered as an open-end management investment company under the 1940 
Act. The Trust is a series investment company and currently has 39 
separate series (each a ``Portfolio'' and collectively, the 
``Portfolios''). Equitable currently serves as investment manager 
(``Manager'') of each of the Portfolios. Both the Removed and 
Replacement Portfolios are series of the Trust. The Trust 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. 
Under that distribution plan, up to 0.50% of the average daily net 
assets attributable to the Class IB shares of each Portfolio may be 
used to pay for distribution and shareholder services. The distributors 
for the Class IA and Class IB shares of each Portfolio are AXA 
Advisors, LLC (``AXA Advisors'') and AXA Distributors, LLC (``AXA 
Distributors''). Under the Distribution Agreements with respect to the 
promotion, sale and servicing of shares of each Portfolio, payments to 
AXA Advisors and AXA Distributors, with respect to activities under the 
distribution plan, are currently limited to payments at an annual rate 
equal to 0.25% of the average daily net assets of each Portfolio 
(including the Removed and Replacement Portfolios) attributable to its 
Class IB shares.
    5. The Manager has retained investment sub-advisers (``Advisers'') 
to provide day-to-day investment advisory services for each of the 39 
current Portfolios. The Trust has received an exemptive order from the 
Commission that permits the Manager, or any entity controlling, 
controlled by, or under common control (within the meaning of section 
2(a)(9) of the 1940 Act) with the Manager, subject to certain 
conditions, including approval of the Board of Trustees of the Trust, 
and without the approval of shareholders to: (a) Select new or 
additional Advisers for each Portfolio; (b) enter into new investment 
advisory agreements with Advisers (``Advisory Agreements'') and/or 
materially modify the terms of any existing Advisory Agreement; (c) 
terminate any existing Adviser and replace the Adviser; and (d) 
continue the employment of an existing Adviser on the same contract 
terms where the Advisory Agreement has been assigned because of a 
change of control of the Adviser.
    6. Equitable, on its own behalf and on behalf of the Separate 
Accounts, proposes to exercise its contractual right to substitute a 
different eligible investment fund for any of the current Portfolios 
offered as funding options under the Contracts. In particular, the 
Section 26 Applicants propose to substitute Class IA and Class IB 
shares of the Replacement Portfolio for Class IA and Class IB shares of 
the Removed Portfolio, respectively.
    7. The Section 26 Applicants propose the Substitution as part of a 
continued and overall business plan by Equitable to make its Contracts 
more competitive and thus more attractive to existing Contract owners, 
and to prospective purchasers. The Substitution is also intended to 
simplify the prospectuses and related materials with respect to the 
Contracts and the investment options available through the Separate 
Accounts. Additionally, the Substitution will substitute shares of the 
Replacement Portfolio for shares of the Removed Portfolio, which has 
substantially similar investment objectives, policies and risks as the 
Replacement Portfolio. Furthermore, Equitable believes that the 
Substitution ultimately may enable it to reduce certain of the costs 
that it incurs in administering the Contracts by consolidating 
overlapping and duplicative Portfolios. Finally, the Substitution is 
designed to provide Contract owners with an opportunity to continue 
their investment in a substantially similar Portfolio without 
interruption and without any cost to them. In this regard, Equitable 
will bear all expenses incurred in connection with the Substitution and 
related filings and notices, including legal, accounting, brokerage and 
other fees and expenses. On the effective date of the Substitution 
(``Substitution Date''), the amount of any Contract owner's or 
participant's Contract value or the dollar value of a Contract owner's 
or participant's investment in the relevant Contract will not change as 
a result of the Substitution.
    8. The Replacement Portfolio has substantially similar investment 
objectives, policies and risks as the Removed Portfolio. The investment 
objective of the Replacement Portfolio is to seek to achieve a high 
return through both appreciation of capital and current income. The 
investment objective of the Removed Portfolio is to seek to achieve the 
highest total return consistent with the Adviser's determination of 
reasonable risk. The Replacement Portfolio invests primarily in 
publicly-traded equity and debt securities and money market instruments 
depending on economic conditions, the general level of common stock 
prices, interest rates and other relevant considerations, including the 
risks associated with each investment medium. The Removed Portfolio, 
like the Replacement Portfolio, allocates varying portions of its 
assets to a number of asset classes. Each Portfolio's equity 
investments consist primarily of common stocks of large U.S. companies. 
The Replacement Portfolio's debt investments consist principally of 
investment grade bonds, notes and debentures. The Removed Portfolio's 
fixed income investments may include long and short-term debt 
securities, preferred stocks and dividend-paying common stocks. Each 
Portfolio may invest up to 20% of its assets in foreign securities.
    9. The Replacement Portfolio's holdings, over time, are expected to 
average approximately 50% in fixed income securities and approximately 
50% in equity securities. The Removed Portfolio's holdings, on average, 
are expected to be allocated 70% to equity securities and 30% to debt 
securities. However, actual asset mixes for each Portfolio are adjusted 
in response to economic and credit market cycles. The Replacement 
Portfolio employs multiple Advisers (including Alliance Capital 
Management, L.P. (``Alliance''), which is also the Adviser to the 
Removed Portfolio), each of whom is responsible for investing its 
Allocated Portion. Equitable expects that, in connection with the 
proposed Substitution, it will allocate the assets of the Removed 
Portfolio to the portions of the Replacement Portfolio that are advised 
by Alliance.
    10. The principal risks of investing in the Replacement and Removed 
Portfolios are substantially similar in that the equity investments of 
each Portfolio consist primarily of securities of large capitalization 
U.S. companies, and the fixed income investments consist primarily of 
investment grade corporate securities. The primary risks associated 
with an investment in the Replacement Portfolio are asset

