Federal Register / Vol. 60, No. 43 / Monday, March 6, 1995 / Notices 12261

1Rule 3a–1 provides that an issuer meeting the

statutory definition of an investment company is

not an investment company if: (a) no more than

45% of the value of its total assets (exclusive or

government securities and cash items) consists of

securities other than government securities,

securities issued by employee securities companies,

securities of certain majority-owned subsidiaries,

and securities issued by companies under the

primary control of the issuer that are not investment

companies; and (b) no more than 45% of its income

after taxes (over the last four fiscal quarters

combined) is received from such securities. 2 ‘‘Electricity Czar,’’ Que Pasa, May 1992.

3Any order concerning the application will be

limited to determining whether Enersis controls

Endesa under section 2(a)(9). Enersis is not seeking

any determination as to whether it ‘‘primarily’’

controls Endesa for purposes of rule 3a–1 or

whether applicant falls within the definition of

investment company under the Act.

Empresa Nacional de Electricidad S.A.

(‘‘Endesa’’), notwithstanding that it

owns less than 25% of its voting

securities.

FILING DATE: The application was filed

on April 28, 1994 and amended on July

8, 1994 and October 6, 1994.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicant with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

March 23, 1995, and should be

accompanied by proof of service on

applicant, in the form of an affidavit or,

for lawyers, a certificate of service.

Hearing requests should state the nature

of the writer’s interest, the reason for the

request, and the issues contested.

Persons who wish to be notified of a

hearing may request such notification

by writing to the SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street NW., Washington, DC 20549.

Applicant, Santo Domingo 789,

Santiago, Chile.

FOR FURTHER INFORMATION CONTACT: Fran

Pollack-Matz, Senior Attorney, at (202)

942–0570, or Barry Miller, Senior

Special Counsel, at (202) 942–0564

(Division of Investment Management,

Office of Investment Company

Regulation).

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.

Applicant’s Representations

1. Applicant is a Chilean holding

company primarily engaged through its

majority-owned subsidiaries and related

companies in the utility business.

Applicant is not registered under the

Investment Company Act by virtue of its

reliance on rule 3a–1.1

2. Endesa is a Chilean electric

generation company, Applicant owns

directly and indirectly approximately

17% of Endesa and is Endesa’s largest

shareholder. Four of the five remaining

largest shareholders of Endesa are

entities comparable to United States

pension funds. Under Chilean law, the

amount one of these entities can invest

in a company similar to Endesa is the

lesser of 7% of its assets or 7% of

Endesa’s equity. The fifth large

shareholder of Endesa is a company

owning approximately 3.4% of Endesa’s

shareholder equity. Applicant,

therefore, owns more than twice as

many shares as the next largest

shareholder.

3. Three of Endesa’s nine member

board are Enersis officers or directors.

Enersis’s equity ownership gives it the

power to elect two of Endesa’s directors;

a third Enersis official on Endesa’s

board publicly campaigned for the

position. These persons also hold the

positions of Enersis’s Chairman of the

Board, its Chief Executive Officer, and

its Director of Planning and

Development. Applicant’s Chief

Executive Officer is the Chairman of the

board of Endesa. The Chairman is

entitled to cast a second vote in the

event of a tie of Endesa’s board of

directors, thereby giving Enersis an

additional vote.

4. Enersis, previously a governmentowned utility, was privatized in 1987

and restructured to become a holding

company. Since its privatization, all of

Enersis’s stock acquisitions have been of

utility businesses. Enersis’s strategy has

been to concentrate its activities on its

core utility business and to take stock

positions in other entities only under

circumstances where it is the dominant

shareholder or where it and Endesa

together are the dominant shareholders

of the entity whose stock is being

acquired.

5. Jose Yuraszeck, Enersis’s Chief

Executive Officer, became Endesa’s

Chairman in April 1992. He is

commonly referred to as the ‘‘Electricity

Czar’’ in Chile and is identified by the

public as personifying Endesa.2 Mr.

Yuraszeck is also Chairman of Endesa’s

subsidiary formed to build, own, and

mange Endesa’s major power plant

development.

6. Endesa’s Director of Planning and

Development was assigned to Endesa at

Enersis’s direction and the planning and

development staffs of Enersis and

Endesa have collaborated on various

projects.

Applicant’s Legal Analysis

1. Section 2(a)(9) defines ‘‘control’’ as

‘‘the power to exercise a controlling

influence over the management or

policies of a company, unless such

power is solely the result of an official

position with such company.’’ Section

2(a)(9) also creates a presumption that

owners of more than 25% of a

company’s voting securities control

such company, and the owners of 25%

or less of a company’s voting securities

do not control such company. A

securityholder may obtain an SEC order

rebutting either presumption by

producing evidence to the contrary.

