[Federal Register Volume 68, Number 143 (Friday, July 25, 2003)]
[Notices]
[Pages 44123-44128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18992]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26101; File No. 812-12924]


ReliaStar Life Insurance Company of New York, et al.

July 21, 2003.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an amended order pursuant to Section 
6(c) of the Investment Company Act of 1940 (the ``Act'') granting 
exemption from Sections 2(a)(32) and 27(i)(2)(A) of the Act and Rule 
22c-1 thereunder.

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[[Page 44124]]


Applicants:  ReliaStar Life Insurance Company of New York (``RLNY''), 
Separate Account NY-B of ReliaStar Life Insurance Company of New York 
(``Account NY-B''), Golden American Life Insurance Company (``Golden 
American'') (with RLNY, the ``Life Companies''), Separate Account B of 
Golden American Life Insurance Company (``Account B'') (with Account 
NY-B, the ``Accounts''), any other separate accounts of RLNY or Golden 
American that support Future Contracts (defined below) (collectively, 
the ``Future Accounts'') and Directed Services, Inc. (``DSI'') 
(together, the ``Applicants'').

Summary of the Application:  Applicants hereby amend and restate an 
application originally filed on January 31, 2003 for an order to amend 
an existing order \1\ (``Existing Order'') to: (1) Add Golden American, 
Account B, and DSI (collectively, ``Additional Applicants'') as parties 
to the Existing Order, and (2) permit the Additional Applicants to 
recapture certain bonuses applied to purchase payments made under (a) 
certain deferred variable annuity contracts and certificates, including 
certain certificate data pages and endorsements, that Golden American 
will issue through Account B (the ``Account B Contracts'') and under 
(b) contracts and certificates, including certain certificate data 
pages and endorsements, that the Life Companies may issue in the future 
through Account B or the Future Accounts of the Life Companies 
(together with Account B, the ``Accounts'') and that are substantially 
similar in all material respects to the deferred variable annuity 
contracts (``Account NY-B Contracts'') covered by the Existing Order 
(collectively, the ``Future Contracts'' and together with the Account B 
Contracts, the ``Contracts''). Applicants also request that the order 
being sought extend to any National Association of Securities Dealers, 
Inc. (``NASD'') member broker-dealer controlling or controlled by, or 
under common control with any Additional Applicant, whether existing or 
created in the future, that serves as a distributor or principal 
underwriter of the Contracts offered through the Accounts (collectively 
``Affiliated Broker-Dealers'').
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    \1\ ReliaStar Life Insurance Company of New York, Investment 
Company Act Release No. 25875 (Jan. 22, 2003) (File No. 812-12914).

Filing Date:  The Application was filed on January 31, 2003, and 
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amended and restated on June 4, 2003, and June 27, 2003.

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 must be received by the 
Commission by 5:30 p.m. on August 15, 2003, and should be accompanied 
by proof of service on the Applicant 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 Fifth 
Street, NW., Washington, DC 20549-0609. Applicant, c/o Linda Senker, 
Esq., Golden American Life Insurance Company, 1475 Dunwoody Drive, West 
Chester, Pennsylvania 19380.

FOR FURTHER INFORMATION CONTACT: Curtis A. Young, Esq., Senior Counsel, 
or Lorna J. MacLeod, Branch Chief, Office of Insurance Products, 
Division of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the Application. 
The Application is available for a fee from the Commission's Public 
Reference Branch, 450 Fifth Street, NW., Washington, DC 20549-0102 
(tel. (202) 942-8090).

