[Federal Register Volume 68, Number 169 (Tuesday, September 2, 2003)]
[Notices]
[Pages 52240-52243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-22293]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26170; File No. 812-13010]


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

August 26, 2003.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an amended order under Section 6(c) 
of the Investment Company Act of 1940, as amended (``Act'') granting 
exemptions from the provisions of Sections 2(a)(32), 22(c) and 
27(i)(2)(A) of the Act and Rule 22c-1 thereunder.

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Applicants: The Equitable Life Assurance Society of the United States 
(``Equitable Life''), The Equitable of Colorado, Inc. (``EOC,'' and 
together with Equitable Life, ``Equitable''), Separate Account No. 45 
of Equitable Life (``SA 45''), Separate Account No. 49 of Equitable 
Life (``SA 49''), Separate Account VA of EOC (``SA VA,'' the foregoing 
separate accounts each an ``Account'' and collectively, the

[[Page 52241]]

``Accounts''), AXA Advisors, LLC,\1\ and AXA Distributors, LLC \2\ 
(collectively, ``Applicants'').
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    \1\ Formerly named EQ Financial Consultants, Inc.
    \2\ On January 1, 2002, AXA Distributors, LLC succeeded by 
merger to all of the functions, rights and obligations of Equitable 
Distributors, Inc. (``EDI''). Like EDI, AXA Distributors, LLC is 
owned by Equitable Holdings, LLC.

Summary of Application: Applicants seek an order to amend an Existing 
Order (described below) to grant exemptions from the provisions of 
Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rule 22c-1 
thereunder to the extent necessary to permit Applicants to recapture 
certain credits applied to contributions made under certain amended 
deferred variable annuity contracts and certificates, described herein, 
including certain amended certificate data pages and endorsements, that 
Equitable will issue through the Accounts (the ``Amended Contracts''), 
and under contracts and certificates, including certain certificate 
data pages and endorsements, that Equitable may issue in the future 
through the Accounts, and any other separate accounts of Equitable Life 
or EOC (collectively, ``Future Accounts'') that are substantially 
similar in all material respects to the Amended Contracts (the ``Future 
Contracts''). Applicants also request that the order being sought 
extend to ``Equitable Broker-Dealers,'' as defined in the applications 
for the Existing Order (defined below) (``Prior Applications'').\3\
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    \3\ The Equitable Life Assurance Society of the United States, 
Investment Company Act Release Nos. 23774 (Apr. 7, 1999) (File No. 
812-11388), 23889 (July 2, 1999) (File No. 812-11662), and 24963 
(April 26, 2001) (File No. 812-12392).

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Filing Date: The application was filed on August 22, 2003.

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 25, 2003, 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 requester's interest, the reason for the 
request, and the issues contested. Persons who wish to be notified of a 
hearing may request notification by writing to the Secretary of the 
Commission.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549-
0609. Applicants, c/o The Equitable Life Assurance Society of the 
United States, 1290 Avenue of the Americas, New York, New York 10104, 
Attn: Robin Wagner, Esq. Copy to Foley & Lardner, 3000 K Street, Suite 
500, Washington, DC 20007, Attn: Richard T. Choi.

