Correspondence 0001193125-23-201745 from EQ ADVISORS TRUST (CIK 0001027263)
EQ ADVISORS TRUST (CIK 0001027263)
Date: Aug. 2, 2023 · CIK: 0001027263 · Accession: 0001193125-23-201745
AI Filing Summary & Sentiment
File numbers found in text: 333-17217, 811-07953
Letter
VIA EDGAR AND E-MAIL U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549
Re: Responses to U.S. Securities and Exchange Commission Staff Comments on Post-Effective Amendment No. 169 to the Registration Statement on Form N-1A of EQ Advisors Trust (File Nos. 333-17217; 811-07953)
Dear Ms. Bentzinger:
On behalf of EQ Advisors Trust (the “Trust”), set forth below are comments that you provided by telephone on June 16, 2023, concerning Post-Effective Amendment No. 169 to the Trust’s Registration Statement on Form N-1A (the “Post-Effective Amendment”) with respect to 11 new series of the Trust. The Post-Effective Amendment was filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 5, 2023, pursuant to the Securities Act of 1933, as amended (the “1933 Act”), and Rule 485(a) of Regulation C thereunder, and pursuant to the Investment Company Act of 1940, as amended, and the regulations thereunder. Your comments are set forth in italics and are followed by the Trust’s responses. Unless otherwise noted, defined terms have the same meanings as in the Post-Effective Amendment.
1. General Comments
a. Comment: Where a comment is made in one location, it is applicable to all similar disclosure appearing elsewhere in the registration statement.
Response: The Trust will apply any revisions made in response to the Staff’s comments to disclosures throughout the registration statement, to the extent applicable.
b. Comment: To the extent the Portfolios have entered into Fund of Funds Agreements to comply with Rule 12d1-4, please include those agreements as exhibits to the post-effective amendment. In addition, please file a legal opinion for the new shares that are being registered.
Response: The Trust confirms that the Fund of Funds Agreements with Underlying Portfolios that do not have the same investment adviser will be included as exhibits in a post-effective amendment filed pursuant to Rule 485(b) under the 1933 Act. In addition, the Trust confirms that it will include a legality of shares opinion for shares of the new series in a post-effective amendment filed pursuant to Rule 485(b) under the 1933 Act.
U.S. Securities and Exchange Commission
August 2, 2023
Page
2. EQ/Conservative Allocation Portfolio Prospectus
a. Comment: To the extent there are any criteria with respect to maturity and duration that the Portfolio might use with respect to investments in fixed income securities, please disclose them as part of the Portfolio’s principal investment strategy.
Response: The Trust has added the following disclosure to the Principal Investment Strategy section of each Allocation Portfolio’s prospectus: “The Portfolio is not limited with respect to the maturity or duration of the fixed income securities in which it invests.”
b. Comment: The Portfolio’s principal investment strategy states that the Portfolio invests in high yield bonds. Please disclose the lowest rating in which the Portfolio may invest, and whether the Portfolio may invest in fixed income securities which are in default as a principal strategy.
Response: The Trust has added the following disclosure to the Principal Investment Strategy section of each Allocation Portfolio’s prospectus: “The high yield bond category generally includes fixed income securities rated at least CC by S&P or Fitch or at least Ca by Moody’s or, if unrated, deemed to be of comparable quality by the Underlying Portfolio’s Sub-Adviser.” The Trust confirms that investing in fixed income securities that are in default is not a principal strategy for any of the Allocation Portfolios.
c. Comment: The “Principal Investment Strategy” section includes the following statement: “The Portfolio is managed so that it can serve as a core part of your larger portfolio.” Please rewrite or clarify the statement, because the intended meaning is unclear, particularly for an insurance contract owner.
Response: The statement has been deleted from the Principal Investment Strategy section of each Allocation Portfolio’s prospectus.
d. Comment: The “Principal Investment Strategy” section includes the following statement: “Volatility management techniques may reduce potential losses and/or mitigate financial risks to insurance companies that provide certain benefits and guarantees available under the Contracts and offer the Portfolio as an investment option in their products.” Please revise, as the language is potentially misleading to the contract owner because the purpose of the volatility management strategy is to reduce the likelihood of the insurance company having to pay out of its own assets to meet the guarantee, rather than strengthening the financial position of the insurer so that it can meet its guarantee.
