99-34014. IDS Life Insurance Company, et al.  

  • [Federal Register Volume 65, Number 1 (Monday, January 3, 2000)]
    [Notices]
    [Pages 143-149]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 99-34014]
    
    
    =======================================================================
    -----------------------------------------------------------------------
    
    SECURITIES AND EXCHANGE COMMISSION
    
    [Rel. No. IC-24220; File No. 812-11818]
    
    
    IDS Life Insurance Company, et al.
    
    December 23, 1999.
    AGENCY: Securities and Exchange Commission (the ``Commission'' or 
    ``SEC'').
    
    ACTION: Notice of Application for an order under Section 6(c) of the 
    Investment Company Act of 1940 (the ``1940 Act'') granting exemptions 
    from the provisions of Sections 2(a)(32), 22(c), and 27(i)(2)(A) of the 
    1940 Act and Rule 22c-1 thereunder to permit the recapture of credits 
    applied to
    
    [[Page 144]]
    
    contributions made under certain deferred variable annuity contracts.
    
    -----------------------------------------------------------------------
    
    SUMMARY OF APPLICATION: Applicants seek an order under Section 6(c) of 
    the 1940 Act to the extent necessary to permit the issuance and, under 
    specified circumstances, the subsequent recapture of certain credits 
    applied to contributions made under: (i) certain deferred variable 
    annuity contracts that IDS Life or American Enterprise will issue 
    through the Accounts (``Contracts''), and (ii) contracts that the 
    Insurance Companies may in the future issue through the Accounts or any 
    Future Account that are substantially similar in all material respects 
    to the Contracts (``Future Contracts''). Applicants also 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 the Insurance Companies, 
    whether existing or created in the future, that serves as a distributor 
    or principal underwriter of the Contracts or any Future Contracts 
    offered through the Accounts or any Future Account (collectively 
    ``Affiliated Broker-Dealers'').
    
    APPLICANTS: IDS Life Insurance Company (``IDS Life''), American 
    Centurion Life Assurance Company (``American Centurion Life''), IDS 
    Life Insurance Company of New York (``IDS Life NY'') American 
    Enterprise Life Insurance Company (``American Enterprise Life'') 
    (collectively, the ``Insurance Companies''), American Express Financial 
    Advisors, Inc. (``AEFA''), IDS Life Variable Account 10 (``IDS Account 
    10''), American Enterprise Variable Annuity Account (``American 
    Enterprise Account,'' and together with IDS Account 10, the 
    ``Account'') (collectively, ``Applicants'').
    
    FILING DATE: The application was filed on October 15, 1999, and amended 
    and restated on December 7, 1999.
    
    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 
    Applicant with a copy of the request, in person or by mail. Hearing 
    requests should be received by the SEC by 5:30 p.m. on January 17, 
    2000, and should be accompanied by proof of service on the 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, Securities and Exchange Commission, 450 Fifth 
    Street, N.W., Washington, D.C. 20549-0609. Applicants, c/o IDS Life 
    Insurance Company, IDS Tower 10, T27/52, Minneapolis, Minnesota 55440-
    0010, Attn: Mary Ellyn Minenko.
    
    FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, Senior Counsel, or 
    Susan M. Olsen, 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 St., N.W., Washington, D.C. 
    20549-0102 (tel. (202) 942-8090).
    