FOR FURTHER INFORMATION CONTACT: Mark A. Cowan, Senior Counsel, or 
Zandra Y. 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 SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, 
DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. On May 3, 1999, the Commission issued an order (``May 1999 
Order'') \4\ exempting certain transactions of Applicants from the 
provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and 
Rule 22c-1 thereunder. The May 1999 Order specifically permits the 
recapture, under specified circumstances, of certain 3% Credits applied 
to contributions made under Contracts or Future Contracts as defined in 
the application for the May 1999 Order.\5\ Specifically, the May 1999 
Order permits recapture of Credits if the Contract is returned during 
the free look period, or if contributions are made within 3 years of 
annuitization.
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    \4\ The Equitable Life Assurance Society of the United States, 
Investment Company Act Release No. 23822 (File No. 812-11388).
    \5\ The Equitable Life Assurance Society of the United States, 
Investment Company Act Release Nos. 23774 (Apr. 7, 1999)(File No. 
812-11388).
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    2. On July 28, 1999, the Commission issued an order of exemption 
amending the May 1999 Order (``July 1999 Order'') \6\ to permit the 
recapture of Credits of up to 5% under Contracts and Future Contracts 
under the same specified circumstances.
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    \6\ The Equitable Life Assurance Society of the United States, 
Investment Company Act Release No. 23924 (File No. 812-11662).
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    3. On May 21, 2001, the Commission issued an order of exemption 
(``May 2001 Order'') amending the July 1999 Order (together with the 
May 1999 Order and the July 1999 Order, the ``Existing Order'') \7\ to 
permit the recapture of Credits of up to 6% under Contracts and Future 
Contracts under the same and certain additional circumstances. The 
additional circumstances include the recapture of Excess Credits when a 
Contract owner's Net First Year Contributions are lower than Total 
First Year Contributions, and when a Contract owner fails to fulfill 
the conditions of a Letter of Intent, all as described in the 
application for the May 2001 Order.\8\
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    \7\ The Equitable Life Assurance Society of the United States, 
Investment Company Act Release No. 24980 (File No. 812-12392).
    \8\ The Equitable Life Assurance Society of the United States, 
Investment Company Act Release No. 24963 (April 26, 2001) (File No. 
812-12392).
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    4. Applicants believe that the Contracts and Amended Contracts are 
substantially similar in all material respects relevant to the Existing 
Order, and that the Amended Contracts would constitute Future Contracts 
covered by the Existing Order. Nevertheless, in view of certain 
differences from the Contracts reflected in the Amended Contracts, 
Applicants filed an Application to avoid any uncertainty regarding the 
availability of such relief with respect to the recapture of Credits of 
up to 6% under the Amended Contracts under the same circumstances 
described in the Prior Applications,\9\ and under one additional 
circumstance described in paragraph 8 of Applicants' Representations, 
below.
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    \9\ Pursuant to Rule 0-4 under the Act, Applicants incorporate 
by reference the statement of facts set out in the Prior 
Applications to the extent necessary to support this Application. 
Applicants represent that all of the acts asserted in the Prior 
Application remain true and accurate in all material aspects to the 
extent that such facts are relevant to any relief on which 
Applicants continue to rely.
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    5. The respective Accounts will fund the variable benefits 
available under the Amended Contracts. Units of interest in Accounts 
under the Amended Contracts they fund will be registered under the 
Securities Act of 1933 (the ``1933 Act''). Equitable may issue Future 
Contracts through the Accounts. Equitable also may issue Future 
Contracts through Future Accounts. That portion of the respective 
assets of the Accounts that is equal to the reserves and other Amended 
Contract liabilities with respect to the Accounts is not chargeable 
with liabilities arising out of any other business of Equitable Life or 
EOC, as the case may be. Any income, gains or losses, realized or 
unrealized, from assets allocated to the Accounts are, in accordance 
with the respective Accounts' Amended Contracts, credited to or charged 
against the Accounts, without regard to other income, gains or losses 
of Equitable Life or EOC, as the case may be. The same will be true of 
any Future Account of Equitable Life or EOC.
    6. Equitable Life previously offered Contracts as described in the 
Prior Applications (``2001 Contracts covered by the Existing Order''). 
Equitable Life currently offers Contracts that constitute Future 
Contracts covered by the Existing Order. At the appropriate time after

[[Page 52242]]

effectiveness of the amended registration statements describing the 
Amended Contracts, Equitable Life will begin offering the Amended 
Contracts, as well.
    7. The Amended Contracts reflect certain differences from the 2001 
Contracts covered by the Existing Order. However, Applicants 
respectfully submit that these differences do not preclude the Amended 
Contracts from being substantially similar in all material respects to 
the 2001 Contracts covered by the Existing Order such that they 
constitute Future Contracts covered by the Existing Order. 
Nevertheless, as stated above, Applicants are filing this Application 
to avoid any uncertainty that may arise as a result of the following 
differences between the 2001 Contracts covered by the Existing Order 
and the Amended Contracts:

a. Separate Account Charges

    2001 Contracts covered by the Existing Order have a mortality and 
expense risk charge at the annual rate of 1.10% and an administrative 
expense charge at the annual rate of 0.25%. Amended Contracts have a 
mortality and expense risk charge at the annual rate of 0.90% and an 
administrative expense charge of 0.35%.

b. Death Benefit Options and Death Benefit Charges

    2001 Contracts covered by the Existing Order offer a guaranteed 
minimum death benefit (``GMDB'') of either a ``5% roll up to age 80'' 
or an ``annual ratchet to age 80'' at no additional charge. Amended 
Contracts offer a GMDB (return of premiums) at no additional charge; an 
optional ``annual ratchet to age 85'' death benefit for a charge at the 
annual rate of 0.25% of the applicable benefit base; and an optional 
``greater of 5% roll up to age 85 or annual ratchet to age 85'' death 
benefit for a charge at the annual rate of 0.50% of the applicable 
benefit base.
    Under 2001 Contracts covered by the Existing Order, withdrawals 
reduce the GMDB as follows: (i) For Contracts with the 5% roll up to 
age 80, withdrawals reduce the GMDB on a dollar-for-dollar basis to the 
extent the sum of withdrawals in a contract year is 5% or less of the 
GMDB on the most recent contract date anniversary, and on a pro-rata 
basis thereafter; and (ii) for Contracts with the annual ratchet to age 
80, all withdrawals reduce the GMDB on a pro-rata basis. Under Amended 
Contracts, for all death benefit options, withdrawals reduce the GMDB 
benefit base on a pro-rata basis.

