[Federal Register Volume 67, Number 209 (Tuesday, October 29, 2002)]
[Notices]
[Pages 66022-66029]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27484]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25784; File No. 812-12847]


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

October 23, 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''), 
Separate Account No. 301 of Equitable (``Separate Account 301''), The 
American Franklin Life Insurance Company (``American Franklin''), 
Separate Account VUL of American Franklin, Integrity Life Insurance 
Company (``Integrity''), Separate Account VUL of Integrity, National 
Integrity Life Insurance Company (``National Integrity'') and Separate 
Account VUL of National Integrity (collectively, the ``section 26 
Applicants'').\1\ For purposes of the order pursuant to section 17(b), 
Equitable, Separate Account A, Separate Account FP, Separate Account 
45, Separate Account 66 and Separate Account 301 and EQ Advisors Trust 
(the ``Trust'') (collectively with Equitable and its Separate Accounts, 
the ``section 17 Applicants'').
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    \1\ Separate Account A, Separate Account FP, Separate Account 
45, Separate Account No. 66 of Equitable (``Separate Account 66''), 
Separate Account 301, Separate Account VUL of American Franklin, 
Separate Account VUL of Integrity and Separate Account VUL of 
National Integrity are referred to herein collectively as the 
``Separate Accounts'' and individually as a ``Separate Account.'' 
Separate Account A, Separate Account FP, Separate Account 45, 
Separate Account 66 and Separate Account 301 are referred to herein 
collectively as the ``EQ Separate Accounts'' and individually as an 
``EQ Separate Account.''

Summary of Application: Applicants request an order (a) approving the 
proposed substitution by certain insurance company separate accounts of 
Class 1A shares of the EQ/Alliance International Portfolio for Class 1A 
shares of the EQ/Alliance Global Portfolio and Class 1B shares of the 
EQ/Alliance International Portfolio for Class

[[Page 66023]]

1B shares of the EQ/Alliance Global Portfolio (the ``Substitution'') 
and (b) to permit certain in-kind transactions in connection with the 
proposed Substitution. Each of these portfolios serves as an underlying 
investment option for certain variable annuity contracts and/or 
variable life insurance policies (``Contracts'') issued by Equitable, 
American Franklin, Integrity and National Integrity (collectively, the 
``Insurance Companies'' and individually, an ``Insurance Company''). 
(The EQ/Alliance International Portfolio is referred to herein as the 
``Replacement Portfolio.'' The EQ/Alliance Global Portfolio is referred 
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to herein as the ``Removed Portfolio.'').

Filing Date: The application was filed on July 3, 2002 and amended and 
restated on October 23, 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 November 13, 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; G. Stephen Wastek, Esq., Integrity 
Life Insurance Company, National Integrity Life Insurance Company, 515 
West Market Street, Louisville, Kentucky 40202; Lauren W. Jones, Esq., 
The American Franklin Life Insurance Company, 2929 Allen Parkway, 
Houston, Texas 77019; and Arthur J. Brown, 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. Equitable serves as depositor for 
each of the EQ 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 annuity contracts issued by Equitable. Each EQ 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. Units 
of interest in the EQ Separate Accounts under the Contracts issued by 
Equitable are registered under the Securities Act of 1933, as amended 
(``1933 Act'').
    2. American Franklin is a legal reserve stock life insurance 
company organized under the laws of the State of Illinois in 1981. 
American Franklin is an indirect, wholly owned subsidiary of American 
International Group, Inc. (``AIG''). AIG, a Delaware corporation, is a 
holding company which through its subsidiaries is primarily engaged in 
a broad range of insurance and insurance-related activities and 
financial services in the United States and abroad. American Franklin 
serves as depositor for Separate Account VUL of American Franklin, 
which funds certain variable life insurance policies. Separate Account 
VUL of American Franklin is a segregated asset account of American 
Franklin and is registered with the Commission as a unit investment 
trust under the 1940 Act. Units of interest in this Separate Account 
under the Contracts issued by American Franklin are registered under 
the 1933 Act.
    3. Integrity is an Ohio stock life insurance company that has been 
in business since 1966. Integrity is a wholly owned subsidiary of The 
Western and Southern Life Insurance Company (``W&S''), a mutual life 
insurance company originally organized under the laws of the state of 
Ohio in 1888. Integrity serves as depositor for Separate Account VUL of 
Integrity, which funds certain variable life insurance policies. 
Separate Account VUL of Integrity is a segregated asset account of 
Integrity and is registered with the Commission as a unit investment 
trust under the 1940 Act. Units of interest in this Separate Account 
under the Contracts issued by Integrity are registered under the 1933 
Act.
    4. National Integrity is a New York stock life insurance company 
that has been in business since 1968. National Integrity is a wholly 
owned subsidiary of Integrity, which in turn is a wholly-owned 
subsidiary of W&S. National Integrity serves as depositor for Separate 
Account VUL of National Integrity, which funds certain variable life 
insurance policies. Separate Account VUL of National Integrity is a 
segregated asset account of National Integrity and is registered with 
the Commission as a unit investment trust under the 1940 Act. Units of 
interest in this Separate Account under the Contracts issued by 
National Integrity are registered under the 1933 Act.
    5. The Trust is organized as a Delaware business trust and 
registered as an open-end management investment company under the 1940 
Act. Its shares are registered under the 1933 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 does not impose sales charges for buying and 
selling its shares. All dividends and other distributions with respect 
to a Portfolio's shares are reinvested in full and fractional shares of 
the Portfolio to which they relate. 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,