U.S. Securities and Exchange Commission
August 2, 2023
Page
Response: The Trust respectfully disagrees that the referenced language is potentially misleading. The existing disclosure clearly states that volatility management techniques may reduce losses or mitigate financial risks to insurance companies that provide benefits and guarantees. However, in response to the Staff’s comment, the Trust has revised the summary prospectus disclosure as follows:
Volatility management techniques may reduce potential losses and/or mitigate financial risks to insurance companies that provide certain benefits and guarantees available under the Contracts and offer the Portfolio as an investment option in their products. Accordingly, volatility management techniques may also benefit the insurance companies by reducing the risk that the insurance companies will be required to pay amounts to meet the benefits and guarantees from their own resources.
In addition, the Trust has added the following disclosure to the “Volatility Management Risk” risk disclosure in the statutory prospectus:
Insurance companies issuing guaranteed benefits on variable annuity and insurance contracts investing in a Portfolio have a financial interest in preserving the value of the Portfolio and reducing its volatility due to their obligations for these guaranteed benefits (the cost of providing these guaranteed benefits is related to several factors including the performance and volatility of the Portfolio). To the extent a Portfolio is successful in managing the volatility of returns and downside risk, the insurance companies issuing guaranteed benefits on variable annuity and insurance contracts investing in the Portfolio will also benefit from a reduction in their potential investment risk which will reduce their costs of hedging this risk and may reduce their reserve and capital requirements. These financial benefits to the insurance companies may be significant.
e. Comment: The Market Risk disclosure in the summary risk section includes disclosure regarding actions taken by the U.S. Federal Reserve. Please confirm that the disclosure is updated to reflect recent market events, or update the disclosure here and elsewhere to reflect recent market events.
Response: The Trust confirms that it has updated risk disclosures throughout the registration statement to reflect recent market and other events, as deemed appropriate.
3. Target Allocation Portfolios’ Prospectus
a. Comment: The principal strategy disclosure of each Target Allocation Portfolio states that the Portfolio may invest in emerging markets. Please add a corresponding risk factor.
Response: The Trust has added an “Emerging Markets Risk” disclosure to each Target Allocation Portfolio’s summary prospectus as follows:
Emerging Markets Risk: The risks associated with investments in emerging market countries often are significant, and vary from jurisdiction to jurisdiction and company to company. Investments in emerging market countries are more susceptible to loss than investments in more developed foreign countries and may present market, credit, currency, liquidity, legal, political, technical and other risks different from, or greater than, the risks of investing in more developed foreign countries. Emerging market countries may be more likely to experience rapid and significant adverse developments in their political or economic structures, intervene in financial markets, restrict foreign investments, impose high withholding or other
U.S. Securities and Exchange Commission
August 2, 2023
Page
taxes on foreign investments, impose restrictive exchange control regulations, or nationalize or expropriate the assets of private companies, which may have negative impacts on transaction costs, market price, investment returns and the legal rights and remedies available to the Portfolio. In addition, the securities markets of emerging market countries generally are smaller, less liquid and more volatile than those of more developed foreign countries, and emerging market countries often have less uniformity in regulatory, accounting, auditing and financial reporting requirements or standards, which may impact the availability and quality of information about issuers, and less reliable clearance and settlement, registration and custodial procedures. Emerging market countries also may be subject to high inflation and rapid currency devaluations, and currency-hedging techniques may be unavailable in certain emerging market countries. In addition, some emerging market countries may be heavily dependent on international trade, which can materially affect their securities markets. Securities of issuers traded on foreign exchanges may be suspended. The likelihood of such suspensions may be higher for securities of issuers in emerging market countries than in countries with more developed markets.
b. Comment: The Item 9 disclosure for each Portfolio includes disclosure about investments in U.S. government securities and money market instruments. Please add corresponding disclosure to the summary prospectus.
