[Federal Register Volume 67, Number 19 (Tuesday, January 29, 2002)]
[Notices]
[Pages 4293-4297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-2069]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25373; File No. 812-12698]


American Skandia Life Assurance Corporation, et al.

January 22, 2002.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of Application for an Order under section 6(c) of the 
Investment Company Act of 1940 (the ``1940 Act'' or ``Act'') granting 
exemptions from the provisions of section 2(a)(32) and section 
27(i)(2)(A) of the 1940 Act, and Rule 22c-1 thereunder to permit the 
recapture of credits applied to contributions made under certain 
deferred variable annuity contracts.

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Applicants: American Skandia Life Assurance Corporation (``ASLAC''), 
American Skandia Life Assurance Corporation Variable Account B (Class 1 
Sub-Accounts), American Skandia Life Assurance Corporation Variable 
Account B (Class 9 Sub-Accounts) (the ``Account'' or ``Accounts''), and 
American Skandia Marketing, Incorporated (``ASM''), referred to 
collectively herein as ``Applicants.''

Summary of Application: Applicants seek an order under section 6(c) of 
the Act to the extent necessary to permit, under specified 
circumstances, the recapture of credits applied to contributions made 
under certain deferred variable annuity contracts and certificates 
described in the Application (the ``Contracts''), as well as other 
contracts that ASLAC may issue in the future through the Accounts or 
any other separate account established in the future by ASLAC to 
support certain deferred variable annuity contracts issued by ASLAC 
(``Future Account(s)'') and that are substantially similar in all 
material respects to the Contracts (the ``Future Contract(s)''). 
Applicants request that the order being sought extend to any other 
National Association of Securities Dealers, Inc. (``NASD'') member 
broker-dealer controlling or controlled by, or under common control 
with ASLAC, whether existing or created in the future, that serves as a 
distributor or principal underwriter for the Contracts or Future 
Contracts offered through the Accounts or any Future Account.

Filing Dates: The application was filed on November 23, 2001, and 
amended and restated on January 9, 2002, and January 17, 2002.

HEARING OR NOTIFICATION OF HEARING: An order granting the Application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
Applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on February 19, 
2002, 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 who wish to 
be notified of a hearing may request notification by writing to the 
Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 5th Street NW Washington, DC, 20549-
0609. Applicants, c/o American Skandia Life Assurance Corporation, One 
Corporate Drive, Shelton, Connecticut 06484, Attn: Scott K. Richardson, 
Esq.

FOR FURTHER INFORMATION CONTACT: Patrick Scott, Attorney, or Lorna 
MacLeod, 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 is available for a fee from the 
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 
20549-0102 ((202) 942-8090).

Applicants' Representations

    1. ASLAC is a stock life insurance company incorporated under the 
laws of Connecticut, all of whose issued and outstanding shares of 
capital stock are directly owned by American Skandia, Inc. (``ASI''), 
which in turn is ultimately wholly owned by Skandia Insurance Company 
Ltd., a Swedish corporation. ASLAC is licensed to do business in the 
District of Columbia and all of the United States.
    2. American Skandia Life Assurance Corporation Variable Account B 
was created pursuant to the laws of the State of Connecticut on 
November 25, 1987. American Skandia Life Assurance Corporation Variable 
Account B (Class 1 Sub-Accounts) filed a Form N-8A Notification of 
Registration (File No. 811-5438) under the 1940 Act on December 30, 
1987. American Skandia Life Assurance Corporation Variable

[[Page 4294]]

