[Federal Register Volume 60, Number 157 (Tuesday, August 15, 1995)]
[Notices]
[Pages 42194-42196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20047]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21273; No. 812-9398]
AUSA Life Insurance Company, Inc., et al.
August 8, 1995.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``1940 Act'').
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APPLICANTS: AUSA Life Insurance Company, Inc. (``AUSA Life''), AUSA
Series Annuity Account B (the ``Variable Account''), and
InterSecurities, Inc.
RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 6(c) of
the 1940 Act granting exemptions from the provisions of Sections
26(a)(2)(C) and 27(c)(2) thereof.
SUMMARY OF APPLICATION: Applicants seek an order permitting the
deduction of a mortality and expense risk charge from the assets of:
(a) The Variable Account in connection with the offer and sale of
certain variable annuity contracts (``Existing Contracts''); (b) the
Variable Account in connection with the issuance of variable annuity
contracts that are substantially similar in all material respects to
the Existing Contracts (``Future Contracts,'' together with existing
Contracts, the ``Contracts''); and (c) any other separate account
established in the future by AUSA Life in connection with the issuance
of Contracts.
FILING DATE: The application was filed on December 21, 1994, and
amended on June 20 and August 2, 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 the 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 5, 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, Securities and Exchange Commission, 450 5th
Street, NW., Washington, DC 20549. Applicants, Robert F. Colby, AUSA
Life Insurance Company, Inc., 4 Manhattanville Road, Purchase, New York
10577.
FOR FURTHER INFORMATION CONTACT:
Kevin M. Krichoff, Senior Counsel, or Patrice M. Pitts, Special
Counsel, Office of Insurance Products (Division of Investment
Management), at (202) 942-0670.
SUPPLEMENTARY INFORMATION: 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. AUSA Life (formerly Dreyfus Life Insurance Company) is a stock
life insurance company incorporated under the laws of the State of New
York. AUSA Life is a wholly-owned subsidiary of First AUSA Life
Insurance Company, a stock life insurance company which is wholly-owned
by AEGON, USA, Inc., which is a wholly-owned indirect subsidiary of
AEGON, nv, a Netherlands corporation.
2. InterSecurities, Inc., an affiliate of AUSA Life, will serve as
distributor and
[[Page 42195]]
principal underwriter of the Contracts. InterSecurities, Inc. is
registered as a broker-dealer under the Securities Exchange Act of 1934
and is a member of the National Association of Securities Dealers.
InterSecurities, Inc. will receive no commissions for acting as
distributor or principal underwriter for the Contracts.
3. The Variable Account was established by AUSA Life as a separate
investment account under New York law on October 24, 1994, to act as a
funding medium for variable annuity contracts. The Variable Account is
registered with the Commission as a unit investment trust under the
1940 Act. Units of interest in the Variable Account under the Existing
Contracts are registered under the Securities Act of 1933.
4. The Variable Account presently consists of eight subaccounts
(the ``Subaccounts''). Each Subaccount will invest solely in the shares
of a designated portfolio of the Janus Aspen Series, an open-end
``series'' management investment company registered under the 1940 Act.
Contract owners may invest in any one or more of the Subaccounts, and
also may invest in the fixed account, part of the general account of
AUSA Life. In the future, other subaccounts may be established by AUSA
Life which will invest in specified portfolios of Janus Aspen Series or
other investment companies. In the future, AUSA Life may issue, through
the Variable Account and through Other Accounts, other variable annuity
contracts which are substantially similar in all material respects to
the Existing Contracts.
5. The Existing Contracts may be purchased on a non-tax qualified
basis or may be purchased and used in connection with retirement plans
that qualify for favorable federal income tax treatment.
6. The Existing Contracts provide for minimum initial purchase
payments and permit additional minimum purchase payments and periodic
payments, subject to certain limitations. The contract owner may
allocate net purchase payments to one or more Subaccounts, the fixed
account, or to a combination of both.