[[Page 66024]]

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.
    6. 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 (``Multi-Manager Order'') 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.
    7. Each Insurance Company, on its own behalf and on behalf of its 
Separate Accounts, proposes to exercise its contractual right to 
substitute a different eligible investment fund for one of the current 
investment funds offered as a funding option 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.
    8. The Section 26 Applicants propose the Substitution as part of a 
continued and overall business plan by each of the Insurance Companies 
to make its Contracts more attractive to existing Contract owners or to 
prospective purchasers, as the case may be. Each of the Insurance 
Companies has carefully reviewed its Contracts and each investment 
option offered under its Contracts with the goal of providing a 
superior choice of investment alternatives. In certain cases, the 
Substitution is intended to simplify the prospectuses and related 
materials with respect to the Contracts and the investment options 
available through certain Separate Accounts. Additionally, in each 
case, the Substitution will substitute shares of the Replacement 
Portfolio for shares of the Removed Portfolio, which has an identical 
investment objective and similar investment policies and risks as the 
Replacement Portfolio. The Substitution also would replace a portfolio 
that has been experiencing a significant decline in Contract owner 
interest, evidenced by recent net cash outflows, with a portfolio that 
has generated more interest among Contract owners, evidenced by its 
modest net cash inflows in that same time period. Furthermore, the 
Substitution ultimately may enable an Insurance Company 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 similar Portfolio without 
interruption and without any cost to them. In this regard, the 
Insurance Companies have agreed to 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.
    9. The Replacement Portfolio has an identical investment objective 
and similar investment policies and risks as the Removed Portfolio. In 
addition, Alliance Capital Management, L.P. (``Alliance'') serves as 
the Adviser to both Portfolios. The investment objective of the 
Replacement and Removed Portfolios is to seek to achieve long-term 
growth of capital. To achieve this objective, Alliance invests the 
assets of the Replacement Portfolio primarily in both growth-oriented 
and value-oriented stocks of established non-U.S. companies. These non-
U.S. companies may have operations in the U.S., in their country of 
incorporation and/or in other countries. The Replacement Portfolio also 
may invest in any type of investment grade fixed income security, 
including preferred stocks, convertible securities, bonds, notes and 
other evidences of indebtedness, including obligations of foreign 
governments. Although no particular proportion of stocks, bonds or 
other securities is required to be maintained, the Portfolio intends 
under normal market conditions to invest primarily in equity 
securities. The Portfolio is diversified for purposes of the 1940 Act.
    10. The Removed Portfolio invests primarily in a diversified mix of 
equity securities of U.S. and established foreign companies that 
Alliance believes have prospects for growth. The Portfolio is 
diversified for purposes of the 1940 Act. Like the Replacement 
Portfolio, the Removed Portfolio may invest in any type of security, 
including common and preferred stocks, bonds and other evidences of 
indebtedness, and other securities of issuers wherever organized and 
governments and their political subdivisions. No particular proportion 
of stocks, bonds or other securities is required to be maintained, 
although the Removed Portfolio, like the Replacement Portfolio, intends 
under normal conditions to invest substantially all of its assets in 
equity securities. Although the Replacement Portfolio generally does 
not invest to a significant extent in the securities of U.S. issuers, 
the primary risks associated with an investment in the Replacement and 
Removed Portfolios are similar. In particular, the primary risks 
associated with an investment in the Replacement Portfolio include 
derivatives risk, equity risk, foreign securities risk, growth 
investing risk, leveraging risk, liquidity risk and value investing 
risk. The list of primary risks associated with an investment in the 
Removed Portfolio is the same.
    11. Applicants believe that the Replacement Portfolio's investment 
policies are sufficiently similar to those of the Removed Portfolio 
that the essential objective and risk expectations of Contract owners 
can continue to be met. In particular, Applicants believe that the 
Removed Portfolio's ability to invest in foreign companies is the 
primary reason that Contract owners allocate value to that Portfolio. 
Thus, substituting the Replacement Portfolio, which invests primarily 
in foreign companies, for the Removed Portfolio is consistent with this 
investment approach. Contract owners that seek to pursue an asset 
allocation strategy that blends U.S. and foreign investments will 
continue to have access through their Contracts to a wide variety of 
Portfolios that invest primarily in U.S. companies, as well as in the 
Replacement Portfolio and other Portfolios that invest primarily in 
foreign companies. Applicants also note that there is no other 
Portfolio in the Trust that pursues a global investment strategy and 
invests primarily in equity securities that would be a more appropriate 
replacement portfolio. Applicants note, however, that the foreign 
companies in which the Removed and Replacement Portfolios