Response: Each Target Allocation Portfolio’s Item 4 principal investment strategy disclosure indicates that the Portfolio may invest in fixed income investments “such as debt securities issued by the U.S. Government and its agencies and instrumentalities … and short-term investments such as money market instruments.” The Item 4 principal risk disclosure likewise includes disclosure about the risks of such fixed income investments, such as Interest Rate Risk, Credit Risk and Liquidity Risk. The Item 9 disclosure includes more detailed disclosure about such investments and risks. Accordingly, the Trust respectfully submits that no additional disclosure is necessary.
c. Comment: Each Target Allocation Portfolio’s principal strategy states that the Portfolio may invest in mortgage- and asset-backed securities. Confirm that a Portfolio will not go over 15% in non-agency, non-investment grade mortgage- and asset-backed securities. To the extent that a Portfolio may invest in less liquid investments, please explain how that investment is in line with an open-end fund structure, in line with Rule 22e-4. Also, please disclose the types of mortgage-backed securities and asset-backed securities (for example, collateralized loan obligations, collateralized debt obligations, and commercial and residential mortgage-backed securities) in which a Portfolio may invest indirectly, and whether they could be non-investment grade or non-agency. Please also add corresponding principal risk disclosure related to mortgage- and asset-backed securities in the summary prospectus. In addition, if a Portfolio will invest in subprime mortgages as a principal strategy, please disclose this in the “Principal Investment Strategy” section as well as in the “Principal Risks” section.
Response: The Trust has added disclosure to the “Principal Strategy” section of each of these Portfolios to clarify that the Portfolio’s indirect investments in mortgage-backed and
U.S. Securities and Exchange Commission
August 2, 2023
Page
asset-backed securities include primarily government, corporate, and investment grade agency mortgage-backed and asset-backed securities. The Trust confirms that these Portfolios will not invest in collateralized loan obligations, collateralized debt obligations, or collateralized mortgage obligations as a principal strategy. The Trust further confirms that these Portfolios will not invest, as a principal strategy, in mortgage-backed or asset-backed securities that are non-investment grade or non-agency. The Trust also confirms that these Portfolios will not invest in subprime mortgages as a principal strategy. The Trust has added to each of these Portfolio’s summary prospectuses principal risk disclosure regarding mortgage-backed and asset-backed securities as follows:
Mortgage-Related and Other Asset-Backed Securities Risk: Declines in the credit quality of and defaults by the issuers of mortgage-related and other asset-backed securities or instability in the markets for such securities may decrease the value of such securities, which could result in losses to the Portfolio, and may reduce the liquidity of such securities and make such securities more difficult to purchase or sell at an advantageous time and price. In addition, borrowers may default on the obligations that underlie mortgage-related and other asset-backed securities. The risk of defaults by borrowers generally is greater during times of rising interest rates and/or unemployment rates. The impairment (or loss) of the value of collateral or other assets underlying mortgage-related and other asset-backed securities will result in a reduction in the value of the securities. Certain collateral may be difficult to locate in the event of default, or may be lost, and recoveries of depreciated or damaged collateral may not fully cover payments due on such collateral. Asset-backed securities may not have the benefit of a security interest in collateral comparable to that of mortgage assets, resulting in additional credit risk.
Furthermore, mortgage-related and other asset-backed securities typically provide the issuer with the right to prepay the security prior to maturity. During periods of rising interest rates, the rate of prepayments tends to decrease because borrowers are less likely to prepay debt (such as mortgage debt or automobile loans). Slower than expected payments can extend the average lives of mortgage-related and other asset-backed securities, and this may “lock in” a below market interest rate and increase the security’s duration and interest rate sensitivity, which may increase the volatility of the security’s value and may lead to losses. During periods of falling interest rates, the rate of prepayments tends to increase because borrowers are more likely to pay off debt and refinance at the lower interest rates then available. Unscheduled prepayments shorten the average lives of mortgage-related and other asset-backed securities and may result in the Portfolio’s having to reinvest the proceeds of the prepayments at lower interest rates, thereby reducing the Portfolio’s income.
4. EQ/Core Plus Bond Portfolio Prospectus
a. Comment: The “Principal Investment Strategy” section states that the Portfolio normally invests primarily in investment grade fixed income securities, but the disclosure also indicates that the Portfolio may invest up to 40% of its assets in securities rated below investment grade. Please consider whether characterizing the investment using the term “primarily” is accurate.