Account B (Class 9 Sub-Accounts) filed a Form N-8A Notification of 
Registration (File No. 811-09989) on June 22, 2000. Applicants state 
that the assets of the Accounts are owned by ASLAC, but are held 
separately from the other assets of ASLAC and are not chargeable with 
liabilities incurred in any other business operation of ASLAC (except 
to the extent that assets in the Accounts exceed the reserves and other 
liabilities of the Accounts). The income, capital gains and capital 
losses incurred on the assets of the Accounts are credited to or 
charged against the assets of the Accounts without regard to the 
income, capital gains or capital losses arising out of any other 
business ASLAC may conduct.
    Applicants represent that the Accounts and all Future Accounts will 
invest in shares of one or more of the investment portfolios (the 
``Portfolios'') of American Skandia Trust (``AST''), which is 
registered with the Commission as an open-end, diversified management 
investment company, and/or any other fund or funds which are registered 
with the Commission as open-end, diversified or non-diversified 
management investment companies as may be made available by ASLAC and 
the Accounts or Future Accounts (which funds, including AST, are 
referred to as the ``Funds''). The Accounts or Future Accounts are 
divided into separate divisions or ``Sub-accounts,'' each of which 
invests in a separate Portfolio of a Fund.
    3. ASM serves as the distributor and principal underwriter of the 
Contracts. ASM is a wholly-owned subsidiary of ASI. ASM is registered 
under the Securities Exchange Act of 1934 and with the NASD as a 
broker-dealer in securities. The Contracts will be offered through 
unaffiliated, registered broker-dealers, and other entities that are 
exempt from registration as broker-dealers and that have entered into 
sales agreements with ASM and ASLAC. In addition, ASM may offer 
Contracts directly to potential purchasers. The broker-dealers or sales 
representatives will be licensed by state insurance departments where 
required by law or regulation to represent ASLAC. The registered 
representatives that will solicit sale of the Contracts will be 
licensed insurance agents appointed by ASLAC.
    4. Applicant represents that, among the products ASLAC issues are 
individual and group flexible premium tax deferred variable annuity 
contracts, such as the Contracts contemplated in the Application, 
American Skandia XTra CreditSM FOUR (``XT FOUR'') offered 
through American Skandia Life Assurance Corporation Variable Account B 
(Class 1 Sub-Accounts) and American Skandia XTra CreditSM 
SIX (``XT SIX'') offered through American Skandia Life Assurance 
Corporation Variable Account B (Class 9 Sub-Accounts).
    Applicants state further that the Contracts are to be used in 
connection with retirement plans that qualify for favorable federal 
income tax treatment under the Internal Revenue Code Section 403 as a 
tax sheltered annuity, or Section 408 as an individual retirement plan 
(``Qualified Plan''), or the Contracts may be purchased on a non-tax 
qualified basis (``Non-Qualified Plan''). The Contracts may also be 
used for other purposes in the future, or offered only in connection 
with Qualified or Non-Qualified Plans.
    5. Applicants state that ASLAC will add an additional amount, a 
credit (``Credit(s)''), to the account value in conjunction with each 
purchase payment applied to XT FOUR, and in conjunction with purchase 
payments made during the first six (6) annuity years applied to XT SIX. 
Credits are paid for from ASLAC's own general account assets.
    6. Applicants state, in the case of XT FOUR, when total purchase 
payments are between and $1000 and $10,000, the Credits equal 1.5% of 