[[Page 53631]]

allocation risk, derivatives risk, equity risk, fixed income risk, 
foreign securities risk, leveraging risk, liquidity risk, multiple 
adviser risk, portfolio turnover risk, securities lending risk, small-
cap and mid-cap company risk, and value investing risk. The primary 
risks associated with an investment in the Removed Portfolio are the 
same, with the minor differences that the Removed Portfolio also lists 
convertible securities risk and growth investing risk and does not list 
multiple adviser risk or small-cap and mid-cap company risk. Applicants 
believe that these do not represent significant differences between 
these Portfolios since, for example, the equity investments of each of 
these Portfolios consist primarily of securities of large 
capitalization U.S. companies and each has some small-cap and mid-cap 
company risk. Thus, Applicants believe that, after the proposed 
Substitution, a Contract owner or participant who allocated value to 
the Removed Portfolio would continue to have value allocated to a 
Replacement Portfolio with substantially similar investment objectives 
and policies, and would have assumed a substantially similar level of 
risk.
    11. The charts below compare the advisory fees, total expenses and 
asset sizes of the Class IA and Class IB shares of the Replacement 
Portfolio and the Removed Portfolio for the one year periods ended 
December 31, 2000 and 2001. The charts also show the pro forma expenses 
of the Replacement Portfolio assuming that the Substitution had been in 
effect for the year ended December 31, 2001. The management fee 
schedule for the Replacement Portfolio is identical to that of the 
Removed Portfolio. In addition, the management fee, as a percentage of 
net assets, of the Replacement Portfolio was identical to that of the 
Removed Portfolio for the year ended December 31, 2001, and was lower 
than that of the Removed Portfolio for the year ended December 31, 
2000. The net total expense ratio of each class of shares of the 
Replacement Portfolio was slightly higher than that of the 
corresponding class of shares of the Removed Portfolio for the one year 
period ended December 31, 2001, but was lower for the year ended 
December 31, 2000. As discussed below, it is expected that each class 
of shares of the Replacement Portfolio will have a lower total expense 
ratio than the corresponding class of shares of the Removed Portfolio 
as a result of the Substitution. This is due to the increased size of 
the Replacement Portfolio and a corresponding decrease in its 
management fee as a result of the Portfolio's assets exceeding higher 
breakpoints in its management fee schedule.
    12. Applicants note that, as further set forth below, the 
Replacement Portfolio's assets have increased over the last two years, 
while the Removed Portfolio's assets have either remained stable (Class 
IB) or declined (Class IA) over that same time period. Applicants state 
that the proposed Substitution would replace the Removed Portfolio with 
the Replacement Portfolio, which will have a much larger asset size 
after the Substitution. Generally speaking, larger funds tend to have 
lower expenses than comparable funds that are smaller. This is because, 
with a larger asset size, fixed fund expenses are spread over a larger 
base, lowering the expense ratios. Also, larger funds may have lower 
trading expenses, potentially resulting in higher returns. Applicants 
anticipate that the total expense ratio of each class of shares of the 
Replacement Portfolio will be lower than that of the corresponding 
class of shares of the Removed Portfolio as a result of the 
Substitution, as set forth in the following charts.