[[Page 66025]]

invest are very similar in that they are primarily large, established 
companies. In addition, most of the companies in which the Replacement 
Portfolio invests have significant operations in the U.S. Thus, 
Applicants believe that, after the proposed Substitution, a Contract 
owner would continue to have value allocated to a Replacement Portfolio 
with an identical investment objective and similar investment policies, 
and would have assumed similar risks.
    12. 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, December 31, 2001, and September 30, 2002. 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. Although the management fee for the Replacement 
Portfolio is higher than that of the Removed Portfolio, as a condition 
of any order approving the proposed Substitution, Equitable will 
contractually reduce its management fee for the Replacement Portfolio 
by adopting the management fee schedule of the Removed Portfolio, which 
at all asset levels is lower than the management fee of the Replacement 
Portfolio. This proposed reduction is reflected in the pro forma 
information presented in the charts below. In addition, although the 
total expense ratio for each class of shares of the Replacement 
Portfolio was higher than the corresponding class of shares of the 
Removed Portfolio for each period, Equitable, as a condition to any 
order approving the proposed Substitution, will waive its management 
fee and reimburse expenses incurred by the Replacement Portfolio for a 
period of two years after the date of the Substitution to the extent 
necessary to ensure that the total expense ratio of each class of 
shares of the Replacement Portfolio after the Substitution is no higher 
than that of the corresponding class of shares of the Removed Portfolio 
for the one year period ended September 30, 2002. However, as shown 
below, it is expected that the total expense ratio of each class of 
shares of the Replacement Portfolio will be no higher than that of the 
corresponding class of shares of the Removed Portfolio as a result of 
the Substitution, absent any waivers or reimbursements.