purchase payments. When total purchase payments are at least $10,000 
but less than $5,000,000, the Credits equal 4.0% of purchase payments. 
When total purchase payments are greater than $5,000,000, the Credits 
equal 5.0% of purchase payments.
    7. Applicants state, in the case of XT SIX, ASLAC will add a Credit 
to the account value in conjunction with each purchase payment during 
the first six (6) annuity years. The amount of the Credit depends on 
the annuity year in which the purchase payment(s) is made, according to 
the following schedule: in annuity year one (1) the Credit is 6.00%, in 
annuity year two (2) the Credit is 5.00%, in annuity year three (3) the 
Credit is 4.00%, in annuity year four (4) the Credit is 3.00%, in 
annuity year five (5) the Credit is 2.00%, and in annuity year six (6) 
the Credit is 1.00%.
    8. Applicants state that, where allowed by state law, under some 
circumstances, ASLAC will apply additional Credits on Contracts owned 
by a member of a designated class (``Designated Class'') as defined in 
the Application. Generally, members of the Designated Class include 
various persons with special employment, familial, and/or agency 
relationships with ASLAC and/or its affiliates or subsidiaries, as 
defined in the Application.
    In the case of XT FOUR, ASLAC will apply Credits of 8.5% to any 
purchase payment made by a member of a Designated Class. Likewise, in 
the case of XT SIX, ASLAC will apply Credits on purchase payments made 
by a member of a Designated Class at the following percentage rates in 
annuity years 1, 2, 3, 4, 5, and 6, respectively: 9.5%, 9%, 8.5%, 8%, 
7%, and 6%. During annuity years 7, 8, 9 and 10, respectively, in the 
case of XT SIX, ASLAC will apply Credits on purchase payment made by a 
member of a Designated Class at the following percentage rates: 5%, 4%, 
3% and 2%. Whereas, under XT SIX generally, subsequent to annuity year 
Six, ASLAC would not apply Credits to any purchase payments.
    9. Applicants represent that Credits applied on all Contracts are 
vested when applied, except under the following circumstances: (a) An 
amount equal to any Credit will be recovered by ASLAC if the Contract 
owner exercises the right to cancel provision in accordance with 
applicable state law; (b) the amount available under the medically-
related surrender provision of the Contract will not include the amount 
of any Credits applied to purchase payments made within 12 months prior 
to the date the annuitant first became eligible for the medically-
related surrender; and (c) any Credits applied to the account value on 
purchase payments made within 12 months prior to the date of death will 
be recovered by ASLAC upon payment of the death benefit, subject to the 
limitation that Applicants will not exercise their right to recover the 
Credit to the extent that the death benefit payable is equal to 
purchase payments minus proportional withdrawals or when the death 
benefit is equal to the account value but after the recovery of all or 
a portion of the Credits, the death benefit would be equal to less than 
purchase payments minus proportional withdrawals.
    10. Applicants state that, as of the date of the Application, the 
Funds in which the Sub-accounts may invest are AST, Montgomery Variable 
Series, Wells Fargo Variable Trust, INVESCO Variable Investment Funds, 
Inc., Evergreen Variable Annuity Trust, ProFunds VP, First Defined 
Portfolio Fund LLC and The Prudential Series Fund, Inc. The assets of 
each Portfolio are held separately from the others and each Portfolio 
has its own investment objective and policies. The investment 
performance of one Portfolio has no affect on the investment 
performance of any other Portfolio. The investment

