[Federal Register Volume 61, Number 155 (Friday, August 9, 1996)]
[Notices]
[Pages 41665-41667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20346]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22115; File No. 812-10004]
AUSA Life Insurance Company, Inc., et al.
August 2, 1996.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (``1940 Act'').
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APPLICANTS: AUSA Life Insurance Company, Inc. (``AUSA'') and
Diversified Investors Variable Funds (``Variable Account'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 26(b) of the
1940 Act approving a proposed substitution of securities.
SUMMARY OF APPLICATION: Applicants seek an order to permit the
substitution (the ``Substitution'') of interests in the Diversified
Investors Portfolios' International Equity Portfolio (``Diversified
International Series'') for shares in the International Portfolio of
the Scudder Variable Life Investment Fund (``Scudder International
Series'').
FILING DATE: The application was filed on February 21, 1996, and
amended on July 18, 1996.
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 on the application, or ask to be notified
if a hearing is ordered, by writing to the Commission's Secretary and
serving the Applicants with a copy of the request, either personally or
by mail. Hearing requests must be received by the Commission by 5:30
pm., on August 27, 1996, and should be accompanied by proof of service
on the Applicants, either by affidavit, or, for lawyers, by 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 the date of the hearing by writing to the
Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Applicants, c/o David R.
Woodward, Esq., LeBoeuf, Lamb, Greene & MacRae, L.L.P., 1875
Connecticut Avenue, N.W., Suite 1200, Washington, D.C. 20009.
FOR FURTHER INFORMATION CONTACT:
Joyce Merrick Pickholz, 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 SEC's Public
Reference Branch.
Applicants' Representations
1. AUSA is a stock life insurance company organized under the laws
of New York State. The Variable Account, a separate account established
by AUSA, is registered with the Commission under the 1940 Act as a unit
investment trust. The Variable Account serves as the funding vehicle
for group variable annuity contracts (``Contracts'') that are issued
and administered by AUSA and available for sale to various types of
retirement plans. Diversified Investors Securities Corp. serves as
principal underwriter of the Contracts.
2. The Variable Account is divided into a number of sub-accounts
(``Sub-Accounts'') that correspond to the mutual funds in which each
Sub-Account's assets are invested, including the Calvert Responsibly
Invested Balanced Portfolio, the Scudder International Series, and
eleven series of Diversified Investors Portfolios (``Trust'')--a New
York business that is registered under the 1940 Act as an open-end
management company.
3. The Sub-Accounts that invest in the Trust do so under a ``Hub &
Spoke'' arrangement. Each Sub-Account which invests in a series of the
Trust is a ``spoke'' or feeder fund. The corresponding series of the
Trust is a ``hub'' or master fund. Interests in the Trust may also be
sold to other types of collective investment vehicles or institutional
investors. Variations in
[[Page 41666]]
sales commissions and other operating expenses permit these other
investors to sell their shares at different public offering prices from
the Sub-Accounts, and, consequently, to experience returns that differ
from the returns of holders in Contracts in the Variable Account
(``Holders'').
4. The investment objective of the Diversified International Series
of the Trust is to provide a high level of long term capital
appreciation through investment in a diversified portfolio of
securities of foreign issuers. Under normal circumstances 65% of the
assets of the Diversified International Series is invested in foreign
equity securities and its assets are invested in a minimum of three
countries outside of the United States. Diversified Investment
Advisors, Inc. serves as advisor, and Capital Guardian Trust Company
serves as sub-advisor, to the Diversified International Series. The
annual fee for advisory services provided in connection with the
Diversified International Series is .75% of the Series' average net
assets; other expenses for the Diversified International Series were
estimated to be .15% of average net assets. A Sub-Account of the
Variable Account was organized in order to invest in interests of the
Diversified International Series. To date, however, no investment has
been made, and all of the interests in the Diversified International
Series are held by other spoke/feeder funds.
5. Under Scudder International Equity Sub-Account of the Variable
Account (``International Equity Sub-Account'') currently invests in the
Scudder International Series of the Scudder Variable Life Investment
Fund (``Scudder Fund''), a Massachusetts business trust registered
under the 1940 Act as a diversified open-end investment company. The
investment objective of the Scudder International Series is to achieve
long term growth of capital primarily through diversified holdings of
marketable foreign equity investments. The Scudder International Series
invests in companies, wherever organized, that do business primarily
outside the United States. The Scudder International Series intends to
diversify investments among several countries and to have represented
in its holdings business activities in not less than three different
countries. Scudder, Stevens & Clark is the investment advisor of the
Scudder International Series. The advisory fee for the Scudder Series
is .875%; other expenses associated with the Scudder Series in 1995
were estimated to be .205% of average net assets.