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                                                   Replacement portfolio (class IA)                                       Removed portfolio (class IA)                       Combined portfolio
                                ------------------------------------------------------------------------------------------------------------------------------------------       (class IA)
                                                                                                                                                                          ----------------------
                                    One year  period       One year  period       One year  period       One year  period       One year  period       One year  period       One year  period
                                    ended 12/31/2000       ended 12/31/2001       ended 09/30/2002       ended 12/31/2000       ended 12/31/2001       ended 09/30/2002       ended 12/31/2001
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Net Assets.....................  $228 million.........  $168 million.........  $164 million.........  $1.5 billion.........  $1.1 billion.........  $961 million.........  $1.268 billion
Management Fee \1\.............  0.87 percent.........  0.85 percent.........  0.85 percent.........  0.69 percent.........  0.73 percent.........  0.74 percent.........  0.73 percent
Rule 12b-1 Fee.................  N/A..................  N/A..................  N/A..................  N/A..................  N/A..................  N/A..................  N/A
Other Expenses.................  0.29 percent.........  0.25 percent.........  0.36 percent.........  0.09 percent.........  0.12 percent.........  0.17 percent.........  0.12 percent
Total Expenses.................  1.16 percent.........  1.10 percent.........  1.21 percent.........  0.78 percent.........  0.85 percent.........  0.91 percent.........  0.85 percent
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\1\ The management fee for the Replacement Portfolio on an annual basis is equal to 0.850% of the first $1 billion; 0.800% of the next $1 billion; 0.775% of the next $3 billion; 0.750% of the
  next $5 billion; and 0.725% thereafter. The management fee for the Removed Portfolio on an annual basis is equal to 0.750% of the first $1 billion; 0.700% of the next $1 billion; 0.675% of
  the next $3 billion; 0.650% of the next $5 billion; and 0.625% thereafter.


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                                                   Replacement portfolio (class IB)                                       Removed portfolio (class IB)                       Combined portfolio
                                ------------------------------------------------------------------------------------------------------------------------------------------       (class IB)
                                                                                                                                                                          ----------------------
                                    One year  period       One year  period       One year  period       One year  period       One year  period       One year  period       One year  period
                                    ended 12/31/2000       ended 12/31/2001       ended 09/30/2002       ended 12/31/2000       ended 12/31/2001       ended 09/30/2002       ended 12/31/2001
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Net Assets $37 million.........  $36 million..........  $40 million..........  $198 million.........  $196 million.........  $179 million.........  $232 million.........
Management Fee.................  0.87 percent.........  0.85 percent.........  0.85 percent.........  0.69 percent.........  0.73 percent.........  0.74 percent.........  0.73 percent
Rule 12b-1 Fee.................  0.25 percent.........  0.25 percent.........  0.25 percent.........  0.25 percent.........  0.25 percent.........  0.25 percent.........  0.25 percent
Other Expenses.................  0.29 percent.........  0.25 percent.........  0.36 percent.........  0.09 percent.........  0.12 percent.........  0.17 percent.........  0.12percent
    Total Expenses.............  1.41 percent.........  1.35 percent.........  1.46 percent.........  1.03 percent.........  1.10 percent.........  1.16 percent.........  1.10 percent
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    13. Applicants represent that the Trust's independent accountants 
will perform procedures, as agreed upon between the Trust and the 
independent accountants, relating to the total expense ratio for each 
class of shares of the Removed Portfolio for the one year period ended 
September 30, 2002. Within 90 days after the issuance of any order 
pursuant to this Application, the independent accountants will issue an 
agreed upon procedures report to management of the Trust (which 
consists entirely of persons who are officers or employees of 
Equitable) and the Board of Trustees of the Trust detailing the results 
of the procedures performed relating to the calculation of the total 
expense ratios based solely on the unaudited information provided by 
Equitable, the Trust's administrator, and JP Morgan Investors Services 
Co. (``JPMIS''), the Trust's sub-administrator. In conjunction with the 
procedures, Equitable and JPMIS will provide a certification that the 
unaudited information was prepared on a basis consistent with the 
audited financial statements of the Trust. Further, the certification 
will state that the information was produced under the same internal 
control environment that supports the Trust's audited financial 
statements and that to their knowledge there were no material 
deficiencies in such internal controls from October 1, 2001, through 
the date the procedures are performed. The procedures performed by the 
independent accountants will include reading the testing results of the 
control objectives applicable to expenses and net asset value 
calculations contained in the September 30, 2002, JPMIS Fund Accounting 
SAS 70 Report on Controls Placed in Operation and Test of Operating 
Effectiveness covering the period from October 1, 2001, through