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                                                             Replacement portfolio EQ/balanced        Removed portfolio EQ/growth           Combined
                                                                   portfolio (Class IA)             investors portfolio (Class IA)       portfolio (Pro
                                                          ----------------------------------------------------------------------------      forma)--
                                                                                                                                      ------------------
                                                            One year period    One year period    One year period    One year period    One year period
                                                           ended  12/31/2000  ended  12/31/2001  ended  12/31/2001  ended  12/31/2001  ended  12/31/2001
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net assets (in billions).................................              $1.9               $2.1               $2.3               $1.8               $3.9
Management fee \1\ (in percent)..........................               0.52               0.57               0.54               0.57               0.55
Rule 12b-1 fee (in percent)..............................              NA                 NA                 NA                 NA                 NA
Other expenses (in percent)..............................               0.07               0.08               0.06               0.06               0.06
                                                          ----------------------------------------------------------------------------------------------
      Total expenses (in percent)........................               0.59               0.65               0.60               0.63               0.61 
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\1\ The management fee for the Replacement Portfolio on an annual basis is equal to 0.600% of the first $1 billion; 0.550% of the next $1 billion;
  0.525% of the next $3 billion; 0.500% of the next $5 billion; and 0.475% thereafter. The management fee schedule for the Removed Portfolio is the
  same.


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Replacement portfolio EQ/balanced        Removed portfolio EQ/growth           Combined
                                                                   portfolio (Class IB)             investors portfolio (Class IB)       portfolio (Pro
                                                          ----------------------------------------------------------------------------      forma)--
                                                                                                                                      ------------------
                                                            One year period    One year period    One year period    One year period    One year period
                                                           ended  12/31/2000  ended  12/31/2001  ended  12/31/2001  ended  12/31/2001  ended  12/31/2001
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net assets (in millions).................................             $41               $359               $326               $325               $684
Management fee (in percent)..............................               0.52               0.57               0.54               0.57               0.55
Rule 12b-1 fee (in percent)..............................               0.25               0.25               0.25               0.25               0.25
Other expenses (in percent)..............................               0.07               0.08               0.06               0.06               0.06
                                                          ----------------------------------------------------------------------------------------------
      Total expenses (in percent)........................               0.84               0.90               0.85               0.88               0.86
--------------------------------------------------------------------------------------------------------------------------------------------------------

    13. In connection with the Substitution, the Section 26 Applicants 
will file with the Commission prospectuses and prospectus supplements 
that notify Contract owners and participants of Equitable's intention 
to substitute the Replacement Portfolio for the Removed Portfolio. The 
prospectuses and prospectus supplements, as appropriate, also will 
describe the Substitution, the Replacement and Removed Portfolio and 
the impact of the Substitution on fees and expenses at the underlying 
fund level. The Section 26 Applicants will send the appropriate 
prospectus or prospectus supplement, as appropriate, containing this 
disclosure to all existing

[[Page 53632]]