c. Income Benefit

    2001 Contracts covered by the Existing Order may offer an optional 
baseBuilder income benefit for a charge at the annual rate of 0.30% of 
the applicable benefit base. Amended Contracts offer an optional 
guaranteed minimum income benefit for a charge at the annual rate of 
0.55% of the guaranteed minimum income benefit base.

d. Protection Plus Benefit

    2001 Contracts covered by the Existing Order offer an optional 
Protection Plus benefit for an annual charge 0.20% of account value 
(deducted on each contract date anniversary). Amended Contracts offer 
an optional Protection Plus benefit for an annual charge of 0.35% of 
account value (deducted on each contract date anniversary).
    For Contract owners who elect the Protection Plus benefit 
(available for nonqualified contracts, subject to state availability), 
the death benefit is equal to: (i) The greater of the account value or 
any applicable death benefit, plus (ii) 40% (25% for annuitant issue 
ages 70-75) of the lesser of total net contributions or the death 
benefit less total net contributions. For Amended Contract owners who 
elect the Protection Plus benefit (available for nonqualified, IRA and 
tax sheltered annuity contracts, subject to state availability), the 
death benefit is equal to: (i) The greater of the account value or any 
applicable death benefit, plus (ii) 40% (25% for annuitant issue ages 
71-75) of such death benefit less total net contributions.

e. Guaranteed Principal Benefits

    Amended Contracts offer a guaranteed principal benefit Option 1 for 
no additional charge, and a guaranteed principal benefit Option 2 for a 
charge of 0.50% as a percentage of account value (deducted annually on 
the first 10 contract date anniversaries).

f. Administrative Charge

    2001 Contracts covered by the Existing Order do not impose an 
annual administrative expense charge. Amended Contracts have an annual 
administrative expense charge of $30 (deducted from account value on 
each contract date anniversary).\10\ The charge is waived for account 
values of $50,000 or more on the contract date anniversary.
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    \10\ During the first two contract years, the charge is the 
lesser of $30 or 2% of the account value.
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g. Contract Withdrawal Charge

    2001 Contracts covered by the Existing Order and Amended Contracts 
impose a withdrawal charge equal to a percentage of contributions 
determined by the contract year in which such contributions are 
withdrawn as follows \11\:
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    \11\ A withdrawal charge applies in two circumstances: (1) if 
one or more withdrawals are made during a contract year that, in 
total, exceed the free withdrawal amount or (2) the contract is 
surrendered in order to receive its cash value or cash value is 
applied to a non-life contingent annuity payout option.

                                                (In percentages)
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               Contract year                  1      2      3      4      5      6      7      8      9     10+
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2001 contracts covered by the existing          8      8      7      6      5      4      3      2      1      0
 order....................................
Amended contracts.........................      8      8      7      7      6      5      4      3      0      0
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    2001 Contracts covered by the Existing Order offer an annual 15% 
``free corridor'' amount. Amended Contracts offer an annual 10% ``free 
withdrawal'' amount.

h. Credits

    2001 Contracts covered by the Existing Order offered Credits based 
on contributions as described in the Prior Applications according to 
the following schedule:

------------------------------------------------------------------------
                      Contributions                         Credit rate
----------------------------------------------------------     (as a
                                                           percentage of
             At Least                   But Less Than      contribution)
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Minimum...........................  $ 250,000............           4.0
$ 250,000.........................  $ 1,000,000..........           5.0
$ 1,000,000.......................  Maximum..............           6.0
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[[Page 52243]]

Amended Contracts Order may offer Credits based on contributions as 
described in the Prior Applications Credits according to the following 
schedule:

------------------------------------------------------------------------
                      Contributions                         Credit rate
----------------------------------------------------------     (as a
                                                           percentage of
             At least                   But less than      contribution)
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Minimum...........................  $ 500,000............           4.0
$ 500,000.........................  $ 1,000,000..........           4.5
$ 1,000,000.......................  Maximum..............           5.0
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i. Fixed Investment Options

    2001 Contracts covered by the Existing Order do not offer a 
``guaranteed interest account.'' Amended Contracts offer a ``guaranteed 
interest account'' that pays a guaranteed rate of interest and is not 
subject to a market value adjustment. Equitable will recapture Credits 
on a pro rata basis from the value in the variable investment options 
and the guaranteed interest account. If those amounts are insufficient, 
Equitable will deduct the balance from the fixed maturity options in 
order of the earliest maturity dates first.