7. The Existing Contracts also provide for the payment of a death
benefit. If the Annuitant dies during the accumulation period and the
owner is a natural person other than the Annuitant, the owner will
automatically become the new Annuitant. If the Annuitant dies during
the accumulation period and the owner is either the same individual as
the Annuitant or is not a natural person, AUSA Life will pay the death
benefit to the beneficiary in a lump sum upon receipt of proof of
death, unless the beneficiary elects to receive a complete distribution
of the death benefit: (i) Within five years of the Annuitant's death;
(ii) over the lifetime of the beneficiary; or (iii) over a period that
does not exceed the life expectancy of the beneficiary. If the
beneficiary is entitled to receive the death benefit and is the spouse
of the deceased Annuitant, he or she may instead elect to become the
new owner and Annuitant and continue the Existing Contract. The death
benefit is equal to the greater of: (i) The annuity value, defined as
the sum of the Variable Account value and the fixed account value, or
(ii) the excess of (a) the amount of the purchase payments paid, over
(b) any partial withdrawals (and less any applicable premium taxes).
8. Various fees and expenses are deducted under the Existing
Contracts. AUSA Life will assess an Annual Contract Charge of $30 on
each contract anniversary through the maturity date, and at the time of
a full surrender on other than a contract anniversary, for the cost of
providing administrative services under the Existing Contracts.
Applicants guarantee that this fee will not increase for the life of
the Existing Contracts.
9. AUSA Life also will deduct a daily charge from the assets of the
Variable Account equal on an annual basis to 0.15% of the average daily
net assets of the Variable Account (``Administrative Service Charge'').
This charge will be deducted from the Variable Account both during the
accumulation period and after the maturity date. This fee is guaranteed
not to increase for the duration of the Existing Contracts.
10. The Administrative Service Charge and the Annual Contract
Charge are designed to reimburse AUSA Life for the actual
administrative costs incurred over the life of an Existing Contract.
11. AUSA Life also reserves the right to impose a $10 charge for
the thirteenth and each subsequent transfer from a Subaccount during a
single contract year (``Transfer Charge'').
12. AUSA Life does not expect to realize a profit from the Annual
Contract Charge, the Administrative Service Charge, and the Transfer
Charge (if any). Applicants represent that the Annual Contract Charge,
the Administrative Service Charge, and any Transfer Charge will be
deducted in reliance upon and in conformity with all of the
requirements of Rule 26a-1 under the 1940 Act.
13. If applicable, and if AUSA Life has incurred or reasonably
expects to incur expenses with respect to premium taxes, such taxes
will be deducted, as required by law, from: A purchase payment when
received; amounts partially withdrawn or surrendered; death benefit
proceeds; or the amount applied to an annuity at the time annuity
payments commence. AUSA Life intends to deduct any applicable premium
taxes when it incurs them, but reserves the right to defer deduction to
a later date if such deferral is not detrimental to owners.
14. No charges currently are made for federal, state or local
income taxes other than premium taxes. AUSA Life may make such a charge
in the future, however, subject to obtaining any necessary regulatory
approvals. Charges for any other applicable taxes--including any tax or
other economic burden resulting from the application of tax laws that
AUSA Life determines to be properly attributable to the Variable
Account--also may be made.
15. No sales charges are deducted from purchase payments under the
Contracts. No contingent deferred sales charges will be deducted from
annuity value if a partial withdrawal or surrender occurs prior to the
maturity date. AUSA Life will pay the expected costs of distribution
from its general assets, which may include revenue from the mortality
and expense risk charge deducted from the Variable Account.
16. A daily charge equal to an effective annual rate of 0.70% of
the average daily net assets of the Variable Account will be imposed to
compensate AUSA Life for bearing certain mortality and expense risks in
connection with the Contracts. The portion of the charge attributable
to mortality risk is approximately 0.35% of the average daily net
assets of the Variable Account and the portion of the charge
attributable to expense risk is approximately 0.35% of the average
daily net assets of the Variable Account.
17. AUSA Life will assume two mortality risks under the Contracts:
(1) that the annuity rates under the Existing Contracts cannot be
changed to the detriment of the contract owners even if Annuitants live
longer than projected; and (2) that AUSA Life may be obligated to pay a
death benefit claim in excess of the cash value of an Existing
Contract.
18. The expense risk borne by AUSA Life is the risk that the
charges for administrative expenses, which are guaranteed not to
increase for the life of the Contracts, may be insufficient to cover
the actual costs of issuing and administering the Contracts.
19. If the mortality and expense risk charge is insufficient to
cover actual costs, the loss will be borne by AUSA Life; conversely, if
the amount deducted
[[Page 42196]]
proves more than sufficient, the excess will be a profit to AUSA Life.