2. Applicant seeks an order of the SEC

declaring that it controls Endesa,

notwithstanding the presumption under

the Act that ownership of less than 25%

of a company’s voting securities is

insufficient to establish control.3

3. Applicant argues that the facts set

forth in the application are sufficient to

support a finding that applicant controls

Endesa. Applicant holds the largest

share of Endesa’s voting securities and

has significant representation on

Endesa’s board of directors.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–5334 Filed 3–3–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. IC–20926; File No. 812–9230]

The Equitable Life Assurance Society

of the United States, et al.

February 27, 1995.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’ or the

‘‘Commission’’).

ACTION: Notice of application for an

order under the Investment Company

Act of 1940 (the ‘‘1940 Act’’).

APPLICANTS: The Equitable Life

Assurance Society of the United States

(‘‘Equitable’’), Separate Account No. 45

of Equitable (the ‘‘Account’’), any other

separate account established by

Equitable in the future to support

certain deferred variable annuity

contracts and certificates issued by

equitable (‘‘Other Account’’), and

Equitable Capital Securities Corporation

(‘‘ECCS’’).

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) of the 1940

Act for exemptions from Sections

2(a)(35), 26(a)(2)(C) and 27(c)(2) thereof.

SUMMARY OF APPLICATION: Applicants

seek an order to permit the deduction

of: (i) a mortality and expense risk

charge from the assets of the Account in
12262 Federal Register / Vol. 60, No. 43 / Monday, March 6, 1995 / Notices

1A contract owner’s ‘‘Annuity Account Value’’ is

the sum of the amounts held for the owner in the

‘‘Investment Options’’ under the Account Contracts.

The ‘‘Investment Options’’ include the variable

investment options and each guarantee period

account available through the Account Contracts.

connection with the offering of certain

deferred variable annuity contracts and

certificates (collectively, the ‘‘Account

Contracts’’) issued by Equitable through

the Account; (ii) a guaranteed minimum

death benefit charge from a contract

owner’s account value; and (iii) a

contribution-based distribution fee from

a contract owner’s account value.

Applicants also seek an order to permit

the deduction of a mortality and

expense risk charge, guaranteed

minimum death benefit charge and

contribution-based distribution fee from

the assets of, and account values held

in, the Account and of any Other

Account in connection with the offering

in the future of deferred variable

annuity contracts (the ‘‘Other

Contracts’’) which are substantially

similar in all material respect to the

Account Contracts and are issued by

Equitable through the Account or any

Other Account.

FILING DATE: The Application was filed

on September 16, 1994, and amended

and restated on January 6, 1995.

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 must be

received by the Commission by 5:30

p.m. on March 24, 1995, 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, SEC, 450 Fifth

Street NW., Washington, D.C. 20549.

Applicants, 787 Seventh Avenue, Area

36–K, New York, NY 10019.

FOR FURTHER INFORMATION CONTACT:

Patrice M. Pitts, Attorney, or Wendy

Finck Friedlander, Deputy 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

is available for a fee from the Public

Reference Branch of the Commission.

Applicants’ Representations

1. Equitable is a stock life insurance

company organized under the laws of

the State of New York. Equitable serves

as depositor of the Account. Equitable

may establish one or more Other

Accounts in the future, for which it will

serve as depositor.

2. The Account was established on

August 15, 1994, as a segregated asset

account of Equitable. Any income, gains

or losses, realized or unrealized, from

assets allocated to the Account are

credited to or charged against the

Account without regard to other

income, gains or losses of Equitable. The

Account is registered with the

Commission as a unit investment trust

series investment company under the

1940 Act. The Account will fund the

variable benefits available under the

Account Contracts. Units of interest in

the Account under the Account

Contracts will be registered under the

Securities Act of 1933. In the future,

Equitable may issue Other Contracts

through the Account or Other Accounts.

3. The Account Contracts consist of a

basic form of group annuity contract

(the ‘‘Group Contract’’), a basic form of

certificate (‘‘Certificate’’) issued under

the Group Contract, and forms of

Certificate endorsements

(‘‘Endorsements’’) to be used for specific

benefits under the Certificates.

Certificates may be issued as individual

contracts in certain states.

4. The Account Contracts will be

offered in the tax-qualified retirement

plan (‘‘Plan’’) market and in nonqualified (‘‘NQ’’) markets. The Account

Contracts initially will be offered in the

rollover individual retirement annuity

(‘‘IRA’’) Plan market and in NQ markets.

In both the IRA Plan and NQ markets,

the initial contribution must be at least

$10,000; under IRA Certificates, that

initial payment may come in the form

of a minimum rollover contribution or

direct transfer from another individual

retirement arrangement. In both IRA

Plan and NQ markets, additional

contributions must be at least $1,000.