Applicants' Representations

    1. RLNY is a stock life insurance company originally incorporated 
under the laws of New York (originally incorporated under the name 
Morris Plan Insurance Society) on June 11, 1917. RLNY is engaged in the 
business of writing life insurance and annuities, both individual and 
group, and is authorized to do business in all 50 states. RLNY is a 
wholly-owned subsidiary of Security-Connecticut Life Insurance Company, 
which is a wholly-owned subsidiary of ReliaStar Life Insurance Company. 
RLNY is ultimately controlled by ING Groep N.V., a global financial 
services holding company with approximately $470.9 billion in assets as 
of December 31, 2002. As of December 31, 2002, Golden American had 
assets of approximately $17.6 billion. For purposes of the Act, RLNY is 
the depositor and sponsor of Account NY-B as those terms have been 
interpreted by the Commission with respect to variable annuity separate 
accounts.
    2. Golden American is a stock life insurance company originally 
incorporated under the laws of Minnesota on January 2, 1973, and later 
redomiciled to Delaware. Golden American is engaged in the business of 
writing annuities, both individual and group, in all states (except New 
York) and the District of Columbia. Golden American is a subsidiary of 
Equitable Life Insurance Company of Iowa, which, in turn is a 
subsidiary of Lion Connecticut Holdings, Inc. Golden American is also 
ultimately controlled by ING Groep N.V. For purposes of the Act, Golden 
American is the depositor and sponsor for Account B, as those terms 
have been interpreted by the Commission with respect to variable 
annuity separate accounts. Golden American also serves as depositor for 
several currently existing Future Accounts, one or more of which may 
support obligations under Future Contracts. Golden American may 
establish one or more additional Future Accounts for which it will 
serve as depositor.
    3. Golden American established Account B as a segregated investment 
account under Delaware law on July 14, 1988. Under Delaware law, the 
assets of Account B attributable to the Account B Contracts and any 
other variable annuity contracts through which interests in the Account 
are issued are owned by Golden American but are held separately from 
all other assets of Golden American, for the benefit of the owners of, 
and the persons entitled to payment under, Contracts, issued through 
the Account. Consequently, such assets are not chargeable with 
liabilities arising out of any other business that Golden American may 
conduct. Income, gains and losses, realized or unrealized, from each 
subaccount of the Account B, are credited to or charged against that 
subaccount without regard to any other income, gains or losses of 
Golden American. Account B is a ``separate account'' as defined by Rule 
0-1(e) under the Act, and is registered with the Commission as a unit 
investment trust.
    4. Each of the Accounts currently is divided into a number of 
subaccounts. Each subaccount invests exclusively in shares representing 
an interest in a separate corresponding investment portfolio of one of 
several series-type open-end management investment companies. The 
assets of each Account support one or more varieties of variable 
annuity contacts, including the Contracts. Account NY-B is registered 
with the Commission as a unit investment trust (File No. 811-7935), and 
interests in the Account to be offered through the Contracts have been 
registered under the 1933 Act on Form

[[Page 44125]]