j. Annuitization

    Under 2001 Contracts covered by the Existing Order and Amended 
Contracts (except in Florida) annuity payments may not begin earlier 
than the fifth contract date anniversary. Under Amended Contracts 
issued in Florida, annuity payments may begin as early as the first 
contract date anniversary
    8. Applicants may recapture Credits of up to 6% under the Amended 
Contracts under the same circumstances covered by the Existing Order, 
described above. In addition, if an Amended Contract owner starts 
receiving annuity payments under a life contingent annuity payout 
option before the fifth contract date anniversary, Equitable will 
recover the Credit that applies to any contribution made within such 
five-year period.
    9. Applicants submit that their request for an order that applies 
to the Accounts or any Future Account, in connection with the issuance 
of Amended Contracts described herein and Future Contracts that are 
substantially similar in all material respects to the Amended Contracts 
and underwritten or distributed by AXA Advisors, LLC, AXA Distributors, 
LLC, or Equitable Broker-Dealers, is appropriate in the public interest 
for the same reasons as those given in support of the Existing Order.

Applicants' Legal Analysis

    1. Section 6 (c) of the Act authorizes the Commission to exempt any 
person, security or transaction, or any class or classes of persons, 
securities or transactions from the provisions of the Act and the rules 
promulgated thereunder if and to the extent that such exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act.
    2. Applicants request that the Commission issue an amended order 
pursuant to Section 6(c) of the Act, granting exemptions from the 
provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and 
Rule 22c-1 thereunder, to the extent necessary to permit Applicants to 
recapture Credits under Amended Contracts under the same circumstances 
covered by the Existing Order, and if an Amended Contract owner starts 
receiving annuity payments under a life contingent annuity payout 
option before the fifth contract date anniversary, as described in 
paragraph 8 of Applicants' Representations, above.\12\
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    \12\ Pursuant to Rule 0-4 under the Act, Applicants incorporate 
by reference the legal analysis set out in the Prior Application.
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    3. Applicants submit that the recapture of Credits under the 
Amended Contracts will not raise concerns under Sections 2(a)(32), 
22(c) and 27(i)(2)(A) of the Act, and Rule 22c-1 thereunder for the 
same reasons given in support of the Existing Order. Applicants submit 
that when Equitable recaptures any Credit, it is simply retrieving its 
own assets. Applicants submit that a Contract owner's interest in any 
Credit allocated before an owner starts receiving annuity payments 
under a life contingent payout option within the first five contract 
years is not vested. Rather, Equitable retains the right to, and 
interest in, the Credit, although not any earnings attributable to the 
Credit.
    4. Applicants state that because a Contract owner's interest in any 
recapturable Credit is not vested, the owner will not be deprived of a 
proportionate share of the applicable Account's assets, i.e., a share 
of the applicable Account's assets proportionate to the Contract 
owner's annuity account value (taking into account the investment 
experience attributable to any Credit). The amounts recaptured will 
never exceed the Credits provided by Equitable from its own general 
account assets, and Equitable will not recapture any gain attributable 
to the Credit.
    5. Applicants submit that the recapture of Credits relating to 
contributions made prior to the date an owner starts receiving annuity 
payments under a life contingent annuity payout option before the fifth 
contract date anniversary is designed to provide Equitable with a 
measure of protection against ``anti-selection.'' The risk here is that 
rather than investing contributions over a number of years, a Contract 
owner could make an initial contribution, receive Credits, then 
annuitize under a life contingent annuity payout option within the 
first five contract years leaving Equitable less time to recover the 
cost of the Credits applied, to its financial detriment. Like the 
recapture of Credits permitted by the Existing Order, the amounts 
recaptured will equal the Credits provided by Equitable from its own 
general account assets, and any gain associated with the Credit will 
remain part of the Contract owner's Contract value.
    6. For the foregoing reasons, Applicants submit that the provisions 
for recapture of any Credit under the Amended Contracts do not violate 
Section 2(a)(32), 22(c), and 27(i)(2)(A) of the Act, and Rule 22c-1 
thereunder, and that the requested relief therefrom is consistent with 
the exemptive relief provided under the Existing Order.

Conclusion

    Applicants submit, based on the grounds summarized above, that 
their exemptive request meets the standards set out in Section 6(c) of 
the Act, namely, that the exemptions requested are necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act, and that, therefore, the Commission should grant 
the requested order.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-22293 Filed 8-29-03; 8:45 am]
BILLING CODE 8010-01-P