5. Different minimum contribution

amounts may be established for other

Plan markets. Lower minimum amounts

may be established for automatic

investment programs. Maximum

limitations on contributions also may be

imposed. Contributions under the

Certificates may be accumulated before

annuitization, and annuity payments

may be received after annuitization, on

a variable basis. Annuity payments also

may be received on a fixed basis.

6. Under an Endorsement, the

Certificates permit contributions to be

allocated to guarantee periods expiring

on specified dates. The guarantee

periods will be funded through a ‘‘nonunitized’’ separate account established

by Equitable; assets in such ‘‘nonunitized’’ separate account will be

subject to the claims of Equitable’s

general creditors. Each guarantee period

will provide a guarantee of the

contribution allocated thereto and

interest, which guarantee is supported

by Equitable’s general accounts assets,

including those allocated to the ‘‘nonunitized’’ separate account. An upward

or downward adjustment—a ‘‘market

value adjustment (‘‘MVA’’)’’—will be

made to the Annuity Account Value 1 in

a guarantee period upon a withdrawal,

surrender or transfer from a guarantee

period before its expiration. Death

benefit amounts based on Annuity

Account Value in a guarantee period

only will reflect any upward MVA.

7. Under an Endorsement, the

Certificates may include a life

contingent annuity option funded

through Equitable’s general account.

The life contingent annuity provides

guaranteed periodic fixed annuity

benefits, generally commencing at later

ages, for the life of the annuitant or a

survivor annuitant. This form of benefit

will be offered for use in conjunction

with certain reallocations and

withdrawal arrangements to be made

available by Equitable.

8. The Account currently is

subdivided into nine subaccounts

(‘‘Investment Funds’’), each of which

will be available under the Certificates.

Each Investment Fund will invest in the

shares of a corresponding portfolio

(‘‘Portfolio’’) of The Hudson River Trust

(the ‘‘Trust’’). The Trust is an open-end,

diversified ‘‘series’’ management

investment company, registered under

the 1940 Act.

9. In the future, Equitable may create

additional Investment Funds of the

Account to invest in any additional

Portfolios, or other such underlying

portfolios or other investments as may

now or in the future be available.

Investment Funds also may be

combined or eliminated from time to

time.

10. ECSC is an indirect wholly-owned

subsidiary of Equitable, and will be the

principal underwriter of the Account

and the distributor of the Account

Contracts. ECSC is registered with the

Commission as a broker-dealer under

the Securities Exchange Act of 1934 (the

‘‘1934 Act’’), and is a member of the

National Association of Securities

Dealers, Inc. (the ‘‘NASD’’). The

Certificates will be offered through

representatives of ECSC and its

affiliates, as well as through unaffiliated

broker-dealers who have entered into

agreements with ECSC. All of such
Federal Register / Vol. 60, No. 43 / Monday, March 6, 1995 / Notices 12263

2The ‘‘Contract Date’’ is the date on which an

annuitant is enrolled under a Group Contract, or the

effective date of an individual contract form of

Account Contract in states requiring individual

contracts.

3The ‘‘Processing Date’’ is each anniversary of the

Contract Date, but may occur quarterly.

affiliates and unaffiliated broker-dealers

will be registered broker-dealers under

the 1934 Act and NASD members.

11. ECSC or any successor entity may

act as principal underwriter for any

Other Account and as distributor for any

Other Contracts. A successor entity also

may act as principal underwriter for the

Account.

12. The charges and fees described

below are the maximum that may be

imposed under the Certificates. The

amount of the applicable charges and

fees, as set forth in the Certificates and

relevant offering prospectuses, may not

be increased during the life of the

Certificate without the owner’s consent.

Equitable may reserve the right to

impose transfer charges not otherwise

applicable when the Certificate is

issued, subject to the maximum

amounts described below.

13. Equitable proposes to deduct a

daily asset charge from the Account for

assuming mortality and expense risks.

Equitable assumes a mortality risk by its

contractual obligation to continue to

make annuity payments for the entire

life of the annuitant under annuity

options involving life contingencies,

regardless of the annuitant’s own

longevity or an improvement in life

expectancy generally. Equitable assumes

the risk that annuitants as a group will

live longer than Equitable’s annuity

tables predict, which would require

Equitable to pay out more in annuity

income than it planned.

14. Equitable will assume an expense

risk under the Certificates to the extent

that the administrative charges

applicable under the Certificates—

including the annual contract fee, the

asset-based administrative charge, the

withdrawal processing charge, and the

transfer charges—may be insufficient to

cover actual administrative expenses.