and new Contract owners and participants.
    14. At or after the time the Commission approves the Application, 
the Section 26 Applicants will send to existing Contract owners and 
participants a supplement to the relevant Contract prospectus that 
discloses to such Contract owners and participants that the Application 
has been approved. Together with this disclosure, the Section 26 
Applicants will send to any of those existing Contract owners and 
participants who have not previously received a prospectus for the 
Replacement Portfolio a prospectus and/or prospectus supplement for the 
Replacement Portfolio. New purchasers of Contracts will be provided 
with a Contract prospectus and/or supplement containing disclosure that 
the Commission has issued an order approving the Substitution, as well 
as a prospectus for the Replacement Portfolio. The Contract prospectus 
and/or supplement and the prospectus and/or prospectus supplement for 
the Trust, including the Replacement Portfolio, will be delivered to 
purchasers of new Contracts in accordance with all applicable legal 
requirements.
    15. Contract owners and participants will be sent a notice of the 
Substitution before the Substitution Date. The notice will inform 
Contract owners and participants that the Substitution will be effected 
on the Substitution Date and that they may transfer assets from the 
Removed Portfolio (or from the Replacement Portfolio following the 
Substitution Date) to another investment option available under their 
Contract without the imposition of any applicable transfer charges, 
limitations, fees, or other penalties that might otherwise be imposed 
for a period beginning thirty (30) days before the Substitution Date 
and ending no earlier than thirty (30) days following the Substitution 
Date and such transfers will not count against the limit, if any, on 
the number of free transfers permitted under the Contracts. Within five 
days after the Substitution Date, Equitable will mail: (a) A written 
notice to all Contract owners and participants affected by the 
Substitution informing them that the Substitution was completed and 
restating that they may transfer assets from the Replacement Portfolio 
to another investment option available under their Contract free of any 
applicable transfer charges, limitations, fees, or other penalties that 
might otherwise be imposed through a date at least thirty (30) days 
following the Substitution Date and such transfers will not count 
against the limit, if any, on the number of free transfers permitted 
under the Contracts; and (b) a confirmation of the transactions.
    16. The Substitution will be effected by redeeming shares of the 
Removed Portfolio in-kind on the Substitution Date at their net asset 
value and using the proceeds of those in-kind redemptions to purchase 
shares of the Replacement Portfolio at their net asset value on the 
same date (``In-Kind Transactions''). The In-Kind Transactions will be 
done in a manner consistent with the investment objectives, policies 
and diversification requirements of the Replacement Portfolio and the 
Removed Portfolio. Equitable, in consultation with the Replacement 
Portfolio's Adviser, will review the In-Kind Transactions to ensure 
that the assets are suitable for the Replacement Portfolio. All assets 
and liabilities will be valued based on the normal valuation procedures 
of the Removed Portfolio and the Replacement Portfolio, as set forth in 
the Trust's registration statement.
    17. No transfer or similar charges will be imposed by the Section 
26 Applicants and, on the Substitution Date, all Contract values will 
remain unchanged and fully invested. Contract owners and participants 
will not incur any fees or charges as a result of the proposed 
Substitution, nor will their rights or Equitable's obligations under 
the Contracts be altered in any way. All expenses in connection with 
the proposed Substitution, including any brokerage, legal, accounting, 
and other fees and expenses will be paid by Equitable. The proposed 
Substitution will not impose any tax liability on Contract owners or 
participants or cause the Contract charges currently being paid by 
Contract owners and participants to be greater after the proposed 
Substitution than before the proposed Substitution. All Contract-level 
fees will remain the same after the proposed Substitution. The proposed 
Substitution will not alter in any way the benefits, including tax 
benefits to Contract owners and participants, or Equitable's 
obligations under the Contracts. In addition, the proposed Substitution 
will not be treated as a transfer for purposes of assessing transfer 
charges or computing the number of permissible transfers under the 
Contracts.
    18. The Section 26 Applicants request that the Commission issue an 
order pursuant to Section 26(c) of the 1940 Act approving the 
substitution of: (i) Class IA shares of the EQ/Balanced Portfolio for 
Class IA shares of the EQ/Alliance Growth Investors Portfolio; and (ii) 
Class IB shares of the EQ/Balanced Portfolio for Class IB shares of the 
EQ/Alliance Growth Investors Portfolio. The Section 17 Applicants 
request that the Commission issue an order pursuant to Section 17(b) of 
the 1940 Act granting an exemption from Section 17(b) to the extent 
necessary to permit the In-Kind Transactions.

Applicable Law

Section 26(c) of the 1940 Act

    1. Section 26(c) of the 1940 Act prohibits the depositor of a 
registered unit investment trust that invests in the securities of a 
single issuer from substituting the securities of another issuer 
without Commission approval. Section 26(c) provides that ``[t]he 
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 policy and provisions 
of this title.''
    2. Applicants represent that the proposed Substitution involves a 
substitution of securities within the meaning of Section 26(c) of the 
1940 Act. The Applicants, therefore, request an order from the 
Commission pursuant to Section 26(c) approving the proposed 
Substitution.
    3. Applicants state that Equitable has reserved the right under the 
Contracts to substitute shares of another eligible investment fund for 
any of the current Portfolios offered as funding options under the 
Contracts. Applicants represent that the prospectuses for the Contracts 
and the Separate Accounts contain appropriate disclosure of this right. 
The Section 26 Applicants have reserved this right of substitution both 
to protect themselves and their Contract owners in situations where 
either might be harmed or disadvantaged by events affecting the issuer 
of the securities held by a Separate Account and to preserve the 
opportunity to replace such shares in situations where a substitution 
could benefit Equitable and its Contract owners.
    4. Applicants state that the Replacement Portfolio and the Removed 
Portfolio have substantially similar investment objectives, policies 
and risks. In addition, Applicants maintain that the proposed 
Substitution retains for Contract owners the investment flexibility 
that is a central feature of the Contracts, and any impact on the 
investment programs of affected Contract owners, including the 
appropriateness of the available investment options, should therefore 
be negligible.
    5. Applicants also maintain that the ultimate effect of the 
Substitution would