    Applicants Representations
    
        1. IDS Life is a stock life insurance company organized under the 
    laws of the State of Minnesota. IDS Life is registered with the 
    Commission as a broker-dealer under the Securities Exchange Act of 1934 
    (the ``1934 Act'') and is a member of the NASD. IDS Life is a wholly-
    owned subsidiary of American Express Financial Corporation (``AEFC''). 
    IDS Account 10 was established on August 23, 1994, pursuant to 
    authority granted under a resolution of IDS Life's Board of Directors. 
    IDS Life is the issuer and principal underwriter of the Contracts 
    funded through IDS Account 10 (the ``IDS Account 10 Contracts''). IDS 
    Life may in the future issue Future Contracts through IDS Account 10 or 
    through Future Accounts, for which IDS Life also may serve as principal 
    underwriter.
        2. American Enterprise Life is a stock life insurance company 
    organized under the laws of the State of Indiana. American Enterprise 
    Life is a wholly-owned subsidiary of IDS Life. American Enterprise 
    Account was established on July 15, 1987, pursuant to authority granted 
    under a resolution of American Enterprise Life's Board of Directors. 
    American Enterprise Life serves as the issuer for the Contracts funded 
    through American Enterprise Account (the ``American Enterprise Account 
    Contract''). American Enterprise Life may in the future issue Future 
    Contracts through American Enterprise Account or through Future 
    Accounts.
        3. IDS Life NY is a stock like insurance company organized under 
    the laws of the State of New York. IDS Life NY is a wholly-owned 
    subsidiary of IDS Life. IDS Life NY may in the future issue Future 
    Contracts through Future Accounts.
        4. American Centurion Life is a stock insurance company organized 
    under the laws of the State of New York. American Centurion Life is a 
    wholly-owned subsidiary of IDS Life. American Centurion Life may in the 
    future issue Future Contracts through Future Accounts.
        5. AEFA serves as the principal underwriter for the American 
    Enterprise Account Contracts and as distributor of the IDS Account 10 
    Contracts. AEFA is registered with the Commission as a broker-dealer 
    under the 1934 Act and is a member of the NASD. The IDS Account 10 
    Contracts will be offered through registered representatives of AEFA 
    and its affiliates who are registered broker-dealers under the 1934 Act 
    and NASD members. The American Enterprise Account Contracts will be 
    distributed by broker-dealers who are registered under the 1934 Act and 
    NASD members and who have entered into distribution agreements with 
    AEFA and American Enterprise Life and through AEFA. AEFA, or any 
    successor or affiliated entity, may act as principal underwriter for 
    any Future Account issued by American Enterprise Life or as distributor 
    for any Future Contracts issued by IDS Life in the future.
        6. IDS Account 10 is a segregated asset account of IDS Life, and 
    American Enterprise Account is a segregated asset account of American 
    Enterprise Life. Each Account and its component subaccounts are 
    registered together with the Commission as a single unit investment 
    trust under the 1940 Act. The respective Account will fund the variable 
    benefits available under the Contracts. The offering of the Contracts 
    is registered under the Securities Act of 1933 (the ``1933 Act''). IDS 
    Life and IDS Account 10 filed a Form N-4 Registration Statement under 
    the 1933 Act relating to the Contracts on September 20, 1999 (Rule 497 
    filing). American Enterprise Life and American Enterprise Account filed 
    a Form N-4 Registration Statement on August 19, 1999 under the 1933 Act 
    relating to the Contracts.
        7. That portion of the respective assets of the Accounts that is 
    equal to the reserves and other Contract liabilities with respect to 
    the Accounts is not chargeable with liabilities arising out of any 
    other business of IDS Life of American Enterprise Life, as the case may 
    be. Any income, gains or losses, realized or unrealized, from assets 
    allocated to the Accounts are, in accordance with the respective 
    Accounts' Contracts, credited to or charged against the Accounts, 
    without
    
    [[Page 145]]
    