15. As compensation for assuming

mortality and expense risks, Equitable

will assess a daily charge, equal on an

annual basis to 0.90% of the assets of

each Investment Fund of the Account.

Approximately 0.60% of the charge is

for assumption of mortality risks, and

approximately 0.30% is for assumption

of expense risks. (Equitable reserves the

right to revise the percentages so

allocated.)

16. The Certificates provide for a

death benefit which is the sum of (a) the

Annuity Account Value or, if greater,

the ‘‘guaranteed minimum death

benefit, ’’ and (b) the death benefit

provided in an Endorsement (including

a ‘‘Market Value Adjustment Terms

Endorsement’’ proposed to offered by

Equitable).

17. On the Contract Date,2 the

guaranteed minimum death benefit

applicable to Certificates issued in all

states except New York will equal the

portion of the initial contribution

allocated to the Account. Thereafter

(except as adjusted at the end of the

seventh Contract year), the guaranteed

minimum death benefit will equal (i)

the prior guaranteed minimum death

benefit, (ii) plus any subsequent

contributions to and transfers into the

Account, (iii) less any transfers out of,

and any withdrawals from, the Account,

(iv) plus interest credited on each

Processing Date.3 At the end of the

seventh Contract year, the guaranteed

minimum death benefit will be set at the

then current guaranteed minimum death

benefit or, if greater, the current

Annuity Account Value in the Account.

18. Interest for the guaranteed

minimum death benefit calculation

under NQ Certificates will be credited at

rates determined by the annuitant’s

‘‘issue age’’ (the annuitant’s age at issue

of the Certificate)—6% for issue ages 0

through 69, 3% for issue ages 70

through 74, and 0% for issue ages 75

and older. For amounts in the money

market Investment Fund, the rate will

be based on the lesser of those

guaranteed minimum death benefit

interest rates and the actual rate of

return.

19. Under IRA Certificates, interest

will be credited at the applicable

effective annual guaranteed minimum

death benefit interest rate for an

‘‘attained age’’ (the owner’s age at issue

of the Certificate plus the number of

Contract years that have elapsed since

the Contract Date)—6% for attained ages

0 through 70, and 0% for attained ages

71 through 85. For amounts in the

money market Investment Fund, the rate

will be based on the lesser of those

guaranteed minimum death benefit

interest rates and the actual rate of

return.

20. For Certificates sold in New York,

the guaranteed minimum death benefit

is calculated on a basis different from

that for Certificates sold in all other

states, but will not be less than (i) the

initial and any subsequent contributions

and transfers into the Account, (ii) less

any transfers out of, and any

withdrawals from, the Account, (iii)

plus interest credited on each

Processing Date in the same manner as

under Certificates sold in all other

states.

21. Equitable will impose a charge for

providing the guaranteed minimum

death benefit and assuming related

mortality risks. The charge will not be

asset-based, but will be based on the

amount of the guaranteed minimum

death benefit, and will compensate

Equitable for the risk that the annuitant

may die at a time when the cash value

of the Account is less than the amount

of the guaranteed minimum death

benefit. Because the Certificates do not

impose any withdrawal charge on the

payment of a death benefit, Equitable

assumes the risk that the owner will die

at a time when the withdrawal charge

would otherwise have been applicable.

Equitable also will assume the risk that,

at the time of death, the Annuity

Account Value will not have increased

by at least the amount of interest

credited to contributions in determining

the amount of the guaranteed minimum

death benefit.

22. The maximum guaranteed

minimum death benefit charge is 0.35%

of the amount of the guaranteed

minimum death benefit as of each

Processing Date. The applicable charge

will be deducted from the Annuity

Account Value held in the Investment

Funds on each Processing Date, and will

be the same for all Certificates.

23. No sales charges will be deducted

at the time contributions are applied

under a Certificate. A distribution fee, or

sales load, equal to a maximum of

1.00% of the amount of each

contribution made, and not withdrawn,

may be deducted from the Annuity

Account Value held in the Investment

Funds annually on each of the seven

Processing Dates following the receipt

by Equitable of each contribution. The

distribution fee, if any, will be deducted

from the Investment Funds on a pro-rata

basis, unless the Certificate owner

specifies otherwise. If, at any time

before the seventh Processing Date, the

Certificate owner surrenders the

Certificate for its cash value (i.e., the

Annuity Account Value less any

applicable charges) or annuitizes, the

Certificate is terminated, or a death

benefit is payable, no further

distribution fee deductions will be

made. If a partial withdrawal is taken

before the seventh Processing Date, the

distribution fee will be applied only to

the remaining amount of the

contribution. The distribution fee and

the withdrawal charge (described

below) combined will never exceed the

amount of the maximum withdrawal

charge. Any amounts realized from the

distribution fee will be used to defray a

portion of the sales expenses.
12264 Federal Register / Vol. 60, No. 43 / Monday, March 6, 1995 / Notices

4Equitable represents that, to the extent

necessary, it will assess charges for premium taxes

in reliance upon Rule 26a–2(d) under the 1940 Act.

