[Federal Register Volume 66, Number 86 (Thursday, May 3, 2001)]
[Notices]
[Pages 22271-22273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-11048]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24963; File No. 812-12392]


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

April 26, 2001.
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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    Summary of Application: Applicants seek an order to amend an 
Existing Order (describing below) to permit, under specified 
circumstances, the recapture of certain Credits applied to 
contributions made under ``Contracts'' and ``Future Contracts'' as 
defined in he applications for the Existing Order (``Prior 
Applications'').\1\ Applicants also request that the order being sought 
extend to ``Equitable Broker-Dealers,'' defined in the Prior 
Applications.
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    \1\ The Equitable Life Assurance Society of the United States, 
Investment Company Act Release Nos. 23774 (Apr. 7, 1999) (File No. 
812-11388) and 23889 (July 2, 1999) (File No. 812-11662).
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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'' and together 
with SA 45 and SA 49, the ``Accounts''), any other separate accounts of 
Equitable Life or EOC (collectively, ``Future Accounts'') that support 
in the future variable annuity contracts and certificates that are 
substantially similar in all material respects to the contracts 
described herein, AXA Advisors, LLC, and Equitable Distributors, Inc. 
(``EDI'') (collectively, ``Applicants'').
    Filing Date: The application was filed on January 2, 2001 and 
amended on April 24, 2001.
    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 May 18, 2001, and should be accompanied by 
proof of service on Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. hearing request 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: Dodi Kent, Esq.

FOR FURTHER INFORMATION CONTACT: Mark Cowan, Senior Counsel, or Keith 
Carpenter, 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).

Applicant's Representations

    1. On May 3, 1999, the Commission issued an order (``Prior Order'') 
\2\ 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 Prior Order specifically permits the recapture, under 
specified circumstances, of certain 3% Credits applied to contributions 
made under Contracts or Future Contracts. On July 28, 1999, the 
Commission issued an order of exemption amending the Prior Order \3\ 
(together with the Prior Order, the ``Existing Order'') to permit the 
recapture of Credits of up to 5% (``5% Credits''), under the same 
specified circumstances.\4\
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    \2\ The Equitable Life Assurance Society of the United States, 
Investment Company Act Release No. 23822 (File No. 812-11388).
    \3\ The Equitable Life Assurance Society of the United States, 
Investment Company Act Release No. 23924 (File No. 812-11662).
    \4\ 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 the Application. 
Applicants represent that except as described herein all of the 
facts asserted in the Prior Applications 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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    2. Equitable now desires to offer and recapture Credits of up to 6% 
of contributions (``6% Credits'') under the Contracts or Future 
Contracts, under the same and certain additional circumstances 
described below. Equitable will apply a Credit to the account of a 
Contract owner whenever the owner makes a contribution. The amount of 
the Credit will equal a percentage (``Credit Rate'') of the 
contribution. For contributions received during the first Contract Year 
(as defined in the Contract prospectus), the applicable Credit Rate 
will be based on the Credit schedule then in effect and the total net 
amount of contributions received to date under a Contract. The Credit 
Rate applicable to contributions made after the first Contract Year 
will be

[[Page 22272]]

the Credit Rate applicable to ``Net First Year Contributions'' received 
during the first Contract Year. ``Net Year Contributions'' equal total 
first contributions (``Total First Year Contributions'') less any 
withdrawals of contributions (including withdrawal charges) made during 
the first Contract Year.
    3. Equitable currently proposes to use the following Credit 
schedule for contributions made under the Contract:

------------------------------------------------------------------------
                      Contributions*                        Credit rate
----------------------------------------------------------     (as a
                                                           percentage of
          At least                   But less than
                                                           contribution)
------------------------------------------------------------------------
Minimum.....................  $250,000...................         4.0
$250,000....................  $1,000,000.................         5.0
$1,000,000..................  unlimited**................        6.0
------------------------------------------------------------------------
* The Credit Rate applicable depend on total net contributions received
  to date, Expected First Year Contributions, or Net First Year
  Contributions, as described below.
** Maximum contribution limitations may apply.