[[Page 66026]]

September 30, 2002, and reporting on any exceptions that pertain to the 
expense accounting process and net asset value calculations. The 
independent accountants' procedures will also include testing, on a 
selection basis, of expenses and net asset value calculations during 
the period October 1, 2001, to September 30, 2002, and testing of all 
audit adjustments pertaining to the relevant portfolios recorded or 
proposed by the independent accountants and not recorded, if any, 
associated with each of the audits of the financial statements of the 
Trust for the years ended December 31, 2001 and 2002 to identify any 
which pertain to expense adjustments and net asset value calculations. 
Finally, based upon the December 31, 2002, audit of the Trust by the 
independent accountants, the independent accountants' report will 
indicate whether there were any matters noted involving internal 
control and its operation that would be considered material weaknesses 
as of December 31, 2002. This internal control consideration will be 
based upon the planning and performing of the December 31, 2002, audit 
of the financial statements of the Trust, which is for the purpose of 
determining the auditing procedures for expressing an opinion on the 
Trust's financial statements and not to provide assurance on internal 
control. If the Trust's independent accountants determine, based on the 
procedures performed, that the total expense ratios for the Removed 
Portfolio for the period October 31, 2001, to September 30, 2002, were 
lower than those shown above, Applicants will modify the Trust's fee 
waiver and reimbursement arrangement as of the date of the Substitution 
to conform to the calculation of the total expense ratio for each class 
of shares of the Removed Portfolio by the independent accountants. In 
addition, Equitable will reimburse the Replacement Portfolio for any 
amounts not previously reimbursed to that Portfolio to the extent 
necessary to ensure that the total expense ratios of the Class IA and 
Class IB shares of the Replacement Portfolio for the period from the 
date of the Substitution to the date of the modification of the Trust's 
fee waiver and reimbursement arrangement (on an annualized basis) do 
not exceed the independent accountants' calculation of the expense 
ratios for the Class IA and Class IB shares of the Removed Portfolio 
for the one year period ended September 30, 2002. Furthermore, the 
revised fee waiver and expense reimbursement arrangement will be in 
effect for the twenty-four month period beginning as of the date of the 
Substitution. The report will be treated by the Trust as part of its 
books and records available for inspection by the staff of the 
Commission. The report will be retained by the Trust for a period of 
not less than six years.
    14. The chart below compares the average annual total returns of 
the Class IA shares of the Replacement Portfolio and the Removed 
Portfolio, as well as returns for their respective benchmarks, for the 
one year, three year, five year, ten year and since inception periods 
ended December 31, 2001. Although the Removed Portfolio's historical 
performance for the one, three and five year periods was more favorable 
than that of the Replacement Portfolio, the Removed Portfolio has not 
generated significant Contract owner interest recently, evidenced by 
its recent net cash outflows. The Replacement Portfolio, in contrast, 
has generated modest net cash inflows, indicating greater Contract 
owner interest. The Replacement Portfolio's recent performance also has 
been more favorable than that of the Removed Portfolio, although there 
is no guarantee that this will continue to be the case in the future.

                                              [Amounts in percent]
----------------------------------------------------------------------------------------------------------------
                                                                                                        Since
 Portfolio class IA, periods ended 12/31/2001      1 Year      3 Years       5 Years      10 Years    inception
----------------------------------------------------------------------------------------------------------------
EQ/Alliance International Portfolio...........      (22.88)       (6.48)        (2.60)           NA         1.03
                                                ...........  ...........  ............  ...........   (04/03/95)
MSCI EAFE.....................................      (21.44)       (5.05)         0.89            NA         2.87
EQ/Alliance Global Portfolio..................      (20.08)       (3.43)         4.12          8.71         9.01
                                                ...........  ...........  ............  ...........   (08/27/87)
MSCI World....................................      (16.82)       (3.37)         5.37          8.06         6.72
----------------------------------------------------------------------------------------------------------------