24. Depending upon the distribution

channels used and other factors

affecting marketing costs, Equitable may

offer Certificates at distribution fee

levels below 1.00%, or without a

distribution fee. In addition, Equitable

may increase the number of Processing

Dates over which the distribution fee

may be imposed.

25. A withdrawal charge will be

imposed upon a surrender of a

Certificate, upon annuitization, or upon

any partial withdrawal. The charge will

apply to amounts in excess of a ‘‘free

corridor amount’’ and will be deducted

from the Annuity Account Value held in

the Investment Funds from which the

withdrawal is made. The withdrawal

charge is a percentage of each

contribution received by Equitable, and

depends on the Contract year in which

the Certificate is surrendered, or a

partial withdrawal is taken. The

maximum withdrawal charge during the

first Contract year—i.e., when Equitable

receives the contribution—is 7% and

declines by 1% each Contract year

thereafter to zero in the eighth and

subsequent Contract years.

26. A ‘‘free corridor amount’’ equal to

15% of the Annuity Account Value

under a Certificate at the beginning of

the Contract year, less prior withdrawals

made in that Contract year, may be

withdrawn during that Contract year

without being subject to the withdrawal

charge. The ‘‘free corridor amount’’ is

not applicable upon the surrender of a

Certificate.

27. When computing the withdrawal

charge, amounts shall be considered

withdrawn on a ‘‘first-in, first-out’’

basis. The withdrawal charge is not

applicable upon the payment of any

death benefit. The amounts obtained

from the withdrawal charge, together

with the distribution fee, will be used to

help defray expenses incurred in the

sale of Certificates. The withdrawal

charges will not exceed the percentages

discussed above. Based on marketing

considerations, Equitable may reduce

the percentages charged or increase the

number of Contract years over which

the charges are imposed. During the life

of the Certificate, the schedule of

withdrawal charges shown in a

Certificate will not be increased, nor

will the charge period be abbreviated.

28. The administrative charges which

may be assessed under the Certificates

include: a maximum annual contract

fee, equal to the greater of 0.15% of the

amount of each contribution made and

$30 per Contract Year, which is

incurred by the Certificate owner at the

beginning of each Contract Year and

deducted annually on each Processing

Date; and a daily asset-based

administrative charge, at a maximum

annual rate of 0.25%, assessed against

the Investment Funds. Unless the

Certificate owner directs otherwise, the

annual contract fee will be deducted

pro-rata from amounts held in the

Investment Funds. The annual contract

fee may be inapplicable if the total

contributions received under a

Certificate exceed specified amounts.

29. The administrative charges also

include a charge, equal to the lesser of

$25 or 2% of the amount withdrawn, for

processing each partial withdrawal

(other than withdrawals under certain

flexible payment distribution options)

after the first in a Contract year. This

charge will be deducted pro-rata from

the Investment Funds from which each

withdrawal is made. This charge does

not apply upon the surrender of a

Certificate.

30. The Certificates provide for five

free transfers during a Contract year. For

each additional transfer in excess of the

free transfers, Equitable may charge $25

at the time the transfer is processed. The

charge will be deducted pro-rata from

the Investment Funds from which the

transfer is made. Equitable also may

deduct a $25 transfer charge for a direct

transfer to a third party of amounts

under the Certificate, or for an exchange

for the contract of another insurance

carrier.

31. Equitable expects that, over the

period that the Certificates are in force,

the revenues from the administrative

charges—including the annual contract

fee, the daily asset-based administrative

charge, the withdrawal processing

charge, and the transfer charges—will

not exceed its total expected costs of

administering the Certificates, on

average, excluding costs that are

properly categorized as distribution

expenses. Applicants represent that

these administrative charges will be

deducted in reliance upon and in

compliance with Rule 26a–1 under the

1940 Act.

32. Unless the Certificate owner

specifies otherwise, charges for

premium taxes generally are deducted

from the Annuity Account Value in the

Investment Funds upon annuitization.

Under Certificates sold in certain states,

however, a deduction for premium taxes

is made from the Annuity Account

Value in the Investment Funds at the

time the contribution is received.

Whether premium taxes are applicable

depends on the owner’s current place of

residence; such taxes generally range

from 0% to 5% of contributions or the

amount annuitized, as appropriate.