    regard to other income, gains or losses of IDS Life or American 
    Enterprise Life, as the case may be.
        8. An IDS Account 10 Contract may be issued as a non-qualified 
    annuity (``NQ'') for after tax contributions only, or as a qualified 
    annuity under the following retirement plans: (i) Individual Retirement 
    Annuities (``IRAs''), (ii) Simplified Employee Pension (``SEP'') plans, 
    (iii) Section 401(k) plans, (iv) custodial and trusteed pension and 
    profit sharing plans, or (v) Tax-Sheltered Annuities (``TSAs''). An IDS 
    Account 10 Contract may be purchased: (i) with a minimum initial 
    payment of $1,000 for qualified plans or $2,000 for nonqualified plans, 
    or (ii) in minimum installments or $50 per month or $23.08 biweekly 
    under a scheduled plan. Unless payments are made by installments under 
    a scheduled payment plan, an owner may make additional payments, 
    subsequent to the initial payment (initial payments and subsequent 
    additional payments are collectively referred to herein as ``Purchase 
    Payments''). Maximum limitations on Purchase Payments are imposed for 
    the first year and subsequent years, depending on the age of the owner 
    or annuitant.
        9. Owners of IDS Account 10 Contracts may allocate their Purchase 
    Payments among a number of subaccounts of IDS Account 10. The 
    subaccounts are referred to as ``Investment Funds.'' Each Investment 
    Fund will invest in shares of a corresponding portfolio (``Portfolio'') 
    of American Express Variable Portfolio Funds (``AXP Funds''), AIM 
    Variable Insurance Funds, Inc. (``AIM Funds''), American Century 
    Variable Portfolios, Inc. (``American Century VP''), Fidelity Variable 
    Insurance Products Funds (Service Class) (``Fidelity VIP Funds''), 
    Franklin Templeton Variable Insurance Products Trust (Class 2) 
    (``Franklin Templeton VIP Trust''), Goldman Sachs Variable Insurance 
    Trust (``Goldman Sachs VIT''), Lazard Retirement Series, Inc. (``Lazard 
    RSI''), Putnam Variable Trust (``Putnam VT''), Royce Capital Fund, 
    Third Avenue Variable Series Trust, Wagner Advisors Trust, and Warburg 
    Pincus Trust. IDS Life, at a later date, may decide to create 
    additional Investment Fund(s) to invest in any additional Portfolio(s) 
    as may now or in the future be available. IDS Life, from time to time, 
    also may combine or eliminate Investment Funds.
        10. The IDS Account 10 Contract provides for various surrender 
    options, annuity benefits and annuity payout options, as well as 
    transfer privileges among Investment Funds, dollar cost averaging, and 
    other features. The IDS Account 10 Contract contains the following 
    charges: (i) a contingent deferred sales charge (``CDSC'') as a 
    percentage of Purchase Payment surrendered, depending on the surrender 
    charge schedule the owner selected at the time of application. With 
    respect to a 7-year surrender charge schedule, the CDSC is 7% in years 
    1-3, 6% in year 4, 5% in year 5, 4% in year 6, 2% in year 7, and 0% 
    thereafter. With respect to a 10-year surrender charge schedule, the 
    CDSC is 8% in years 1-3, 7% in years 4-5, 6% in year 6, 5% in year 7, 
    4% in year 8, 3% in year 9, 2% in year 10, and 0% thereafter; (ii) a 
    $30 annual administrative expense charge; (iii) a mortality and expense 
    risk fee of 0.75% for qualified annuities and 0.95% for NQs; and (iv) 
    any applicable state or local premium taxes up to 3.5%, depending on 
    the owner's state of residence or the state in which the contract was 
    sold. In addition, assets invested in Investment Funds are charged with 
    the annual operating expenses of those Funds.
        11. Each time IDS receives a Purchase Payment from an owner, it 
    will allocate to the owner's IDS Account 10 a credit (``Credit'') equal 
    to: (i) 1% of each Purchase Payment received if the owner elected the 
    ten-year surrender charge schedule for the IDS Account 10 Contract, or 
    if the owner elected the seven-year surrender charge schedule and the 
    initial Purchase Payment is at least $100,000; and (ii) 2% of each 
    Purchase Payment received if the owner elected the ten-year surrender 
    charge schedule and the initial Purchase Payment is at least $100,000. 
    IDS Life will allocate Credits according to the allocation instructions 
    in effect for the Purchase Payments.
        12. Applicants represent that the percentage amount of the Credit 
    under the IDS Account 10 and the American Enterprise Account Contracts 
    described in the application could change for enhanced versions of the 
    Contracts issued in the future, but will not exceed 8%. In addition, 
    the percentage amount of the Credit under Future Contracts may differ 
    from the Credit under the Contracts, but will not exceed 8%.
        13. IDS Life will fund Credits from its general account assets. IDS 
    Life will recapture certain Credits from an owner under the following 
    circumstances: (i) any Credit applied if the owner returns the IDS 
    Account 10 Contract for a refund during the 10-day free look period; 
    (ii) Credits applied within twelve months preceding the date of death 
    that results in a lump sum death benefit under the IDS Account 10 
    Contract (as described herein); or (iii) Credits applied within twelve 
    months preceding a request for a surrender due to an event where no 
    CDSC is incurred (``Contingent Event''). Applicants represent that the 
    amount the owner receives in each of these circumstances will always at 
    least equal and normally will exceed the surrender value (Contract 
    value minus any applicable charges) of the IDS Account 10 Contract.
        14. The free look period is the 10-day period during which an owner 
    may return a Contract after it has been delivered and receive a full 
    refund of the Contract value, less any Credits up to the maximum 
    surrender charge under the Contract. No other charges will apply to the 
    refund, but the owner bears the investment risk from the time of 
    purchase until he or she returns the contract. The refund amount may be 
    more or less than the Purchase Payment the owner made, unless the law 
    requires that the full amount of the Purchase Payment be refunded.
        15. A Contingent Event is an owner's or annuitant's confinement to 
    a nursing home, disability, terminal illness or unemployment. Under the 
    IDS Account 10 Contract, the only Contingent Event currently is for 
    nursing home confinement, but the others are expected to be added later 
    by endorsements.
        16. The IDS Account 10 Contract death benefit provision states 
    that, upon the earlier of the owner's or annuitant's death before 
    annuity payouts begin and while the Contract is in force, IDS Life will 
    pay the following death benefits less any Credits applied to the 
    Contract in the preceding twelve months (to the extent a death benefit 
    includes contract value credits): (i) if both the owner and annuitant 
    are age 80 or younger on the date of death, the beneficiary receives 
    the greatest of (a) the Contract value; (b) Purchase Payments, minus 
    any adjusted partial surrenders; or (c) the Contract value of the most 
    recent sixth contract anniversary, plus any purchase payments paid, and 
    minus any adjusted partial surrenders since that anniversary; or (ii) 
    if either the owner or annuitant are age 81 or older on the date of 
    death, the beneficiary receives the greater of (a) Contract value; or 
    (b) Purchase Payments, minus any adjusted partial surrenders.
        17. An American Enterprise Account Contract may be issued as an NQ 
    or as a qualified annuity under the following retirement plans: (i) 
    IRAs, including Roth IRAs, or (ii) SEP plans. There are two different 
    Contracts supported by American Enterprise Account: Wells Fargo 
    Advantage Credit Variable Annuity (``Advantage Contract'') and 
    Signature Plus Variable Annuity
    