U.S. Securities and Exchange Commission
August 2, 2023
Page
Response: The Trust believes that the disclosure is accurate. The principal investment strategy provides that the portfolio managers intend to maintain an “average weighted portfolio quality of BBB- or better, which is considered investment grade,” and further provides that investments in below investment grade securities are subject to
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CORRESP 1 filename1.htm EQ Advisors Trust August 2, 2023 VIA EDGAR AND E-MAIL Ms. Elisabeth Bentzinger U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Responses to U.S. Securities and Exchange Commission Staff Comments on Post-Effective Amendment No. 169 to the Registration Statement on Form N-1A of EQ Advisors Trust (File Nos. 333-17217; 811-07953) Dear Ms. Bentzinger: On behalf of EQ Advisors Trust (the “Trust”), set forth below are comments that you provided by telephone on June 16, 2023, concerning Post-Effective Amendment No. 169 to the Trust’s Registration Statement on Form N-1A (the “Post-Effective Amendment”) with respect to 11 new series of the Trust. The Post-Effective Amendment was filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 5, 2023, pursuant to the Securities Act of 1933, as amended (the “1933 Act”), and Rule 485(a) of Regulation C thereunder, and pursuant to the Investment Company Act of 1940, as amended, and the regulations thereunder. Your comments are set forth in italics and are followed by the Trust’s responses. Unless otherwise noted, defined terms have the same meanings as in the Post-Effective Amendment. 1. General Comments a. Comment: Where a comment is made in one location, it is applicable to all similar disclosure appearing elsewhere in the registration statement. Response: The Trust will apply any revisions made in response to the Staff’s comments to disclosures throughout the registration statement, to the extent applicable. b. Comment: To the extent the Portfolios have entered into Fund of Funds Agreements to comply with Rule 12d1-4, please include those agreements as exhibits to the post-effective amendment. In addition, please file a legal opinion for the new shares that are being registered. Response: The Trust confirms that the Fund of Funds Agreements with Underlying Portfolios that do not have the same investment adviser will be included as exhibits in a post-effective amendment filed pursuant to Rule 485(b) under the 1933 Act. In addition, the Trust confirms that it will include a legality of shares opinion for shares of the new series in a post-effective amendment filed pursuant to Rule 485(b) under the 1933 Act. U.S. Securities and Exchange Commission August 2, 2023 Page 2 2. EQ/Conservative Allocation Portfolio Prospectus a. Comment: To the extent there are any criteria with respect to maturity and duration that the Portfolio might use with respect to investments in fixed income securities, please disclose them as part of the Portfolio’s principal investment strategy. Response: The Trust has added the following disclosure to the Principal Investment Strategy section of each Allocation Portfolio’s prospectus: “The Portfolio is not limited with respect to the maturity or duration of the fixed income securities in which it invests.” b. Comment: The Portfolio’s principal investment strategy states that the Portfolio invests in high yield bonds. Please disclose the lowest rating in which the Portfolio may invest, and whether the Portfolio may invest in fixed income securities which are in default as a principal strategy. Response: The Trust has added the following disclosure to the Principal Investment Strategy section of each Allocation Portfolio’s prospectus: “The high yield bond category generally includes fixed income securities rated at least CC by S&P or Fitch or at least Ca by Moody’s or, if unrated, deemed to be of comparable quality by the Underlying Portfolio’s Sub-Adviser.” The Trust confirms that investing in fixed income securities that are in default is not a principal strategy for any of the Allocation Portfolios. c. Comment: The “Principal Investment Strategy” section includes the following statement: “The Portfolio is managed so that it can serve as a core part of your larger portfolio.” Please rewrite or clarify the statement, because the intended meaning is unclear, particularly for an insurance contract owner. Response: The statement has been deleted from the Principal Investment Strategy section of each Allocation Portfolio’s prospectus. d. Comment: The “Principal Investment Strategy” section includes the following statement: “Volatility management techniques may reduce potential losses and/or mitigate financial risks to insurance companies that provide certain benefits and guarantees available under the Contracts and offer the Portfolio as an investment option in their products.” Please revise, as the language is potentially misleading to the contract owner because the purpose of the volatility management strategy is to reduce the likelihood of the insurance company having to pay out of its own assets to meet the guarantee, rather than strengthening the financial position of the insurer so that it can meet its guarantee. U.S. Securities and Exchange Commission August 2, 2023 Page 3 Response: The Trust respectfully disagrees that the referenced language is potentially misleading. The existing disclosure clearly states