[[Page 4295]]

objectives and policies of each Portfolio are described in the 
registration statements for the Funds. Each Fund may establish 
additional Portfolios, or cease offering any Portfolios, existing or as 
may be established in the future. In addition, the Account may add Sub-
accounts, and may add or cease to offer Sub-accounts, which in turn are 
dedicated to owning shares of a particular Portfolio of a particular 
Fund.
    11. Applicants state that prior to the annuity date, a Contract 
owner may surrender the Contract in its entirety for the surrender 
value or withdraw a portion of the surrender value. Applicants do not 
seek to recover Credits applied to purchase payments upon surrender or 
withdrawal of a Contract, other than as described in this paragraph, in 
the case of a medically-related surrender. Where permitted by law, a 
Contract owner may request to surrender a Contract prior to the annuity 
date without application of any contingent deferred sales charge 
(``CDSC'') upon occurrence of a ``Contingency Event,'' as defined in XT 
FOUR or XT SIX. If a Contingency Event occurs, the amount available for 
surrender is the account value less an amount equal to any Credit 
applied to purchase payments within twelve months prior to the 
Contingency Event less the amount of any Credits added in conjunction 
with any purchase payments received after ASLAC's receipt of the 
Contract owner's request for a medically-related surrender. Applicants 
do not assess a CDSC on a medically-related surrender that would 
otherwise apply to a full or partial surrender of the Contract.
    12. Applicants represent that during the accumulation phase, a 
death benefit is payable upon the death of the first Contract owner to 
die (if the Contract is owned by one or more natural persons) or upon 
the death of the annuitant (if the Contract is owned by an entity and 
there is no contingent annuitant). The amount of the death benefit is 
determined when ASLAC obtains satisfactory proof in writing of the 
applicable death, all representations required or which are mandated by 
applicable law or regulation to the death claim and the payment of 
death proceeds, and any applicable election of the mode of payment of 
the death benefit if not previously elected by the Contract owner.
    The basic Death Benefit is the greater of (1) the sum of all 
purchase payments less the sum of all proportional withdrawals, or (2) 
the sum of the account value in the variable investment options and the 
interim value in the fixed allocations (without application of any 
market value adjustment), less an amount equal to all Credits applied 
within 12 months prior to the date of death. ASLAC does not recover the 
amount equal to the Credit applied to purchase payments when the death 
benefit payable under the Contract is equal to purchase payments minus 
proportional withdrawals or when the death benefit is equal to the 
account value but after the recovery of all or a portion of the 
Credits, the death benefit would be equal to less than purchase 
payments minus withdrawals.
    13. Applicants state that each of the Contracts may offer optional 
benefits, including optional death benefits, for which the Contract 
owner may be charged an additional asset-based charge.
    14. Applicants represent that prior to the annuity date and upon 
surrender, ASLAC will deduct an annual maintenance fee equaling the 
smaller of 2% of account value or $35 per annuity year from the Sub-
account holdings attributable to any particular Contract in the same 
proportion as each such Sub-account holding bears to the account value 
of such Contract. No charges are assessed if no account value is 
maintained in the Sub-accounts. The annual maintenance fee can be 
increased only for Contracts issued subsequent to the effective date of 
any such change. The annual maintenance fee may be waived under certain 
circumstances as described in the then effective registration 
statements for the Contracts.
    15. An insurance charge (``Insurance Charge'') is deducted daily 
against the average assets allocated to the Account. The Insurance 
Charge for XT FOUR is the combination of the Mortality & Expense Risk 
Charge (1.25%) and the Administration Charge (0.15%); the total charge 
is equal to 1.40% on an annual basis. The Insurance Charge for the XT 
SIX is the combination of the Mortality & Expense Risk Charge (0.50%) 
and the Administration Charge (0.15%); the total charge is equal to 
0.65% on an annual basis. The Insurance Charge is intended to 
compensate ASLAC for providing the insurance benefits under the 
Contract, including the Contract's basic death benefit that provides 
guaranteed benefits to the Contract owner's beneficiaries even if the 
market declines; furthermore, the charge is intended to compensate 
ASLAC for the risk that persons to whom ASLAC guarantees annuity 
payments will live longer than ASLAC's assumptions. The charge also 
covers administrative costs associated with providing the Contract 
benefits, including preparation of the contract, confirmation 
statements, annual account statements and annual reports, legal and 
accounting fees as well as various related expenses. Finally, the 
charge covers the risk that ASLAC's assumptions about the mortality 
risks and expenses under the Contract are incorrect and that ASLAC has 
agreed not to increase these charges over time despite actual costs. 
ASLAC may increase the portion of the total Insurance Charge that is 
deducted as an Administration Charge, if permission is received from 
the appropriate regulatory authorities. However, any increase will only 
apply to Contracts issued after the date of the increase.
    16. Applicants state that a distribution charge (``Distribution 
Charge'') is deducted daily against the average assets allocated to the 
Sub-accounts under XT SIX. The Distribution Charge is equal to 1.00% on 
an annual basis in annuity years 1 through 10. After the end of the 
first ten annuity years, the 1.00% charge for distribution will no 
longer be assessed. The Distribution Charge is intended to compensate 
ASLAC for a portion of its sales expenses under the Contract, including 
promotion and distribution of the Contract. At the end of the 10th 
annuity year, ASLAC will process a transaction to convert the Contract 
owner's account value to units of the Sub-accounts that reflect only 
the Insurance Charge. Because units that only reflect the Insurance 
Charge are less expensive, the number of units attributed to a Contract 
is decreased and the unit value of each unit of the Sub-accounts in 
which the Contract owner was invested is increased. The Contract 
owner's account value is unchanged by the conversion of the account 
value to the number of units, and unit values will not affect the 
Owner's account value. Beginning on that date, the Contract owner's 
account value will fluctuate based on the change in the value of the 
units that only reflect the Insurance Charge.
    17. Applicants represent that no deduction or charge will be made 
from purchase payments for sales or distribution expenses. However, a 
CDSC may be assessed on surrender or partial withdrawal from the 
Contract. The CDSC will be used to compensate ASLAC for sales 
commissions and other promotional or distribution expenses incurred by 
ASLAC which are associated with the marketing of the Contracts. ASLAC 
does not anticipate that the CDSC will be sufficient to permit it to 
recoup all its sales and distribution expenses.
    18. Applicants state that XT FOUR offers a free withdrawal 
privilege. This privilege permits a Contract owner to

[[Page 4296]]