    [[Page 146]]
    
    (``Signature Contract''). An Advantage Contract sold through AEFA 
    currently may be issued only as an NQ. The American Enterprise Account 
    Contract differs from the IDS Account 10 contract in that the American 
    Enterprise Account Contract offers: (i) a Guaranteed Period Account 
    feature that involves a market value adjustment (``MVA''); (ii) 
    optional death benefit riders; and (iii) guaranteed minimum income 
    riders.
        18. Purchase Payments allocated to Guaranteed Period Accounts are 
    held in a ``nonunitized'' separate account established under Indiana 
    law. The assets in the Guaranteed Period Account will not be charged 
    with the liabilities of any other separate account or of American 
    Enterprise Life's general business. Each Guarantee Period will provide 
    a guarantee of the Purchase Payment allocated thereto and an interest 
    rate that is declared at the time of the allocation. An upward or 
    downward adjustment, or MVA, will be applied to a Guaranteed Period 
    Account upon a withdrawal or transfer prior to the end of the Guarantee 
    Period.
        19. An Advantage Contract may be purchased: (i) with a minimum 
    initial payment of $2,000 (the minimum initial payment for an Advantage 
    Contract sold through AEFA is $100,000); or (ii) $50 if enrolled in the 
    Systematic Investment Program (``SIP''). A Signature Contract may be 
    purchased: (i) with a minimum initial payment of $25,000; or (ii) $50 
    if enrolled in the SIP. A Guarantee Period Account requires a minimum 
    initial payment of $1,000. Subsequent additional Purchase Payments 
    require a minimum of $50 for SIP payments and $100 for non-SIP 
    payments. The maximum total Purchase Payments under an American 
    Enterprise Account Contract is $1,000,000 (without prior approval). The 
    owner of an American Enterprise Account Contract also may select a 
    withdrawal charge period of six or eight years at the time of 
    application. Only the eight-year withdrawal charge period is available 
    under an Advantage Contract sold through AEFA.
        20. Owners of the Advantage Contract may allocate the Purchase 
    Payments among the Investment Funds under the Contract. Each Investment 
    Fund will invest in shares of portfolios of AXP Funds, AIM Funds, 
    Franklin Templeton VIP Trust, Goldman Sachs VIT, Putnam VT, Dreyfus 
    Socially Responsible Growth Fund, Inc., MFS Variable Insurance Trust 
    (``MFS VIT''), and Wells Fargo Variable Trust Funds (``Wells Fargo 
    VT'').
        21. Owners of the Signature Contract may allocate their Purchase 
    Payments among the Investment Funds under the Contract. Each Investment 
    Fund will invest in shares of Portfolios of AXP Funds, AJM Funds, 
    Alliance Variable Products Series Funds, Baron Capital Funds, Fidelity 
    VIP Funds, Franklin Templeton VIP Trust, Goldman Sachs VIT, J.P. Morgan 
    Series Trust 11, Lazard RSI, MFS VIT, Royce Capital Fund, Wanger 
    Advisors Trust, Warburg Pincus Trust, and Wells Fargo VT.
        22. An American Enterprise Account Contract provides for various 
    withdrawal options, annuity benefits and payout annuity options, as 
    well as transfer privileges among Investment Funds, dollar cost 
    averaging, asset rebalancing, and other features. The Advantage 
    Contracts contain the following charges: (i) $30 annual administrative 
    charge (waived at $50,000); (ii) a 0.15% variable account 
    administrative charge; (iii) a mortality and expense risk fee of: 1.35% 
    for 6-year withdrawal schedule, 1.10% for 8-year withdrawal schedule, 
    and an additional charge of 0.20% if the Enhanced Death Benefit Rider 
    is selected; (iv) an annual fee based on a modified Guaranteed Income 
    Benefit Base (currently at 0.30%) if the Guaranteed Minimum Income 
    Benefit Rider is selected; (v) a CDSC as a percentage of Purchase 
    Payment withdrawn, depending on the withdrawal charge schedule selected 