N-4 (File No. 333-85618). Account B is registered with the Commission 
as a unit investment trust (File No. 811-5626), and interests in the 
Account to be offered through the Contracts have been registered under 
the 1933 Act on Form N-4 (File No. 333-101481).
    5. DSI is a wholly owned subsidiary of Lion Connecticut Holdings, 
Inc. It serves as the principal underwriter of a number of RLNY and 
Golden American separate accounts registered as unit investment trusts 
under the Act, including the Accounts, and is the distributor of 
variable annuity contracts issued through such separate accounts, 
including the Contracts. DSI is registered as a broker-dealer under the 
Securities Exchange Act of 1934 and is a member of the National 
Association of Securities Dealers, Inc. (the ``NASD'').
    6. The Contracts are deferred combination variable and fixed 
annuity contracts that RLNY and Golden American may issue to 
individuals or groups on a ``non-qualified'' basis or in connection 
with employee benefit plans that receive favorable federal income tax 
treatment under Sections 401, 403(b), 408, 408A or 457 of the Internal 
Revenue Code of 1986, as amended (the ``Code'').
    7. The Contracts make available a number of subaccounts of the 
Accounts to which owners may allocate net premium payments and 
associated bonus credits (described below) and to which owners may 
transfer contract value. The Contracts also offer fixed-interest 
allocation options under which RLNY or Golden American, as applicable, 
credit guaranteed rates of interest for various periods. Transfers of 
contract value among and between the subaccounts and, subject to 
certain restrictions, among and between the subaccounts and the fixed-
interest options, may be made at any time. The Contracts offer a 
variety of annuity payment options to owners. In the event of an 
owner's (or, in certain circumstances, an annuitant's) death prior to 
the annuity commencement date, beneficiaries may elect to receive death 
benefits in the form of one of the annuity payment options instead of a 
lump sum. In general, the Contracts offer all of the features typically 
found in variable annuity contracts today.
    8. The Contracts generally may only be purchased with a minimum 
initial premium of $15,000 ($1,500 for certain employee benefit plans) 
under Option Package I and $5,000 ($1,500 for certain employee benefit 
plans) for Option Packages II and III. RLNY or Golden American, as 
applicable, may deduct a premium tax charge from premium payments in 
certain states, but otherwise deducts a charge for premium taxes upon 
surrender or annuitization of the Contract or upon the payment of a 
death benefit, depending upon the jurisdiction. The Contracts provide 
for an annual administrative charge of $30 that RLNY or Golden 
American, as applicable, deducts on each Contract Anniversary and upon 
a full surrender of a Contract and a daily administrative charge 
deducted from the assets of the Account at an annual rate of 0.15% of 
the Account's average daily net assets. A daily mortality and expense 
risk charge is deducted from the assets of the Accounts at the 
following annual rates:
    Account NY-B Contracts: 0.90% for Option Package I, 1.10% for 
Option Package II, and 1.25% for Option Package III, of the Account's 
average daily net assets. Account B Contracts: 0.95% for Option Package 
I, 1.15% for Option Package II, and 1.30% for Option Package III, of 
the Account's average daily net assets. The Contracts also provide for 
a charge of $25 for each transfer of contract value in excess of 12 
transfers per contract year. RLNY and Golden American currently 
anticipate waiving this charge for the foreseeable future. Lastly, the 
Contracts have a surrender charge in the form of a contingent deferred 
sales charge.
    9. The contingent deferred sales charge (``CDSC'') is equal to the 
percentage of each premium payment surrendered or withdrawn. The CDSC 
is separately calculated and applied to each premium payment at any 
time that the payment (or part of the payment) is surrendered or 
withdrawn. The CDSC applicable to each premium payment diminishes as 
the payment ages.
    The Account NY-B Contract schedule is as follows:

------------------------------------------------------------------------
                                                           Charge  (in
   Number of full years since payment of each premium        percent)
------------------------------------------------------------------------
less than 1............................................             6.0
2......................................................             6.0
3......................................................             6.0
4......................................................             6.0
5......................................................             5.0
6......................................................             4.0
7......................................................             3.0
8+.....................................................             0.0
------------------------------------------------------------------------

    The Account B Contract schedule is as follows:

------------------------------------------------------------------------
                                                           Charge  (in
   Number of full years since payment of each premium        percent)
------------------------------------------------------------------------
less than 1............................................             7.0
2......................................................             7.0
3......................................................             6.0
4......................................................             6.0
5......................................................             5.0
6......................................................             4.0
7......................................................             3.0
8+.....................................................             0.0
------------------------------------------------------------------------

    10. No CDSC applies to contract value representing an annual free 
withdrawal amount or to contract value in excess of aggregate premium 
payments (less prior withdrawals of premium payments) (``earnings''). 
The CDSC is calculated using the assumption that premium payments are 
withdrawn on a first-in, first-out basis. The CDSC also is calculated 
using the assumption that contract value is withdrawn in the following 
order: (1) The annual free withdrawal amount for that contract year, 
(2) premium payments, and (3) earnings. The annual free withdrawal 
amount is 10% of contract value, measured at the time of withdrawal, 
less any prior withdrawals made in that contract year. Under Option 
Package III, any unused percentage of the 10% free withdrawal amount 
from a contract year may carry forward into successive contract years, 
based on the percentage remaining after the last withdrawal in a 
contract year. However, under Option Package III, the accumulated free 
withdrawal amount may not exceed 30% of contract value.
    11. If an owner dies before the annuity start date, the Contracts 
provide, under most circumstances, for a death benefit payable to a 
beneficiary, computed as of the date RLNY or Golden American, as 
applicable, receives written notice and due proof of death. The death 
benefit payable to the beneficiary depends on whether the owner 
selected Option Package I, II or III. Each option package provides a 
death benefit upon the death of the owner which death benefit is based 
upon the highest amount payable under the separate death benefit 
options available under that option package. Under the Account NY-B 
Contracts, the death benefit options available under the option 
packages include:
    (1) The Standard Death Benefit which equals return of premium, less 
credits applied since or within 12 months prior to death, reduced pro 
rata for withdrawals;
    (2) the contract value on the claim date, less credits applied 
since or within 12 months prior to death;
    (3) the Annual Ratchet death benefit which equals the maximum 
contract value on each contract anniversary occurring on or prior to 
attainment of age 90, adjusted for new premiums and credits and reduced 
pro rata for withdrawals, less credits applied since or within 12 
months prior to death; and
    (4) return of premium.