Equitable represents that the amount

that it will recover for premium taxes

will not exceed the amount of premium

taxes required to be paid.4

33. Applicants represent that if the

mortality and expense risk charge and

the guaranteed minimum death benefit

charge are insufficient to cover the

expenses and costs assumed, the loss

will be borne by Equitable; if the

amounts deducted prove more than

sufficient, the excess will be profit to

Equitable. Equitable expects to earn a

profit over the expected life of the

Certificates from the mortality and

expense risk and the guaranteed

minimum death benefit charges. If the

distribution fee and withdrawal charge

are insufficient to cover the actual costs

of distribution, the expenses will be

paid from Equitable’s general account

assets, which will include any profit

derived from the mortality and expense

risk and the guaranteed minimum death

benefit charges.

Applicants’ Legal Analysis

1. Applicants request that the

Commission, pursuant to Section 6(c) of

the 1940 Act, grant exemptions from

Sections 2(a)(35), 26(a)(2)(C) and

27(c)(2) thereof to the extent necessary

to permit the assessment of a mortality

and expense risk charge, a guaranteed

minimum death benefit charge, and a

distribution fee under the Account

Contracts and Other Contracts.

2. Section 6(c) of the 1940 Act

provides, in relevant part, that the

Commission may issue an order

exempting any person, security or

transaction, or any class or classes

thereof, from any provisions of the 1940

Act as may be 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 1940 Act.

3. Applicants believe that the terms of

the relief requested with respect to any

Other Contracts funded by the Account

or any Other Account are consistent

with the standards set forth in Section

6(c) of the 1940 Act. Applicants

undertake that the Other Contracts

funded by the Account or any Other

Account will be substantially similar in

all material respects to the Account

Contracts. Applicants state that without

the requested relief Applicants would

have to request and obtain exemptive

relief in connection with Other

Contracts and/or Other Accounts. Any

such additional request for exemption

would present no issues under the 1940

Act that have not already been

addressed in this Application.
Federal Register / Vol. 60, No. 43 / Monday, March 6, 1995 / Notices 12265

4. Applicants submit that the

requested relief is appropriate in the

public interest because it would

promote competitiveness in the variable

annuity contract market by eliminating

the need for Equitable to file redundant

exemptive applications, thereby

reducing its administrative expenses

and maximizing the efficient use of its

resources. The delay and expense

involved in having to repeatedly seek

exemptive relief would impair

Equitable’s ability to effectively take

advantage of business opportunities as

they arise.

5. Applicants submit that the reasons

cited above also explain why the

requested relief is consistent with the

purposes of the 1940 Act and the

protection of investors. In this regard,

Applicants submit that investors would

not receive any benefit or additional

protection if Equitable were required

repeatedly to seek exemptive relief with

respect to the same issues addressed in

this Application. Indeed, investors

might be disadvantaged as a result of

Equitable’s increased overhead

expenses.

6. Section 2(a)(35) defines ‘‘sales

load’’ as the difference between the

price of a security to the public and that

portion of the proceeds from its sale

which is received and invested by the

issuer, less any portion of such

difference deducted for trustee’s or

custodian’s fees, insurance premiums,

issue taxes, or administrative expenses

or fees which are not properly

chargeable to sales or promotional

activities.

7. The literal wording of Section

2(a)(35) contemplates a front-end sales

charge. Although Rule 6c–8 permits the

deduction of a contingent deferred sales

load, such as the withdrawal charge

provided for in the Certificates, that rule

is not available for the periodic

deduction of a contribution-based

deferred distribution fee. Applicants,

therefore, request an exemption from

Section 2(a)(35) to the extent necessary

to permit the assessment of a

contribution-based deferred distribution

fee under the Accounts.

8. Sections 26(a)(2)(C) and 27(c)(2) of

the 1940 Act require, among other

things, that all payments received under

a periodic payment plan certificate sold

by a registered unit investment trust,

any depositor thereof or underwriter

therefor, be held by a qualified bank as

trustee or custodian, under

arrangements which prohibit any

payment to the depositor or principal

underwriter except for the payment of a

fee, not exceeding such reasonable

amount as the Commission may

prescribe, for bookkeeping and other

administrative services.

9. Applicants submit that because the

distribution fee is designed to

compensate for sales related expenses,

not bookkeeping or other administrative

services, it could be argued that Section

26(a)(2)(C) precludes the deduction of

the distribution fee from the Annuity

Account Value in the Account.

Applicants also submit that Section

27(c)(2) may be construed to prohibit a

registered investment company or a

depositor or underwriter for such a

company from selling any periodic

payment plan certificate (such as the

Certificates) unless the proceeds of all

the payments under such a certificate

are held by a trustee or custodian under

an agreement containing the substance

of the provisions of Section 26(a)(2). For

this reason, Applicants state that it

could be argued that the Account, by

virtue of the deduction of the

distribution fee, does not meet the

requirements of Section 26(a)(2)(C) and,

therefore, the sale of the Certificates

violates Section 27(c)(2). Accordingly,

Applicants request exemption from

Sections 2(a)(35), 26(a)(2)(C) and

27(c)(2) to the extent necessary to

permit the deduction of the distribution

fee in the manner described in this

Application.