    (the CDSC is as follows for: (a) a 6-year surrender charge schedule: 8% 
    in years 1-3, 6% in year 4, 4% in year 5, 2% in year 6, and 0% 
    thereafter; and (b) an 8-year surrender charge schedule: 8% in years 1-
    5, 6% in year 6, 4% in year 7, 2% in year 8 and 0% thereafter); (vi) 
    any applicable state or local premium taxes; and (vii) the annual 
    operating expenses of the Investment Funds.
        23. The Signature Contracts contain the following charges: (i) $40 
    annual administrative charge (waived at $100,000); (ii) a 0.15% 
    variable account administrative charge; (iii) a mortality and expense 
    risk fee of: 1.45% for 9-year withdrawal schedule (including either the 
    Maximum Anniversary Death Benefit Rider or the 5% Accumulation Death 
    Benefit Rider), 1.35% for 9-year withdrawal schedule without either of 
    the death benefit riders; (iv) an annual fee based on a modified 
    Guaranteed Income Benefit Base (currently at 0.30%) if the Guaranteed 
    Minimum Income Benefit Rider (5% Accumulation Benefit Base) is 
    selected; (v) a CDSC as a percentage of Purchase Payment withdrawn of 
    8% in years 1-4, 7% in year 5, 6% in years 6 and 7, 4% in year 8, 2% in 
    year 9, and 0% thereafter, (vi) any Applicable state or local premium 
    taxes; and (vii) the annual operating expenses of the Investment Funds.
        24. Each time American Enterprise Life receives a Purchase Payment 
    from an owner, it will allocate the owner's American Enterprise Account 
    a Credit as a percentage of the net current payment (current payment 
    less the amount of partial withdrawals that exceed all prior Purchase 
    Payments) as follows: (i) with respect to an Advantage Contract: 1% for 
    less than $10,000, 2% for $10,000 to less than 1 million, 3% for $1 
    million to less than 5 million, and 4% for $5 million and over; and 
    (ii) with respect to a Signature Contract: 3% for $25,000 to less than 
    $100,000, 4% for $100,000 to less than $1 million, and 5% for $1 
    million and over. American Enterprise Life will allocate Credits 
    according to the allocation instructions in effect for the Purchase 
    Payments.
        25. American Enterprise Life will fund Credits from its general 
    account assets. American Enterprise Life will recapture certain Credits 
    from an owner under the following circumstances: (i) any Credit applied 
    if the owner returns the American Enterprise Account Contract for a 
    refund during a 10-day free look period; (ii) Credits applied within 
    twelve months preceding the date of death that results in a death 
    benefit (including death benefits under the Enhanced Death Benefit 
    Rider, Maximum Anniversary Value Death Benefit Rider, and 5% 
    Accumulation Death Benefit Rider) under the American Enterprise Account 
    Contract; or (iii) Credits applied within twelve months preceding a 
    request for a withdrawal due to any Contingent Event. The amount the 
    owner receives under these circumstances will always equal or exceed 
    the surrender value of the Contract.
        26. The Advantage Contract death benefit provision states that, if 
    the owner or annuitant dies before annuity payouts begin while the 
    Contract is in force, American Enterprise Life will pay the beneficiary 
    the greatest of the following less any Credits added to the Contract in 
    the last 12 months: (i) the Contract value; (ii) the total Purchase 
    Payments paid, plus Credits, and minus any adjusted partial 
    withdrawals; or (iii) the maximum anniversary value immediately 
    preceding the date of the death, plus the dollar amount of any Purchase 
    Payments since that anniversary, plus Credits, and minus any adjusted 
    partial withdrawals since that anniversary.
        27. The Advantage Contract offers an Enhanced Death Benefit Rider, 
    which requires the owner or the annuitant to be age 79 or younger on 
    the Contract date. The Enhanced Death Benefit Rider provides that if 
    the owner or the annuitant dies before annuity payouts
    