[[Page 44126]]

    Under Option Package I, the death benefit payable is the greater of 
(1), (2) and (4). Under Option Package II, the death benefit payable is 
the greatest of (1), (2), (3) and (4). Under Option Package III, the 
death benefit payable is the greatest of (1), (2), (3) and (4).
    Under the Account B Contracts, the death benefit options available 
under the option packages include:
    (1) The Standard Death Benefit which equals return of premium, less 
credits applied since or within 12 months prior to death, reduced pro 
rata for withdrawals;
    (2) the contract value on the claim, less credits applied since or 
within 12 months prior to death;
    (3) the Annual Ratchet death benefit which equals the maximum 
contract value on each contract anniversary occurring on or prior to 
attainment of age 90, adjusted for new premiums and credits and reduced 
pro rata for withdrawals, less credits applied since or within 12 
months prior to death;
    (4) the 5% Roll-Up death benefit which equals the lesser of 
premiums, plus credits, if applicable, adjusted for withdrawals and 
transfers, accumulated at 5% for Covered Funds or Excluded Funds and 0% 
for Special Funds until the earlier of attainment of age 90 or reaching 
the cap (equal to 3 times all premium payments and credits, if 
applicable, as reduced by adjustments for withdrawals) and thereafter 
at 0%, and the cap.
    Under Option Package I, the death benefit payable is the greater of 
(1) and (2). Under Option Package II, the death benefit payable is the 
greatest of (1), (2) and (3). Under Option Package III, the death 
benefit payable is the greatest of (1), (2), (3) and (4).
    12. RLNY and Golden American intend to offer a bonus credit 
provision under the Contracts. At the time of application, an owner may 
elect the bonus credit provision. Under the bonus credit provision, 
RLNY or Golden American, as applicable, credits contract value in the 
subaccounts and the fixed-interest allocations with an amount that is a 
percentage of the premium payment. The bonus credit applies upon 
issuance of the Contract and is based upon premium payments received 
within the first contract year (``first year premium payments''). RLNY 
or Golden American, as applicable, allocates the bonus credit among the 
subaccounts and fixed-interest allocations the owner selects in 
proportion to the premium payment in each investment option. The bonus 
credit equals 4% of the first year premium payments. The annual charge 
assessed for the premium credit rider (as a percentage of contract 
value) is 0.50%. The charge is payable for the first seven contract 
years. The charge is deducted from the contract value in the 
subaccounts and is also deducted from amounts in fixed interest 
allocations by crediting a lower interest rate.
    13. Under the bonus credit provision, RLNY or Golden American, as 
applicable, recaptures or retains the credited amount in the event that 
the owner exercises his or her cancellation right during the ``free 
look'' period. RLNY or Golden American, as applicable, recaptures bonus 
credits applied after or within twelve months of the date as of which a 
death benefit is computed. RLNY or Golden American, as applicable, also 
will recapture part or all of the credited amount upon surrender or 
withdrawal. The portion of the credit deducted is based on the 
percentage of first year premium withdrawn and the contract year of 
surrender or withdrawal. The amount recaptured is calculated separately 
and applied to each premium payment at any time that the payment (or 
part of the payment) is surrendered or withdrawn. The recapture 
percentage applicable to each premium payment is level for the first 
two contract years and diminishes to zero after the seventh contract 
year. The schedule is as follows:

------------------------------------------------------------------------
                                                              Percentage
                                                              of premium
                                                                credit
                                                              forfeited
                                                              (based on
          Contract year of surrender or withdrawal            percentage
                                                               of first
                                                                 year
                                                               premium
                                                              withdrawn)
------------------------------------------------------------------------
Years 1-2..................................................          100
Years 3-4..................................................           75
Years 5-6..................................................           50
Year 7.....................................................           25
Years 8+...................................................            0
------------------------------------------------------------------------

    14. No recapture percentage applies to contract value representing 
the annual free withdrawal amount or to contract value representing 
earnings. Because of the recapture provisions discussed above, the 
value of a credit only ``vests'' or belongs irrevocably to the owner as 
the recapture period for the credit expires. As to bonus credits 
resulting from premiums paid before the ``free look'' period ends, no 
part of the credit vests for the owner until the expiration of the 
``free look'' period. After the expiration of the ``free look'' period, 
all bonus credits vest in full over the 7-year period after RLNY or 
Golden American, as applicable, grants them. Under the bonus credit 
provision, RLNY or Golden American, as applicable, credits amounts to 
an owner's contract value either by ``purchasing'' accumulation units 
of an appropriate subaccount or adding to the owner's fixed interest 
allocation option values.
    15. With regard to variable contract value, several consequences 
flow from the foregoing. First, increases in the value of accumulation 
units representing bonus credits accrue to the owner immediately, but 
the initial value of such units only belongs to the owner when, or to 
the extent that, each vests. Second, decreases in the value of 
accumulation units representing bonus credits do not diminish the 
dollar amount of contract value subject to recapture. Therefore, 
additional accumulation units must become subject to recapture as their 
value decreases. Stated differently, the proportionate share of any 
owner's variable contract value (or the owner's interest in the 
Account) that RLNY or Golden American, as applicable, can ``recapture'' 
increases as variable contract value (or the owner's interest in the 
Account) decreases. This dilutes somewhat the owner's interest in the 
Account vis-a-vis RLNY or Golden American, as applicable, and other 
owners, and in his or her variable contract value vis-a-vis RLNY or 
Golden American, as applicable. Lastly, because it is not 
administratively feasible to track the unvested value of bonus credits 
in the Account, RLNY or Golden American, as applicable, deducts the 
daily mortality and expense risk charge and the daily administrative 
charge from the entire net asset value of the Account. As a result, the 
daily mortality and expense risk charge and the daily administrative 
charge paid by any owner is greater than that which he or she would pay 
without the bonus credit.
    16. Applicants request that the Commission issue an amended order 
pursuant to Section 6(c) of the Act, adding Additional Applicants as 
parties to the Existing Order, and granting exemptions from the 
provisions of Sections 2(a)(32) and 27(i)(2)(A) of the Act and Rule 
22c-1 thereunder, to the extent necessary to permit Additional 
Applicants to recapture bonuses under Contracts under the same 
circumstances covered by the Existing Order.

Legal Analysis

    1. Subsection (i) of Section 27 provides that Section 27 does not 
apply to any registered separate account supporting variable annuity 
contracts, or to the sponsoring insurance company and principal 
underwriter of such account, except as provided in paragraph (2) of 
subsection (i). Paragraph (2) provides that it shall be unlawful for a 
registered separate