[[Page 53633]]

be to consolidate overlapping and duplicative investment options in a 
single Portfolio. This consolidation will permit Equitable to present 
information to its Contract owners and participants in a simpler and 
more concise manner. The anticipated streamlining of the disclosure 
documents should provide Contract owners and participants with a 
simpler presentation of the available investment options under their 
Contracts and related financial information.
    6. Thus, Applicants state that the Substitution protects the 
Contract owners and participants who have allocated Contract value to 
the Removed Portfolio by: (a) Providing an underlying investment option 
for sub-accounts invested in the Removed Portfolio that is 
substantially similar to the Removed Portfolio; (b) providing such 
Contract owners and participants with simpler and more focused 
disclosure documents; and (c) providing such Contract owners and 
participants with an investment option with an identical management fee 
and total expense ratio as the current investment option.
    7. Applicants assert that the proposed Substitution is not of the 
type that Section 26(c) was designed to prevent. Unlike traditional 
unit investment trusts where a depositor could only substitute 
investment securities in a manner which permanently affected all the 
investors in the trust, the Contracts provide each Contract owner and 
participant with the right to exercise his or her own judgment, and 
transfer Contract values and cash values into and among other 
investment options available to Contract owners and participants under 
their Contracts. Additionally, the Substitution will not, in any 
manner, reduce the nature or quality of the available investment 
options. Moreover, the Section 26 Applicants will offer Contract owners 
and participants the opportunity to transfer amounts out of the 
affected sub-accounts without any cost or other penalty that may 
otherwise have been imposed for a period beginning thirty (30) days 
before the Substitution Date and ending no earlier than thirty (30) 
days after the Substitution Date. Applicants conclude that the 
Substitution will not result in the type of costly forced redemption 
that Section 26(c) was designed to prevent.
    8. Applicants assert that the proposed Substitution is also unlike 
the type of substitution that Section 26(c) 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 their 
Contract values. They also select the specific type of insurance 
coverage offered by the Section 26 Applicants under the applicable 
Contract, as well as numerous other rights and privileges set forth in 
the Contract. Contract owners also may have considered Equitable's 
size, financial condition, and its reputation for service in selecting 
their Contract. These factors will not change as a result of the 
proposed Substitution.
    9. Applicants state that the significant terms of the proposed 
substitution are as follows:
    a. The Replacement Portfolio has substantially similar investment 
objectives, policies and risks as the Removed Portfolio, providing 
Contract owners and participants with a means to continue their 
investment goals and risk expectations;
    b. The total expense ratio for the Class IA and Class IB shares of 
the Replacement Portfolio will be equal to or less than that of the 
corresponding Class IA and Class IB shares of the Removed Portfolio, 
assuming that the assets of the Replacement Portfolio do not decrease 
significantly from the present asset level. In this regard, Equitable 
will waive its management fee with respect to the Replacement Portfolio 
and/or reimburse expenses incurred by the Replacement Portfolio during 
the twenty-four months following the Substitution to the extent 
necessary to ensure that the total expense ratios for any period (not 
to exceed a fiscal quarter) of the Class IA and Class IB shares of the 
Replacement Portfolio do not exceed 0.63% and 0.88%, respectively, of 
the Replacement Portfolio's average daily net assets (on an annualized 
basis);
    c. Investments in the Replacement Portfolio may be temporary 
investments for Contract owners and participants as each Contract owner 
and participant may exercise his or her own judgment as to the most 
appropriate investment alternative available. In this regard, the 
proposed Substitution retains for Contract owners and participants the 
investment flexibility which is a central feature of the Contracts. 
Additionally, for a period beginning thirty (30) days before the 
Substitution Date, and ending no earlier than thirty (30) days after 
the Substitution, Contract owners and participants directly affected by 
the Substitution will be permitted to transfer value from the 
Replacement Portfolio or the Removed Portfolio to another investment 
option available under their Contract free of any otherwise applicable 
transfer charges, limitations, fees, or other penalties that might 
otherwise be imposed and such transfers will not count against the 
limit, if any, on the number of free transfers permitted under the 
Contracts;
    d. The Substitution will be effected at the relative net asset 
values of the shares of the Removed Portfolio and the Replacement 
Portfolio, 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 directly or 
indirectly related fees or charges as a result of the Substitution. 
Equitable will bear all expenses incurred in connection with the 
Substitution and related filings and notices, including legal, 
accounting, brokerage and other fees and expenses. The Substitution 
will not cause the Contract fees and charges currently being paid by 
existing Contract owners to be greater after the Substitution than 
before the Substitution;
    f. The Substitution will not be counted as a new investment 
selection in determining the limit, if any, on the total number of 
Portfolios that Contract owners and participants can select during the 
life of a Contract;
    g. The Substitution will not alter or affect the insurance benefits 
or rights of Contract owners or participants or the terms and 
obligations of the Contracts;
    h. Contract owners and participants would not incur any adverse tax 
consequences as a result of the Substitution;
    i. Contract owners and participants affected by the Substitution 
will be sent written confirmation of the Substitution that identifies 
the Substitution made on behalf of the Contract owner or participant 
within five days following the Substitution;
    j. For those Contract owners or participants who were Contract 
owners or participants on the date of the Substitution, Equitable will 
not increase sub-account or Contract expenses for a period of twenty-
four months following the Substitution Date; and
    k. Contract owners and participants may withdraw amounts under the 
Contract or terminate their interest in a Contract, under the 
conditions that currently exist, including payment of any applicable 
withdrawal or surrender charge.