10. Applicants submit that the

imposition of a sales load in the form of

a contribution-based charge that is

deducted over an extended period is

more favorable to Certificate owners

than the deduction of the equivalent

charge as a front-end sales load (as

contemplated by Section 2(a)(35)). In

this regard, Applicants note that the full

amount of a contribution is available for

investment in the Account, thereby

providing each Certificate owner with

more investment dollars than if an

equivalent front-end sales charge were

deducted from the contribution.

11. Applicants also state that

deferring a sales charge can benefit

Certificate owners by permitting them to

receive any positive investment

experience on the portion of the charge

that is deferred. Applicants further state

that, because the distribution fee is not

deducted from death benefit proceeds,

deducting the distribution fee over time,

rather than at issue of the Certificate,

can favorably affect the amount of the

death benefit payable if death occurs

during the first seven Contract years.

Applicants also state that the total

amount charged to a Certificate owner

when the distribution fee is deducted

over time is no greater than the amount

that would be charged if the distribution

fee were deducted from the contribution

as a front-end sales load.

12. Applicants state that the

Commission previously has

promulgated regulations permitting the

deduction of sales charges from cash

value, but only in connection with

variable life insurance policies pursuant

to Rule 6e–3(T) under the 1940 Act.

Applicants submit that the reasoning

that justifies the exemptions provided

by that rule in connection with variable

life insurance policies also justifies

exemptive relief in this instance.

13. Applicants represent that the

distribution fee may not exceed 7% of

the contribution made, and the total

sales load will never be more than the

maximum withdrawal charge of 7%. In

this regard, Applicants assert that if a

Certificate owner does not withdraw a

contribution in the seven-year period

after the contribution is made, no

withdrawal charge will be applicable,

but the 1% maximum distribution fee

will be imposed on each Processing

Date, for a maximum total of 7% of the

contribution made. Applicants further

assert that if a partial withdrawal of a

contribution is made during that sevenyear period, the amount withdrawn will

be subject to a withdrawal charge, but

will no longer be part of the

contribution base upon which the

distribution fee is assessed on a

Processing Date. That is, the amount

withdrawn would not be subject to any

further distribution fee, and the balance

of the contribution would not be subject

to a withdrawal charge, but would be

charged a distribution fee on the

Processing Date. Accordingly,

Applicants represent that, as the

withdrawal charge is reduced 1% in

each of the years following the year in

which the contribution is made, and the

distribution fee only applies to the

remaining amount of a contribution

after a withdrawal, the sum of the

distribution fee and the withdrawal

charge (as applicable) will never exceed

7% of the contribution made.

Applicants also represent that the sum

of the distribution fee and the

withdrawal charge (as applicable)

always will be lower than the 9%

maximum permitted by Rule 6c–8 and

the provisions of Section 27(a)(1) of the

1940 Act regarding maximum sales

loads for variable insurance products or

periodic payments plan certificates.

14. Applicants assert that the

maximum guaranteed minimum death

benefit charge is reasonable in relation

to the risk assumed by Equitable under

the Certificates. In arriving at this

determination, Equitable states that it

conducted a large number of trials at

different issue ages to determine the

expected cost of the guaranteed

minimum death benefit. By analyzing
12266 Federal Register / Vol. 60, No. 43 / Monday, March 6, 1995 / Notices

1Prudential-Bache Securities, Inc., Investment

Company Act Release Nos. 14943 (Feb. 18, 1986)

(notice) and 14989 (March 13, 1986) (order).

the results of a statistically valid

number of such simulations, Equitable

was able to determine actuarially the

level cost of providing the benefit.

Based on this analysis, Equitable

determined that the 0.35% charge was

a reasonable charge for providing the

guaranteed minimum death benefit

under the Certificates. Equitable

undertakes to maintain at its home

office a memorandum, available to the

Commission upon request, setting forth

in detail the methodology used in

making that determination.

15. Applicants represent that the

aggregate mortality and expense risk

and guaranteed minimum death benefit

charges under the Certificates are

reasonable in relation to the risks by

Equitable under the Certificates, and

reasonable in amount as determined by

industry practice for comparable

contracts. Applicants represent that they

have reviewed publicly available

information regarding the aggregate

level of the mortality and expense risk

and guaranteed minimum death benefit

charges under comparable variable

annuity contracts currently being

offered in the insurance industry, taking

into consideration such factors as

current charge levels, the manner in

which charges are imposed, the

presence of charge level or annuity rate

guarantees, and the markets in which

the Certificate will be offered.