    15. In connection with the Substitution, Equitable, American 
Franklin and their respective Separate Accounts will file with the 
Commission prospectuses and/or prospectus supplements that notify 
Contract owners and participants of their respective Insurance 
Company's intention to substitute the Replacement Portfolio for the 
Removed Portfolio.\2\ The prospectuses and prospectus supplements, as 
appropriate, also will describe the Substitution, the Replacement and 
Removed Portfolios 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 (or other 
notice), as appropriate, containing this disclosure to all existing and 
new Contract owners and participants. 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 regarding 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.
---------------------------------------------------------------------------

    \2\ Integrity, National Integrity and their respective Separate 
Accounts will prepare and distribute a notice of the Substitution, 
which will contain substantially the same information that would be 
contained in any prospectus supplement as described herein.
---------------------------------------------------------------------------

    16. Contract owners and participants will be sent a notice of the 
Substitution before the Substitution Date (which notice may be in the 
form of a prospectus supplement as described above). 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 30 days

[[Page 66027]]

before the Substitution Date and ending no earlier than 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, the 
section 26 Applicants 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 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.
    17. The Substitution will be effected by redeeming shares of the 
Removed Portfolio partly in-kind and partly in cash 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 redemptions and contributions will be done in a manner consistent 
with the investment objectives, policies and diversification 
requirements of the Replacement Portfolio and the Removed Portfolio. 
The Manager, 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
    18. 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 the Insurance Companies' 
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 the 
Insurance Companies. 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 the Insurance Companies' 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.
    19. 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 Replacement Portfolio for 
Class IA shares of the Removed Portfolio; and (ii) Class IB shares of 
the Replacement Portfolio for Class IB shares of the Removed 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 the section 26 Applicants have reserved 
the right under the Contracts to substitute shares of another eligible 
investment fund for one of the current investment funds offered as a 
funding option 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 the Insurance 
Companies and their respective Contract owners.
    4. Applicants state that the Replacement Portfolio and the Removed 
Portfolio have identical investment objectives and similar investment 
policies and risks. In addition, 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 be to consolidate overlapping and duplicative 
investment options in a single Portfolio. This consolidation will 
permit each Insurance Company 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 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 that would have an identical management fee schedule and a total 
expense ratio that is no higher than 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

[[Page 66028]]

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 30 days before 
the Substitution Date and ending no earlier than 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 the Insurance 
Company'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 and conditions of 
the Substitution are as follows:
    a. The Replacement Portfolio has an identical investment objective 
and similar investment policies and risks as the Removed Portfolio, 
providing Contract owners and participants with a means to continue 
their investment goals and risk expectations;
    b. To ensure that the management fee of the Replacement Portfolio 
is no higher after the Substitution than that of the Removed Portfolio 
before the Substitution, Equitable will contractually reduce its 
management fee for the Replacement Portfolio by adopting the management 
fee schedule of the Removed Portfolio, which at all asset levels is 
lower than the management fee of the Replacement Portfolio;
    c. 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 0.91% 
and 1.16%, respectively, of the Replacement Portfolio's average daily 
net assets (on an annualized basis) (or the expense ratios determined 
after the procedures are performed by the Trust's independent 
accountants);
    d. 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 at least 30 days before the 
Substitution Date, and ending no earlier than 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;
    e. 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;
    f. Contract owners and participants will not incur directly or 
indirectly related fees or charges as a result of the Substitution. The 
Insurance Companies have agreed to 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;
    g. 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;
    h. 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;
    i. Contract owners and participants would not incur any adverse tax 
consequences as a result of the Substitution;
    j. 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;
    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; and
    l. For those Contract owners or participants who were Contract 
owners or participants on the date of the Substitution, each Insurance 
Company will not increase sub-account or Contract expenses for a period 
of 24 months following the Substitution Date.

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 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. The In-Kind Transactions will be effected 
at the respective net asset values of the Removed Portfolio and the 
Replacement

[[Page 66029]]

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. 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 under the 1940 Act. 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 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 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. 02-27484 Filed 10-28-02; 8:45 am]
BILLING CODE 8010-01-P