Section 17(a) of the 1940 Act

    1. Section 17(a)(1) of the 1940 Act 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 that company. Section 17(a)(2) of the 1940

[[Page 53634]]

Act generally prohibits the same persons, acting as principals, from 
knowingly purchasing any security or other property from the registered 
investment company.
    2. Section 17(b) of the 1940 Act provides that the Commission may, 
upon application, issue an order exempting any proposed transaction 
from Section 17(a) if: (a) The terms of the proposed transactions are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned; (b) the proposed transactions are consistent with the 
policy of each registered investment company concerned; and (c) the 
proposed transactions are consistent with the general purposes of the 
1940 Act.
    3. The Section 17 Applicants request an order pursuant to Section 
17(b) of the 1940 Act exempting them from the provisions of Section 
17(a) to the extent necessary to permit them to carry out the In-Kind 
Transactions.
    4. The Section 17 Applicants submit that the terms of the proposed 
In-Kind Transactions, including the consideration to be paid and 
received are reasonable and fair and do not involve overreaching on the 
part of any person concerned. Applicants state that the In-Kind 
Transactions will be effected at the respective net asset values of the 
Removed Portfolio and the Replacement Portfolio, as determined in 
accordance with the procedures disclosed in the registration statement 
for the Trust and as required by Rule 22c-1 under the 1940 Act. 
Applicants further state that the In-Kind Transactions will not change 
the dollar value of any Contract owner's or participant's investment in 
any of the Separate Accounts, the value of any Contract, the 
accumulation value or other value credited to any Contract, or the 
death benefit payable under any Contract. After the proposed In-Kind 
Transactions, the value of a Separate Account's investment in the 
Replacement Portfolio will equal the value of its investments in the 
Removed Portfolio (together with the value of any pre-existing 
investments in the Replacement Portfolio) before the In-Kind 
Transactions.
    5. Applicants state that the Section 17 Applicants will assure 
themselves that the In-Kind Transactions will be in substantial 
compliance with the conditions of Rule 17a-7. To the extent that the 
In-Kind Transactions do not comply fully with the provisions of 
paragraphs (a) and (b) of Rule 17a-7, the Section 17 Applicants assert 
that the terms of the In-Kind Transactions provide the same degree of 
protection to the participating companies and their shareholders as if 
the In-Kind Transactions satisfied all of the conditions enumerated in 
Rule 17a-7. The Section 17 Applicants also assert that the proposed In-
Kind Transactions by the Section 17 Applicants do not involve 
overreaching on the part of any person concerned. Furthermore, the 
Section 17 Applicants represent that the proposed Substitution will be 
consistent with the policies of the Removed Portfolio and the 
Replacement Portfolio, as recited in the Trust's current registration 
statement.
    6. Applicants also assert that the proposed In-Kind Transactions 
are consistent with the general purposes of the 1940 Act and that the 
proposed In-Kind Transactions do not present any conditions or abuses 
that the 1940 Act was designed to prevent.

Conclusion

    For the reasons set forth in the Application, the Section 26 
Applicants and the Section 17 Applicants each respectively state that 
the proposed Substitution and the related In-Kind Transactions meet the 
standards of Section 26(c) of the 1940 Act and Section 17(b) of the 
1940 Act, respectively, and respectfully request that the Commission 
issue an order of approval pursuant to Section 26(c) of the 1940 Act 
and Section 17(b) of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-20854 Filed 8-15-02; 8:45 am]
BILLING CODE 8010-01-P