    [[Page 147]]
    
    begin while the Contract is in force, American Enterprise Life will pay 
    the beneficiary the greatest of the following specified amounts, less 
    any Credits added in the last twelve months: (i) the contract value; 
    (ii) the total Purchase Payments paid, plus Credits, and minus any 
    adjusted partial withdrawals; (iii) the ``maximum anniversary value'' 
    immediately preceding the date of death, plus any Purchase Payments 
    since that anniversary, plus Credits, and minus any adjusted partial 
    withdrawals since that anniversary; or (iv) the Variable Account 5% 
    Floor (the sum of the value in the fixed accounts plus the accumulated 
    initial purchase payments allocated to the subaccounts plus 5%).
        28. The Signature Contract death benefit provision states that, if 
    the owner or annuitant dies before annuity payouts begin while the 
    contract is in force, American Enterprise Life will pay the beneficiary 
    the greatest of the following less any Credits added to the contract in 
    the last 12 months: (i) the Contract value; or (ii) the total Purchase 
    Payments paid, plus Credits, and minus any adjusted partial 
    withdrawals.
        29. The Signature Contract has two other death benefit options 
    offered as riders, which require the owner or the annuitant to be age 
    79 or younger on the Contract date. The Maximum Anniversary Value Death 
    Benefit Rider provides that if the owner or the annuitant dies before 
    annuity payouts begin while the Contract is in force, American 
    Enterprise Life will pay the beneficiary the greatest of the following 
    specified amounts, less any Credits added in the last twelve months: 
    (i) the Contract value; (ii) the total Purchase Payments paid, plus 
    Credits, and minus any adjusted partial withdrawals; or (iii) the 
    maximum anniversary value immediately preceding the date of death, plus 
    any Purchase Payments since that anniversary, plus Credits, and minus 
    any adjusted partial withdrawals since that anniversary.
        30. The Signature Contract also offers the 5% Accumulation Death 
    Benefit Rider option, which provides that if the owner or annuitant 
    dies before annuity payouts begin while the Contract is in force, 
    American Enterprise Life will pay the beneficiary the greatest of the 
    following specified amounts, less any Credits added in the last twelve 
    months: (i) the Contract value; (ii) the total Purchase Payments paid, 
    plus Credits, and minus any adjusted partial withdrawals; or (iii) the 
    Variable Account 5% Floor.
        31. Applicants seek exemption pursuant to Section 6(c) from 
    Sections 2(a)(32), 22(c), and 27(i)(2)(A) of the Act and Rule 22c-1 
    thereunder to the extent necessary to permit the Insurance Companies to 
    issue Contracts and Future Contracts that provide for Credits upon the 
    receipt of Purchase Payments, and to recapture certain Credits in the 
    following instances: (i) any Credit applied when an owner returns a 
    Contract to the Insurance Companies for a refund during the free look 
    period, and (ii) Credits applied within twelve months preceding the 
    date of death that results in a death benefit as described herein 
    (including death benefits under the Enhanced Death Benefit Rider and 
    Maximum Anniversary Value Death Benefit Rider under an American 
    Enterprise Account contract); and (iii) Credits applied within twelve 
    months preceding a request for a surrender or withdrawal charge waiver 
    due to any Contingent Event.
    