6. Under the Contracts, AUSA reserves the right to effect a
substitution; the prospectus through which the Contracts are offered
discloses this substitution right. For the following reasons, AUSA on
its own behalf and on behalf of the Variable Account proposes to
substitute interests of the Diversified International Series for shares
of the Scudder International Series currently held in the International
Equity Sub-Account. Retirement plans that have entered into Contracts
have done so because they wished to invest in the Trust, and to receive
the benefits of investment management services provided to the Trust
and the efficiencies available under the Trust's master-feeder
structure. The two Sub-Accounts that do not invest in the Trust were
established in 1993 to provide certain investment options for which no
corresponding series was available under the Trust. An international
equity option now is available under the Trust, and the best interests
of Holders are served by providing that investment option under the
Contracts. Because the Diversified International Series and the Scudder
International Series have substantially similar investment objectives
and policies, the Substitution is necessary to avoid the confusion and
duplication that would result from having two Sub-Accounts that invest
in different international equity funds.
7. The Substitution will be at net asset value of the respective
shares, without the imposition of any transfer, sales, or similar
charge. AUSA will pay all expenses and transaction costs of the
Substitution, including any applicable brokerage commission.
8. AUSA will file a post-effective Amendment to the registration
statement on Form N-4 for the Variable Account to reflect the
Substitution in its prospectus, as well as information relating to the
Diversified International Series and the elimination of the Scudder
name from the Sub-Account.
9. Within five days after the Substitution, AUSA will send to the
Holders a written notice (``Notice'') of the substitution that
identifies the interests in the Diversified International Series that
have been substituted. AUSA will include in such mailing an updated
prospectus of the Variable Account that discloses the completion of the
Substitution and that the International Equity Sub-Account will
henceforth invest in the Diversified International Series. Holders will
be advised in the Notice that for a period of sixty days from the
mailing of the Notice, they may transfer all assets as substituted to
any other available Sub-Account. No transfer charge is currently in
effect, and none will be imposed prior to the expiration of the sixty
day period. Following the substitution, Holders will be afforded the
same contact rights, including surrender and other transfer rights with
regard to amounts invested under the Contracts, as they currently have.
Applicants' Legal Analysis
1. Section 26(b) of the 1940 Act provides in pertinent part that
``[i]t shall be unlawful for any depositor or trustee of a registered
unit investment trust holding the security of a single issuer to
substitute another security for such security unless the Commission
shall have approved such substitution.'' Section 26(b) provides that
the Commission will approve a substitution if it is consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the 1940 Act. The purpose of Section 26(b) is to
protect the expectation of investors in a unit investment trust that
the unit investment trust will accumulate the shares of a particular
issuer, and to prevent unscrutinized substitutions which might, in
effect, force shareholders dissatisfied with the substituted security
to redeem their shares, thereby incurring either a loss of the sales
load deducted from initial proceeds, an additional sales load upon
reinvestment of the redemption proceeds, or both. Section 26(b) affords
protection to investors by preventing a depositor or trustee of a unit
investment trust holding shares of one issuer from substituting for
those shares the shares of another issuer, unless the Commission
approves that substitution.
2. Applicants submit that the purposes, terms and conditions of the
proposed Substitution are consistent with the principles and purposes
of Section 26(b). Applicants further submit that the Substitution will
not result in the type of costly forced redemption that Section 26(b)
was intended to guard against, and is consistent with the protection of
investors and the purposes fairly intended by the 1940 Act.
a. The objectives, policies and restrictions of the Diversified
International Series are sufficiently similar to the objectives of
the Scudder International Series so as to continue fulfilling the
Holders' present objectives and risk expectations.
b. The Substitution will be at net asset value of the respective
shares, without the imposition of any transfer, sales or similar
charge.
c. AUSA has undertaken to assume the expenses and transaction
costs relating to the Substitution, including, among others, legal
and accounting fees and any brokerage commissions.
d. Within five days after the Substitution, AUSA will send to
the Holders written notice of the Substitution, identifying the
interests
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in the Diversified International Series that were substituted, and
disclosing that the International Equity Sub-Account will henceforth
invest in the Diversified International Series.
e. For sixty days following the receipt of Notice of the
Substitution, a Holder may transfer assets as substituted to any
other Sub-Account available under the Contract. No transfer charge
or limitation on the number of transfers currently is in effect, and
none will be imposed before the expiration of sixty days from the
date on which Notice of the Substitution is given.
f. After the Substitution, Holders may transfer among Sub-
accounts in accordance with the terms of their Contracts. Currently,
the Contracts neither limit allowable transfers nor do they
currently impose a charge for transfers.
g. The Substitution will not alter the insurance benefits to
Holders or the contractual obligations of AUSA.
h. AUSA has been advised by counsel that the Substitution will
not give rise to any tax consequences to the Holders.
i. Currently, Holders may withdraw amounts credited to them
following the Substitution without any Contract charge, subject to a
penalty tax upon premature withdrawals, if applicable.
j. The Substitution will: (A) provide a more appropriate
international equity investment option within the context of the
overall investment program available under the Contracts; (B) avoid
the confusion which would be caused by having two international
equity investment options available through the Variable Account;
and (C) provide economic benefits to Holders through lower
investment advisory fees and other expenses.
Applicants' Conclusions
Applicants assert that, for the reasons and upon the facts set
forth in the application, the requested order approving the proposed
substitution meets the standards set forth in Section 26(b) of the 1940
Act and should be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-20346 Filed 8-8-96; 8:45 am]
BILLING CODE 8010-01-M