The mortality and expense risk charge will be deducted from the
Variable Account both during the accumulation period and after the
maturity date. The mortality and expense risk charge will not be
assessed against the fixed account value or against monies that have
been applied to purchase an annuity option under the fixed account
annuity payments provisions. AUSA Life expects to earn a profit from
the mortality and expense risk charge.
Applicants' Legal Analysis and Conditions
1. Applicants request an order of the Commission pursuant to
Section 6(c) of the 1940 Act for exemptions from Sections 26(a)(2)(C)
and 27(c)(2) thereof to the extent necessary to permit the deduction of
a charge of 0.70% for the assumption of mortality and expense risks
from the assets of: (a) The Variable Account in connection with the
issuance of the Contracts; and (b) any other separate account
established in the future by AUSA Life in connection with the issuance
of Contracts.
2. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally grant an
exemption from any provision, rule or regulation of the 1940 Act to the
extent that the 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 1940 Act.
3. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant
part, prohibit a registered unit investment trust, its depositor or
principal underwriter, from selling periodic payment plan certificates
unless the proceeds of all payments, other than sales loads, are
deposited with a qualified bank and held under arrangements which
prohibit any payment to the depositor or principal underwriter except a
reasonable fee, as the Commission may prescribe, for performing
bookkeeping and other administrative duties normally performed by the
bank itself.
4. Applicants submit that their request for exemptive relief for
deduction of the 0.70% mortality and expense risk charge from the
assets of the Variable Account or any other separate accounts
established in the future by AUSA Life in connection with the issuance
of Future Contracts, would promote competitiveness in the variable
annuity contract market by eliminating the need for AUSA Life to file
redundant exemptive applications, thereby reducing AUSA Life's
administrative expenses and maximizing the efficient use of its
resources. Applicants further submit that the delay and expense
involved in having repeatedly to seek exemptive relief would impair
AUSA Life's ability effectively to take advantage of business
opportunities as they arise. Further, if AUSA Life were required
repeatedly to seek exemptive relief with respect to the same issues
addressed in this Application, investors would not receive any benefit
or additional protection thereby. Thus, Applicants believe that the
requested exemptions are appropriate in the public interest and
consistent with the protection of investors and purposes fairly
intended by the policy and provisions of the 1940 Act.
5. Applicants represent that the 0.70% mortality and expense risk
charge under the Existing Contracts is reasonable in relation to the
risks assumed by AUSA Life under the Existing Contracts and is within
the range of industry practice for comparable annuity contracts. This
representation is based upon AUSA Life's analysis of publicly available
information about similar industry products, taking into account such
factors as current charge levels, existence of charge level guarantees,
and guaranteed annuity rates. AUSA Life undertakes to maintain at its
principal office, available to the Commission and its staff upon
request, a memorandum setting forth in detail the products analyzed in
the course of, and the methodology used in making these determinations.
6. Applicants represent that, prior to offering Future Contracts,
they will conclude that the mortality and expense risk charge under
such contracts (which cannot exceed in amount the mortality and risk
charge under the Existing Contracts) will be reasonable in relation to
the risks assumed by AUSA Life under the Contracts and is within the
range of industry practice for comparable annuity contracts. AUSA Life
will maintain at its principal offices, and make available to the
Commission and its staff upon request, a memorandum setting forth in
detail the products analyzed in the course of, and the methodology used
in, making that determination.
7. Applicants acknowledge that, if a profit is realized from the
mortality and expense risk charge under the Contracts, all or a portion
of such profit may be available to pay distribution expenses not
reimbursed under the Contracts. AUSA Life has concluded that there is a
reasonable likelihood that the proposed distribution financing
arrangements will benefit the Variable Account (or future accounts) and
the owners of the Existing Contracts (or Future Contracts). The basis
for that conclusion is set forth in a memorandum which will be
maintained by AUSA Life at its principal office and will be made
available to the Commission and its staff upon request.
8. Applicants also represent that the Accounts will invest only in
underlying management investment companies which undertake, in the
event they should adopt a plan pursuant to Rule 12b-1 under the 1940
Act to finance distribution expenses, to have such plan formulated and
approved by a board of directors or trustees, a majority of whom are
not ``interested persons'' of such investment company within the
meaning of Section 2(a)(19) of the 1940 Act.
Conclusion
For the reasons set forth above, Applicants represent that the
exemptions requested are necessary and 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.
Jonathan F. Katz,
Secretary.
[FR Doc. 95-20047 Filed 8-14-95; 8:45 am]
BILLING CODE 8010-01-M