    Applicants' Legal Analysis
    
        1. Section 6(c) of the 1940 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 1940 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 1940 Act. Applicants 
    request that the Commission, pursuant to Section 6(c) of the 1940 Act, 
    grant the exemptions summarized above with respect to the Contracts and 
    any Future Contracts funded by the Accounts or Future Accounts, that 
    are issued by the Insurance Companies and underwritten or distributed 
    by IDS Life, AEFA, or Affiliated Broker-Dealers. Applicants undertake 
    that Future Contracts funded by the Separate Accounts or any Future 
    Account will be 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 1940 Act.
        2. Applicants represent that it is not administratively feasible to 
    track the Credit amount in any of the Accounts after the Credit is 
    applied. Accordingly, the asset-based charges applicable to the 
    Accounts will be assessed against the entire amounts held in the 
    respective Accounts, including the Credit amount, during the free look 
    period and the three year period prior to annuitization. As a result, 
    during such periods, the aggregate asset-based charges assessed against 
    an owner's annuity account value will be higher than those that would 
    be charged if the owner's annuity account value did not include the 
    Credit.
        3. Subsection (i) of Section 27 of the 1940 Act 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) 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, 
    among other things, 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.
        4. Applicants submit that the recapture of the Credit amount in the 
    circumstances set forth above would not deprive an owner of his or her 
    proportionate share of the issuer's current net assets. Applicants 
    state that an owner's interest in the Credit amount allocated to his or 
    her annuity account value upon receipt of an initial Purchase Payment 
    is not vested until the applicable free look period has expired without 
    return of the Contract. Similarly, Applicants state that an owner's 
    interest in the Credit amounts allocated to his or her annuity account 
    within twelve months preceding a Contingent Event also is not vested. 
    Until the right to recapture has expired and any Credit amount is 
    vested, Applicants submit that the Insurance Companies retain the right 
    and interest in the Credit amount, although not in the earnings 
    attributable to that amount. Thus, Applicants argue that when the 
    Insurance Companies recapture any Credit, they are merely retrieving 
    their own assets, and the owner has not been deprived of a 
    proportionate share of the applicable Account's assets because his or 
    her interest in the Credit amount has not vested.
        5. In addition, Applicants state that permitting an owner to retain 
    a Credit amount under a Contract upon the exercise of the free look 
    privilege would not only be unfair, but would also encourage 
    individuals to purchase a Contract with no intention of keeping it and 
    returning it for a quick profit.
        6. Furthermore, Applicants state that the recapture of Credit 
    amounts within twelve months preceding a Contingent Event is designed 
    to provide the Insurance Companies with a measure of
    
    [[Page 148]]
    