withdraw account value without any CDSC being imposed at the time of 
withdrawal. The maximum amount available as a free withdrawal during 
annuity year one through eight is 10% of all purchase payments. The 10% 
free withdrawal is not cumulative. After annuity year eight, the 
maximum free withdrawal amount is the sum of (a) 10% of any purchase 
payments applied to the Contract after the initial purchase payment, 
(b) 100% of the initial purchase payment and (c) 100% of any growth in 
the Contract, which equals the current account value minus all purchase 
payments that have not been previously withdrawn. The Credit amount, 
which is is applied to the purchase payments when applicable, is not 
considered growth and is not available as a free withdrawal. Amounts 
withdrawn under the free withdrawal provision do not reduce the CDSC 
that may apply to a subsequent surrender. The XT SIX offers a free 
withdrawal privilege as well. This privilege permits a Contract owner 
to withdraw account value without any CDSC being imposed at the time of 
withdrawal. The maximum amount available as a free withdrawal during 
annuity year one through ten is 10% of all purchase payments. The 10% 
free withdrawal is not cumulative. After annuity year ten, the maximum 
free withdrawal amount is 100% of the account value, including any 
Credits.
    Applicants represent that on full or partial surrenders under XT 
FOUR, the CDSC on any purchase payments surrendered in excess of the 
free withdrawal privilege is based on a schedule of 8.5% in year one to 
0.0% in year nine and beyond. The amount of the CDSC applicable to each 
purchase payment decreases over time, measured from the date each 
purchase payment is applied.
    Applicants further represent that on full or partial surrenders 
under the XT SIX, the CDSC on any purchase payments surrendered in 
excess of the free withdrawal privilege is based on a schedule of 9.0% 
in year one to 0.0% in year eleven and beyond. The CDSC is measured 
from the issue date, not from the date that each purchase payment is 
applied.
    Applicants state that for purposes of calculating the CDSC, 
withdrawals will be considered to come first from any amount available 
as a free withdrawal, then, to the extent the amount withdrawn exceeds 
the free withdrawal, from purchase payments that have not previously 
been withdrawn subject to a CDSC. If there are multiple new purchase 
payments, the one received earliest is liquidated first, then the one 
received next, so that the lowest CDSC percentage will apply to the 
amount withdrawn.

Applicant's 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, pursuant to section 6(c) 
of the Act, grant the exemptions requested below with respect to the 
Contracts, and any Future Contracts funded by the Accounts or Future 
Accounts, that are issued by ASLAC and underwritten or distributed by 
ASM. Applicants undertake that Future Contracts funded by the Account 
or any Future Account will be substantially similar in all material 
respects to the Contracts. Applicants believe that the requested 
exemptions are 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.
    3. Applicants represent that it is not administratively feasible to 
track the actual Credit amount in one or the other of the Accounts 
after the Credit is applied to purchase payments in the Contract. 
Accordingly, the asset-based charges applicable to the Accounts will be 
assessed against the entire account value held in the respective 
Accounts, including the Credit amount, during the right to cancel 
period, for a medically-related surrender and when purchase payments 
are made within 12 months prior to the date of death. As a result, the 
aggregate asset-based charges assessed against a Contract owner's 
account value will be higher than that which would be charged if the 
Contract owner's account value did not include the Credit. ASLAC has 
agreed to provide such disclosure in the prospectus.
    4. Subsection (i) of Section 27 provides that Section 27 does not 
apply to any registered separate account funding variable insurance 
contracts, or to the sponsoring insurance company and principal 
underwriter of such account, except as provided in paragraph (2) of the 
subsection. Paragraph (2) of the subsection provides that it shall be 
unlawful for such a separate account or sponsoring insurance company to 
sell a contract funded by the registered separate account unless ``(A) 
such contract is a redeemable security.'' Section 2(a)(32) defines 
``redeemable security'' as any security, other than short-term paper, 
under the terms of which the holder, upon presentation to the issuer, 
is entitled to receive approximately his proportionate share of the 
issuer's current net assets, or the cash equivalent thereof.
    5. Applicants submit that the Credit recapture provisions would not 
deprive a Contract owner of his or her proportionate share of the 
issuer's current net assets. A Contract owner's interest in the amount 
of the Credit allocated to his or her annuity account value is not 
vested until the applicable right to cancel period has expired without 
return of the Contract. Similarly, a Contract owner's interest in the 
amount of the Credit allocated to his or her annuity account value will 
vest, except for Credits allocated to purchase payments received by 
ASLAC within the first 12 months of the date the Annuitant first became 
eligible for the medically-related surrender. And lastly, a Contract 
owner's interest in the amount of the Credit allocated to his or her 
annuity account value will vest, except for Credits applied to the 
account value on purchase payments made within 12 months prior to the 
date of death.
    6. Applicants state that the recapture of any Credit is intended 
only to protect ASLAC against anti-selection under certain specified 
contingencies. ``Anti-selection'' can generally be described as a risk 
that persons obtain coverage based on knowledge that the contingency 
that triggers payment of an insurance benefit is likely to occur, or is 
to occur shortly. In the case of the Contracts, the Credits are 
provided on a guaranteed issue basis. The protection against anti-
selection by persons who are ill is the reduction of the death benefit 
or the amount available as a medically-related surrender by the amount 
of a Credit applied to purchase payments made within 12 months prior to 
the applicable Contingency Event, as defined in XT FOUR or XT SIX. With 
respect to Credits allocated prior to the end of the Contract's right 
to cancel provision, the amount payable when such provision is 
exercised must be reduced by an amount equal to the Credits allocated. 
Otherwise, purchasers would apply for annuities for the sole purpose of 
making a quick profit and then exercise the right to cancel provision.
    7. Applicants represent that, until or unless the amount of any 
Credit is vested, ASLAC retains the right to, and interest in, the 
Credit amount, although

