[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