[[Page 44127]]

account or sponsoring insurance company to sell a variable annuity 
contract supported by the separate account unless the ``* * * contract 
is a redeemable security; and * * * [t]he insurance company complies 
with Section 26(e) * * *''
    2. Section 2(a)(32) defines a ``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.
    3. 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. Rule 22c-1 thereunder imposes 
requirements with respect to both the amount payable on redemption of a 
redeemable security and the time as of which such amount is calculated. 
Specifically, Rule 22c-1, in pertinent part, 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.
    4. Section 6(c) of the Act authorizes the Commission to exempt any 
person, security, or transaction or any class of persons, securities, 
or transactions from any provision or provisions of the Act and/or any 
rule under it 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.
    5. Applicants submit that the recapture of bonus credits would not, 
at any time, deprive an owner of his or her proportionate share of the 
current net assets of an Account. Until the appropriate recapture 
period expires, RLNY and Golden American retain the right to and 
interest in each owner's contract value representing the dollar amount 
of any unvested bonus credits. Therefore, if RLNY or Golden American 
recaptures any bonus credit or part of a bonus credit in the 
circumstances described above, it would merely be retrieving its own 
assets. RLNY and Golden American would grant bonus credits out of their 
respective general account assets and the amount of the credits 
(although not the earnings on such amounts) would remain RLNY's or 
Golden American's until such amounts vest with the owner. Thus, to the 
extent that RLNY or Golden American may grant and recapture bonus 
credits in connection with variable contract value, it would not, at 
either time, deprive any owner of his or her then proportionate share 
of the Account's assets. It is the nature of the bonus recapture 
provisions as they apply to variable contract value that an owner would 
obtain a benefit from a bonus credit in a rising market because any 
earnings on the bonus credit amount would vest with him or her 
immediately. Over time this would, of course, cause the owner's share 
of both the Contract's variable contract value and the Account's net 
assets to be greater on a relative basis than it would have been 
without the bonus credit. Conversely, in a falling market an owner 
would suffer a detriment from a bonus credit because losses on the 
bonus credit amount also would ``vest'' with him or her immediately. As 
explained above, over time this would cause the owner's share of both 
the Contract's variable contract value and the Account's net assets to 
decrease on a relative basis.
    6. Applicants do not believe that the dynamics of RLNY's or Golden 
American's proposed bonus credit provisions would violate Sections 
2(a)(32) or 27(i)(2)(A) of the Act. To begin with, Section 2(a)(32) 
defines a redeemable security as one ``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 asset 
value.'' Taken together, these two sections of the Act do not require 
that the holder receive the exact proportionate share that his or her 
security represented at a prior time. Therefore, the fact that the 
proposed bonus credit provisions have a dynamic element that may cause 
the relative ownership positions of RLNY or Golden American and a 
Contract owner to shift due to Account performance and the vesting 
schedule of such credits, would not cause the provisions to conflict 
with Sections 2(a)(32) or 27(i)(2)(A). Nonetheless, in order to avoid 
any uncertainty as to full compliance with the Act, Applicants seek 
exemptions from these two sections.
    7. RLNY's or Golden American's granting of a bonus credit would 
have the result of increasing an owner's contract value in a way that 
could be viewed as the purchase of an interest in the Account at a 
price below net asset value. Similarly, RLNY's or Golden American's 
recapture of any bonus credit could be viewed as the redemption of such 
an interest at a price above net asset value. If such is the case, then 
the bonus credit provisions could be viewed as conflicting with Rule 
22c-l under the Act. Applicants contend, however, that the bonus 
credits do not violate Rule 22c-1 under the Act. The bonus credit 
provisions do not give rise to either of the evils that Rule 22c-1 was 
designed to address. The Rule was intended to eliminate or reduce, as 
far as was reasonably practicable, 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 
at a price above net asset value, or other unfair results, including 
speculative trading practices.''
    8. Applicants argue that the evils prompting the adoption of Rule 
22c-1 were primarily 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 permitted certain 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 shares. The 
proposed bonus credit provisions pose no such threat of dilution. An 
owner's interest in his or her contract value or in the Account would 
always be offered under the Contracts at a price determined on the 
basis of net asset value. The granting of a bonus credit does not 
reflect a reduction of that price. Instead, RLNY or Golden American 
will purchase with their own money on behalf of the owner, an interest 
in the Account equal to the bonus credit. Because any bonus credit will 
be paid from RLNY's or Golden American's general account and not from 
the assets of the Account, no dilution will occur as a result of the 
credit. Likewise, because RLNY or Golden American will use general 
account assets to increase an owner's total contract value, no dilution 
will occur from such an increase.
    9. Recaptures of bonus credits result in a redemption of RLNY's 
interest in an owner's contract value or in the Account at a price 
determined on the basis of the Account's current net asset value and 
not at an inflated price. Moreover, the amount recaptured will always 
equal the amount that RLNY or Golden American paid from its general 
account for the credits. Similarly, although owners are entitled to 
retain any investment gains attributable to the