[[Page 4297]]

not in the earnings attributable to that amount. Thus, when ASLAC 
recaptures any Credit, it is simply retrieving its own assets, and 
because a Contract owner's interest in the Credit is not vested, the 
Contract owner has not been 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 account value (including 
the Credit).
    8. For the foregoing reasons, Applicants state, the provisions for 
recapture of any Credit under the Contracts do not, and any such Future 
Contract provisions will not, violate section 2(a)(32) and section 
27(i)(2)(A) of the Act. Indeed, a contrary conclusion would be 
inconsistent with a stated purpose of the National Securities Market 
Improvement Act (``NSMIA''), which is ``to amend the [Act] to * * * 
provide more effective and less burdensome regulation.'' Section 26(e) 
(now renumbered as section 26(f)) and section 27(i) were added to the 
Act pursuant to section 205 of NSMIA to implement the purposes of NSMIA 
and the Congressional intent. Thus, the application of a Credit to 
contributions made under the Contracts should not raise any questions 
as to ASLAC's compliance with the provisions of section 27(i). 
Nevertheless, to avoid any uncertainties, Applicants request an 
exemption from Sections 2(a)(32) and 27(i)(2)(A), to the extent deemed 
necessary, to permit the recapture of any Credit under the 
circumstances described herein with respect to Contracts and any Future 
Contracts, without the loss of the relief from section 27 provided by 
section 27(i).
    9. Section 22(c) of the Act authorizes the Commission to make rules 
and regulations applicable to registered investment companies and to 
principal underwriters of, and dealers in, the redeemable securities of 
any registered investment company to accomplish the same purposes as 
contemplated by section 22(a). Rule 22c-1 thereunder prohibits a 
registered investment company issuing any redeemable security, a person 
designated in such issuer's prospectus as authorized to consummate 
transactions in any such security, and a principal underwriter of, or 
dealer in such security, from selling, redeeming, or repurchasing any 
such security except at a price based on the current net asset value of 
such security which is next computed after receipt of a tender of such 
security for redemption or of an order to purchase or sell such 
security.
    10. ASLAC's recapture of the Credit arguably might be viewed as 
resulting in the redemption of redeemable securities for a price other 
than one based on the current net asset value of the Sub-accounts. The 
recapture of the Credit is not violative of Rule 22c-1. The recapture 
of the Credit does not involve either of the evils that Rule 22c-1 was 
intended to eliminate or reduce as far as reasonably practicable, 
namely: (a) The dilution of the value of outstanding redeemable 
securities of registered investment companies through their sale at a 
price below net asset value or their redemption or repurchase at a 
price above it, and (b) other unfair results, including speculative 
trading practices. These evils were the result of backward pricing, the 
practice of basing the price of a mutual fund share on the net asset 
value per share determined as of the close of the market on the 
previous day. Backward pricing allowed investors to take advantage of 
increases or decreases in net asset value that were not yet reflected 
in the price, thereby diluting the values of outstanding mutual fund 
shares.
    11. Applicants state that the proposed recapture of the Credit 
poses no such threat of dilution. To effect a recapture of a Credit, 
ASLAC will redeem interests in a Contract owner's account at a price 
determined on the basis of the current net asset value of the 
respective Sub-Accounts. The amount recaptured will equal the amount of 
the Credit that ASLAC paid out of its own general account assets. 
Although Contract owners will be entitled to retain any investment gain 
attributable to the Credit, the amount of such gain will be determined 
on the basis of the current net asset value of the respective Sub-
accounts. Thus, no dilution will occur upon the recapture of the 
Credit. Applicants also submit that the second harm that Rule 22c-1 was 
designed to address, namely, speculative trading practices calculated 
to take advantage of backward pricing, will not occur as a result of 
the recapture of the Credit.
    Applicants believe that because neither of the harms that Rule 22c-
1 was meant to address is found in the recapture of the Credit, Rule 
22c-1 should have no application to any Credit. However, to avoid any 
uncertainty as to full compliance with the Act, Applicants request an 
exemption from the provisions of Rule 22c-1 to the extent deemed 
necessary to permit them to recapture the Credit under the Contracts 
and Future Contacts.

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.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-2069 Filed 1-28-02; 8:45 am]
BILLING CODE 8010-01-P