Applicants will maintain and make

available to the Commission upon

request a memorandum outlining the

methodology underlying the foregoing

representations.

16. Equitable will assess a mortality

and expense risk charge not to exceed

an annual rate of 0.90%, and a

maximum annual charge of 0.35% of the

guaranteed minimum death benefit.

Assuming a hypothetical gross

investment return in the Account of

5.0%, the 0.35% maximum guaranteed

minimum death benefit charge would, if

expressed as a daily charge against

Account assets, add approximately

0.35% to the 0.90% mortality and

expense risk charge, for a total charge,

on an annual basis, of approximately

1.25% of the assets in the Investment

Funds.

17. For higher hypothetical gross

returns, the guaranteed minimum death

benefit charge, when expressed as an

asset-based charge, would be less; for

lower hypothetical gross returns, it

would be more. Applicants assert that

this is because the charge base—which

is essentially contributions plus

interest—is a relative constant in dollar

amount compared to the fluctuating

values of an Investment Fund. Thus, as

a percentage of the assets of an

Investment Fund, which (assets) change

with investment performance, positive

performance results in a reduction of

the guaranteed minimum death benefit

charge when expressed as an assetbased charge; negative performance will

result in an increase in the guaranteed

minimum death charge when expressed

as an asset-based charge.

18. Applicants acknowledge that the

withdrawal charge and distribution fee,

as applicable, may be insufficient to

cover all costs relating to the

distribution of the Certificates.

Applicants further acknowledge that if a

profit is realized from the mortality and

expense risk and guaranteed minimum

death benefit charges, all or a portion of

such profit may be offset by distribution

expenses not reimbursed by the

withdrawal charge and distribution fee.

In such circumstances, a portion of such

charges might be viewed as providing

for costs relating to distribution of the

Certificates.

19. Notwithstanding the foregoing,

Equitable has concluded that there is a

reasonable likelihood that the proposed

distribution financing arrangements

made with respect to the Certificates

will benefit the Account and Certificate

owners and annuitants. Equitable

represents that it will maintain at its

principal office, and make available on

request to the Commission, a

memorandum setting forth the basis for

such conclusion.

20. Equitable represents that the

Account will invest only in an

underlying mutual fund which has

undertaken to have a board of directors,

a majority of the members of which are

not ‘‘interested persons’’ of such fund

within the meaning of Section 2(a)(19)

of the Act, formulate and approve any

plan to finance distribution expenses in

accordance with Rule 12b–1 under the

1940 Act.

Conclusion

Applicants submit that for the reasons

and based upon the facts set forth above,

the requested exemptions from Sections

2(a)(35), 26(a)(2)(C) and 27(c)(2) of the

1940 Act to permit the assessment of a

mortality and expense risk charge, a

guaranteed minimum death benefit

charge, and a distribution fee under the

Account Contracts and Other Contracts

meet the statutory standards of Section

6(c) of the 1940 Act. Accordingly,

Applicants assert that the requested

exemptions 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 1940 Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–5335 Filed 3–3–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–20922; 812–8846]

Prudential Securities Incorporated, et

al.; Notice of Application

February 27, 1995.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for

exemption under the Investment

Company Act of 1940 (the ‘‘Act’’).

APPLICANTS: Prudential Securities

Incorporated (the ‘‘Sponsor’’); and

National Municipal Trust, Prudential

Unit Trusts, National Equity Trust, and

Government Securities Equity Trust (the

‘‘Trusts’’).

RELEVANT ACT SECTIONS: Order requested

pursuant to section 6(c) for exemptions

from sections 2(a)(32), 2(a)(35), 22(c),

22(d), and 26(a)(2)(C) of the Act and rule

22c–1 thereunder, and pursuant to

section 11(a) to amend a prior order (the

‘‘Prior Order’’) granting relief from

section 11(c).1

SUMMARY OF APPLICATION: Applicants

seek to impose sales charges on a

deferred basis and waive the deferred

sales charge in certain cases, exchange

Trust units having deferred sales

charges, and exchange units of a

terminating series of a Trust for units of

the next available series of that Trust.

FILING DATES: The application was filed

on February 22, 1994 and amended on

July 21, 1994, January 19, 1995, and

February 21, 1995.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicants with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

March 24, 1995, and should be

accompanied by proof of service on

applicants, in the form of an affidavit or,

for lawyers, a certificate of service.

Hearing requests should state the nature

of the writer’s interest, the reason for the

request, and the issues contested.

Persons who wish to be notified of the

date of a hearing may request