that volatility management techniques may reduce losses or mitigate financial risks to insurance companies that provide benefits and guarantees. However, in response to the Staff’s comment, the Trust has revised the summary prospectus disclosure as follows: Volatility management techniques may reduce potential losses and/or mitigate financial risks to insurance companies that provide certain benefits and guarantees available under the Contracts and offer the Portfolio as an investment option in their products. Accordingly, volatility management techniques may also benefit the insurance companies by reducing the risk that the insurance companies will be required to pay amounts to meet the benefits and guarantees from their own resources. In addition, the Trust has added the following disclosure to the “Volatility Management Risk” risk disclosure in the statutory prospectus: Insurance companies issuing guaranteed benefits on variable annuity and insurance contracts investing in a Portfolio have a financial interest in preserving the value of the Portfolio and reducing its volatility due to their obligations for these guaranteed benefits (the cost of providing these guaranteed benefits is related to several factors including the performance and volatility of the Portfolio). To the extent a Portfolio is successful in managing the volatility of returns and downside risk, the insurance companies issuing guaranteed benefits on variable annuity and insurance contracts investing in the Portfolio will also benefit from a reduction in their potential investment risk which will reduce their costs of hedging this risk and may reduce their reserve and capital requirements. These financial benefits to the insurance companies may be significant. e. Comment: The Market Risk disclosure in the summary risk section includes disclosure regarding actions taken by the U.S. Federal Reserve. Please confirm that the disclosure is updated to reflect recent market events, or update the disclosure here and elsewhere to reflect recent market events. Response: The Trust confirms that it has updated risk disclosures throughout the registration statement to reflect recent market and other events, as deemed appropriate. 3. Target Allocation Portfolios’ Prospectus a. Comment: The principal strategy disclosure of each Target Allocation Portfolio states that the Portfolio may invest in emerging markets. Please add a corresponding risk factor. Response: The Trust has added an “Emerging Markets Risk” disclosure to each Target Allocation Portfolio’s summary prospectus as follows: Emerging Markets Risk: The risks associated with investments in emerging market countries often are significant, and vary from jurisdiction to jurisdiction and company to company. Investments in emerging market countries are more susceptible to loss than investments in more developed foreign countries and may present market, credit, currency, liquidity, legal, political, technical and other risks different from, or greater than, the risks of investing in more developed foreign countries. Emerging market countries may be more likely to experience rapid and significant adverse developments in their political or economic structures, intervene in financial markets, restrict foreign investments, impose high withholding or other U.S. Securities and Exchange Commission August 2, 2023 Page 4 taxes on foreign investments, impose restrictive exchange control regulations, or nationalize or expropriate the assets of private companies, which may have negative impacts on transaction costs, market price, investment returns and the legal rights and remedies available to the Portfolio. In addition, the securities markets of emerging market countries generally are smaller, less liquid and more volatile than those of more developed foreign countries, and emerging market countries often have less uniformity in regulatory, accounting, auditing and financial reporting requirements or standards, which may impact the availability and quality of information about issuers, and less reliable clearance and settlement, registration and custodial procedures. Emerging market countries also may be subject to high inflation and rapid currency devaluations, and currency-hedging techniques may be unavailable in certain emerging market countries. In addition, some emerging market countries may be heavily dependent on international trade, which can materially affect their securities markets. Securities of issuers traded on foreign exchanges may be suspended. The likelihood of such suspensions may be higher for securities of issuers in emerging market countries than in countries with more developed markets. b. Comment: The Item 9 disclosure for each Portfolio includes disclosure about investments in U.S. government securities and money market instruments. Please add corresponding disclosure to the summary prospectus. Response: Each Target Allocation Portfolio’s Item 4 principal investment strategy disclosure indicates that the Portfolio may invest in fixed income investments “such as debt securities issued by the U.S. Government and its agencies and instrumentalities … and short-term investments such as money market instruments.” The Item 4 principal risk disclosure likewise includes disclosure about the risks of such fixed income investments, such as Interest Rate Risk, Credit Risk and Liquidity Risk. The Item 9 disclosure includes