[[Page 44128]]

bonus credits, the amount of such gains would always be computed at a 
price determined on the basis of net asset value. Because neither of 
the harms that Rule 22c-1 was intended to address arise in connection 
with the proposed bonus credit provisions, the provisions do not 
conflict with the Rule. Nonetheless, in order to avoid any uncertainty 
as to hill compliance with the Act, Applicants seek exemptions from 
Rule 22c-1.
    10. The bonus credit recapture provisions are necessary for RLNY or 
Golden American to offer the bonus credits. It would be unfair to RLNY 
or Golden American to permit owners to keep their bonus credits upon 
their exercise of the Contracts' ``free look'' provision. Because no 
CDSC applies to the exercise of the ``free look'' provision, the owner 
could obtain a quick profit in the amount of the bonus credit at RLNY's 
or Golden American's expense by exercising that right. Similarly, the 
owner could take advantage of the bonus credit by taking withdrawals 
within the recapture period, because the cost of providing the bonus 
credit is recouped through charges imposed over a period of years. 
Likewise, because no additional CDSC applies upon death of an owner (or 
annuitant), a death shortly after the award of bonus credits would 
afford an owner or a beneficiary a similar profit at RLNY's or Golden 
American's expense. In the event of such profits to owners or 
beneficiaries, RLNY or Golden American could not recover the cost of 
granting the bonus credits. This is because RLNY and Golden American 
intend to recoup the costs of providing the bonus credits through the 
charges under the Contract, particularly the daily mortality and 
expense risk charge and the daily administrative charge. If the profits 
described above are permitted, certain owners could take advantage of 
them, reducing the base from which the daily charges are deducted and 
greatly increasing the amount of bonus credits that RLNY or Golden 
American must provide. Therefore, the recapture provisions are a price 
of offering the bonus credits. RLNY and Golden American simply cannot 
offer the proposed bonus credits without the ability to recapture those 
credits in the limited circumstances described herein.
    11. Applicants state that the Commission's authority under Section 
6(c) of the Act to grant exemptions from various provisions of the Act 
and rules thereunder is broad enough to permit orders of exemption that 
cover classes of unidentified persons. Applicants request an order of 
the Commission that would exempt them, RLNY's successors in interest, 
Future Accounts and Future Underwriters from the provisions of Sections 
2(a)(32) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder. The 
exemption of these classes of persons is 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 
because all of the potential members of the class could obtain the 
foregoing exemptions for themselves on the same basis as the 
Applicants, but only at a cost to each of them that is not justified by 
any public policy purpose. As discussed below, the requested exemptions 
would only extend to persons that in all material respects are the same 
as the Applicants. The Commission has previously granted exemptions to 
classes of similarly situated persons in various contexts and in a wide 
variety of circumstances, including class exemptions for recapturing 
bonus credits under variable annuity contracts.
    12. Applicants represent that Future Contracts will be 
substantially similar in all material respects to the Contracts and 
that each factual statement and representation about the bonus credit 
provisions of the Contracts will be equally true of Future Contracts. 
Applicants also represent that each material representation made by 
them about Account B and DSI will be equally true of Future Accounts 
and Future Underwriters, to the extent that such representations relate 
to the issues discussed in this application. In particular, each Future 
Underwriter will be registered as a broker-dealer under the Securities 
Exchange Act of 1934 and be a NASD member.

Conclusion

    Applicants submit that the requested relief therefrom is consistent 
with the exemptive relief provided under the Existing Order.
    Based on the grounds summarized above, Applicants submit 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. 03-18992 Filed 7-24-03; 8:45 am]
BILLING CODE 8010-01-P