[Federal Register: September 2, 2003 (Volume 68, Number 169)]
[Notices]
[Page 52240-52243]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02se03-142]
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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:
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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:
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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