more detailed disclosure about such investments and risks. Accordingly, the Trust respectfully submits that no additional disclosure is necessary. c. Comment: Each Target Allocation Portfolio’s principal strategy states that the Portfolio may invest in mortgage- and asset-backed securities. Confirm that a Portfolio will not go over 15% in non-agency, non-investment grade mortgage- and asset-backed securities. To the extent that a Portfolio may invest in less liquid investments, please explain how that investment is in line with an open-end fund structure, in line with Rule 22e-4. Also, please disclose the types of mortgage-backed securities and asset-backed securities (for example, collateralized loan obligations, collateralized debt obligations, and commercial and residential mortgage-backed securities) in which a Portfolio may invest indirectly, and whether they could be non-investment grade or non-agency. Please also add corresponding principal risk disclosure related to mortgage- and asset-backed securities in the summary prospectus. In addition, if a Portfolio will invest in subprime mortgages as a principal strategy, please disclose this in the “Principal Investment Strategy” section as well as in the “Principal Risks” section. Response: The Trust has added disclosure to the “Principal Strategy” section of each of these Portfolios to clarify that the Portfolio’s indirect investments in mortgage-backed and U.S. Securities and Exchange Commission August 2, 2023 Page 5 asset-backed securities include primarily government, corporate, and investment grade agency mortgage-backed and asset-backed securities. The Trust confirms that these Portfolios will not invest in collateralized loan obligations, collateralized debt obligations, or collateralized mortgage obligations as a principal strategy. The Trust further confirms that these Portfolios will not invest, as a principal strategy, in mortgage-backed or asset-backed securities that are non-investment grade or non-agency. The Trust also confirms that these Portfolios will not invest in subprime mortgages as a principal strategy. The Trust has added to each of these Portfolio’s summary prospectuses principal risk disclosure regarding mortgage-backed and asset-backed securities as follows: Mortgage-Related and Other Asset-Backed Securities Risk: Declines in the credit quality of and defaults by the issuers of mortgage-related and other asset-backed securities or instability in the markets for such securities may decrease the value of such securities, which could result in losses to the Portfolio, and may reduce the liquidity of such securities and make such securities more difficult to purchase or sell at an advantageous time and price. In addition, borrowers may default on the obligations that underlie mortgage-related and other asset-backed securities. The risk of defaults by borrowers generally is greater during times of rising interest rates and/or unemployment rates. The impairment (or loss) of the value of collateral or other assets underlying mortgage-related and other asset-backed securities will result in a reduction in the value of the securities. Certain collateral may be difficult to locate in the event of default, or may be lost, and recoveries of depreciated or damaged collateral may not fully cover payments due on such collateral. Asset-backed securities may not have the benefit of a security interest in collateral comparable to that of mortgage assets, resulting in additional credit risk. Furthermore, mortgage-related and other asset-backed securities typically provide the issuer with the right to prepay the security prior to maturity. During periods of rising interest rates, the rate of prepayments tends to decrease because borrowers are less likely to prepay debt (such as mortgage debt or automobile loans). Slower than expected payments can extend the average lives of mortgage-related and other asset-backed securities, and this may “lock in” a below market interest rate and increase the security’s duration and interest rate sensitivity, which may increase the volatility of the security’s value and may lead to losses. During periods of falling interest rates, the rate of prepayments tends to increase because borrowers are more likely to pay off debt and refinance at the lower interest rates then available. Unscheduled prepayments shorten the average lives of mortgage-related and other asset-backed securities and may result in the Portfolio’s having to reinvest the proceeds of the prepayments at lower interest rates, thereby reducing the Portfolio’s income. 4. EQ/Core Plus Bond Portfolio Prospectus a. Comment: The “Principal Investment Strategy” section states that the Portfolio normally invests primarily in investment grade fixed income securities, but the disclosure also indicates that the Portfolio may invest up to 40% of its assets in securities rated below investment grade. Please consider whether characterizing the investment using the term “primarily” is accurate. U.S. Securities and Exchange Commission August 2, 2023 Page 6 Response: The Trust believes that the disclosure is accurate. The principal investment strategy provides that the portfolio managers intend to maintain an “average weighted portfolio quality of BBB- or better, which is considered investment grade,” and further provides that investments in below investment grade securities are subject to