    4. If Equitable receives more than one contribution during the 
first Contract Year and a higher Credit Rate applies to the later 
contribution(s) based on the total amount of net contributions to date 
(i.e., the total net contributions surpass a breakpoint), Equitable 
will apply the higher Credit Rate to that contribution, as well as any 
prior or subsequent contributions made in the first Contract Year. 
Equitable will apply any additional Credit amounts resulting from such 
adjustments as of the date it receives the later contribution(s).
    5. If a Contract owner executes a letter of intent (``Letter of 
Intent '') pursuant to which the owner agrees to make a certain amount 
of contributions in the first Contract Year (``Expected First Year 
Contributions''),\5\ Equitable will apply a Credit amount to each 
contribution made during the first Contract Year using the Credit Rate 
applicable to the Expected First Year Contributions (``Letter of Intent 
Credit Rate''). Equitable will apply Credits at the Letter of Intent 
Credit Rate when it receives each contribution. For any contribution(s) 
that results in the total net contributions to date exceeding the 
Expected First Year Contributions, such that a higher Credit Rate would 
apply, Equitable will apply the higher Credit Rate to that 
contribution, as well as any prior or subsequent contribution(s) made 
in the first Contract Year.
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    \5\ The Letter of Intent will be in the form of an 
acknowledgment in a delineated section of the application for the 
Contracts. The initial contribution must be at least 50% of the 
Expected First Year Contributions for the Letter of Intent Credit 
Rate to apply.
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    6. In the future, Equitable may apply Credits for contributions 
under the Contracts using the same Credit schedule or a different 
Credit schedule containing higher breakpoints.
    7. Equitable will recapture Credits applied to contributions made 
under Contracts and Future Contracts under the same circumstances 
permitted by the Existing Order. In addition, on the first anniversary 
of the Contract (``Contract Anniversary''), Equitable will recapture 
any ``Excess Credits'' applied during the first Contract Year, as 
discussed below.
    8. Excess Credits will exist when a Contract owner's Net First Year 
Contributions are lower than Total First Year Contributions. In such 
cases, Equitable will recapture an Excess Credit amount equal to the 
difference between the Credits that were actually applied and the 
Credits that would have been applied based on Net First Year 
Contributions.
    Example.
    <bullet> Assume an initial contribution of $250,000. A Credit of 
$12,500 (5% of $250,000) would be applied to the Contract. If the 
Contract owner withdraws $100,000 during the first Contract Year, his 
or her Net First Year Contributions would be $145,00 ($250,000-
$100,000-$5,000 withdrawal charge ($100,000-15% free withdrawal  x  
8%)). The applicable Credit Rate based on Net First Year Contributions 
is 4%. At the end of the first Contract Year, Equitable would recapture 
$6,700 (5% of $105,000 plus 1% of $145,000).
    9. Excess Credits also will exist when a Contract owner fails to 
fulfill the conditions of a Letter of Intent, and as a result the 
Credits applied to the Contract exceed the Credits that would have 
applied to actual contributions made had the Contract owner not 
executed a Letter of Intent. For Contract owners who fail to fulfill a 
Letter of Intent, Equitable will recapture an amount equal to the 
difference between the Credits that were actually applied and the 
Credits that would have been applied based on Net First Year 
Contributions.
    Example.
    <bullet> Assume an initial contribution of $150,000 pursuant to a 
Letter of Intent under which the Contract owner has agreed to make 
contributions totaling $250,000 during the first Contract Year. A 
Credit of $7,500 (5% of $150,000) would apply to the Contract. If the 
Contract owner makes no more contributions during the first Contract 
Year (and thus does not fulfill the terms of the Letter of Intent), 
then at the end of the first Contract Year, Equitable would recapture 
$1,500 (1% of $150,000).
    10. The Contracts and Future Contracts will be substantially 
similar in all material respects to the Contracts covered by the 
Existing Order except that: (a) Equitable will apply and recapture 
Credits as described above, and (b) a sorter withdrawal charge schedule 
will apply. Specifically, the Contracts and Future Contracts will have 
a withdrawal charge schedule that declines from 8% in years one and 
two, to 0% in year nine and thereafter (rather than year 10 and 
thereafter, as it currently does).
    11. Applicants submit that their request for an order that applies 
to the Accounts or any Future Account, in connection with the issuance 
of Contracts and Future Contracts that are substantially similar in all 
material respects to the Contracts described herein and underwritten or 
distributed by AXA Advisors, LLC, Equitable Distributors, Inc., or 
Equitable Broker-Dealers, is appropriate in the public interest for the 
same reasons as those given in support of the Existing Order.

Applicant's 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 provision 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, pursuant to Section 6(c) 
of the Act, amend the Existing Order 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: (a) the 
racapture of 6% Credits under the same circumstances covered by the 
Existing Order, and (b) the recapture of Excess Credits in the manner 
described above.
    3. Applicants submit that the recapture of Credits will not raise 
concerns under Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act, and 
Rule 22c-1 thereunder the same reasons given in support of the Existing 
Order. First, the 6% Credits will be recapturable under the same 
circumstances and on the same basis as the 5% Credits described in the 
Prior Applications, the only difference being the higher percentage 
amount. In addition, Applicants submit that when Equitable recaptures 
any Excess Credit, it is also simply retrieving its own assets, because 
a Contract owner's

[[Page 22273]]

interest in any Excess Credit allocated to a Contract within the first 
Contract Year is not vested. Rather, Equitable retains the right to, 
and interest in, the Excess Credit, although not any earnings 
attributable to the Excess Credit.
    4. Applicants state that because a Contract owner's interest in any 
recapturable Excess 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 Excess Credit). The amounts 
recaptured will never exceed the Credits (or any Excess Credit) 
provided by Equitable from its own general account assets, and 
Equitable will not recapture any gain attributable to the Credit (or 
any Excess Credit).
    5. Furthermore, Applicants submit that permitting a Contract owner 
who withdraws contributions, or who fails to fulfill his or here Letter 
of Intent obligations to retain any Excess Credit, would be patently 
unfair and would deny the Applicants a reasonable 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 later, during the first 
Contract Year, withdraw monies (perhaps by taking advantage of the 15% 
free withdrawal feature), thereby enabling the Contract owner to retain 
Credit amounts that otherwise would not have been applied. Similarly, a 
Contract owner could execute a Letter of Intent with no intention of 
fulfilling it, in order to obtain higher Credit amounts. Like the 
recapture of Credits permitted by the Existing Order, the amounts 
recaptured will equal the Excess 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 or Excess Credit under the Contracts does 
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.
    7. Applicants submit that their request for an order that applies 
to the Accounts or any Future Account, in connection with the issuance 
of Contracts and Future Contracts that are substantially similar in all 
material respects to the Contracts described herein and underwritten or 
distributed by AXA Advisors, LLC, Equitable Distributors, Inc., or 
Equitable Broker-Dealers, is appropriate in the public interest for the 
same reasons as those given in support of 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. 01-11048 Filed 5-2-01; 8:45 am]
BILLING CODE 8010-01-M