    protection against anti-selection. Applicants state that the risk here 
    is that, rather than spreading Purchase Payments over a number of 
    years, an owner might make very large Purchase Payments shortly before 
    the occurrence of a Contingent Event, thereby leaving the Insurance 
    Companies little time to recover the cost of the Credits. As noted 
    earlier, the amounts recaptured equal the Credits provided by the 
    Insurance Companies from their general account assets, and any gain 
    would remain a part of the owner's Contract value. In addition, the 
    amount the owner will receive in any of the circumstances where Credits 
    are recaptured will always equal or exceed the surrender value of the 
    Contract.
        7. Applicants represent that the Credit will be attractive to and 
    in the interest of investors because it will permit owners to put 101% 
    to 105% of their Purchase Payments to work for them in the selected 
    Investment Funds. In addition, the owner will retain any earnings 
    attributable to the Credit, as well as the principal Credit amount once 
    vested after twelve months if the Contingent Events set forth in the 
    application are satisfied.
        8. Further, Applicants submit that the recapture of any Credit only 
    applies in relation to the risk of anti-selection against the Insurance 
    Companies. In the context of the Contingent Events described in the 
    application, anti-selection can generally be described as a risk that 
    Contract owners obtain an undue advantage based on elements of fairness 
    to the Insurance Companies and the actuarial and other factors they 
    take into account in designing the Contracts. The Insurance Companies 
    provide the Credits from their general account on a guaranteed basis. 
    Thus, the Insurance Companies undertake a financial obligation that 
    contemplates the retention of the Contracts by their owners over an 
    extended period, consistent with the long-term nature of retirement 
    planning. The Insurance Companies generally expect to recover their 
    costs, including Credits, over an anticipated duration while a Contract 
    is in force. The right to recapture Credits applied to Purchase 
    Payments made within twelve months preceding the applicable contingency 
    protects the Insurance Companies against the risk that a Contract owner 
    will make additional Purchase Payments to or purchase a contract with 
    the knowledge that the contingency that triggers payment of a benefit 
    is likely or about to occur. With respect to refunds paid upon the 
    return of Contracts within the free look period, the amount payable by 
    the Insurance Companies must be reduced by the Credit amount. 
    Otherwise, purchasers could apply for Contracts for the sole purpose of 
    exercising the free look provision and making a quick profit.
        9. Applicants submit that the provisions for recapture of any 
    Credit under the Contracts does not, and any such Future Contract 
    provisions will not, violate Section 2(a)(32) and 27(i)(2)(A) of the 
    1940 Act. However, to avoid any uncertainty as to full compliance with 
    the 1940 Act, Applicants request an exemption from those Sections, to 
    the extent deemed necessary, to permit the recapture of any Credit 
    under the circumstances summarized herein with respect to Contracts and 
    Future Contracts, without the loss of the relief from section 27 
    provided by Section 27(i).
        10. Section 22(c) of the 1940 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, whether or not members of any 
    securities association, to the same extent, covering the same subject 
    matter, and for the accomplishment of the same ends as are prescribed 
    in Section 22(a) in respect of the rules which may be made by a 
    registered securities association governing its members. 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.
        11. Arguably, the Insurance Companies' recapture of the Credit 
    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 
    Accounts. Applicants contend, however, that recapture of the Credit 
    does not violate Section 22(c) and Rule 22c-1. Applicants argue that 
    the recapture of the Credit does not involve either of the evils that 
    Rule 22c-1 was intended to eliminate or reduce, namely: (i) The 
    dilution of the value of outstanding redeemable securities of 
    registered investment companies through their sale at a price below net 
    asset value or repurchase at a price above it, and (ii) other unfair 
    results including speculative trading practices. See Adoption of Rule 
    22c-1 under the 1940 Act, Investment Company Release No. 5519 (Oct. 16, 
    1968). To effect a recapture of a Credit, the Insurance Companies will 
    redeem interests in an owner's annuity account at a price determined on 
    the basis of current net asset value of the Account. The amount 
    recaptured will equal the amount of the Credit that the Insurance 
    Companies paid out of their general account assets. Although the owner 
    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 Account. 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. 
    However, to avoid any uncertainty as to All compliance with the 1940 
    Act, Applicants request an exemption from the provisions of Section 
    22(c) 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 that their request for an order is appropriate in 
    the public interest. Applicants state that such an order would promote 
    competitiveness in the variable annuity market by eliminating the need 
    to file redundant exemptive applications, thereby reducing 
    administrative expenses and maximizing the efficient use of Applicants' 
    resources. Applicants argue that investors would not receive any 
    benefit or additional protection by requiring Applicants to repeatedly 
    seek exemptive relief that would present no issue under the 1940 act 
    that has not already been addressed in their application described 
    herein. Applicants submit that having them file additional applications 
    would impair their ability effectively to take advantage of business 
    opportunities as they arise. Further, Applicants state that if they 
    were required repeatedly to seek exemptive relief with respect to the 
    same issues addressed in the application described herein, investors 
    would not receive any benefit or additional protection thereby.
        Applicants submit, based on the grounds summarized above, that 
    their exemptive request meets the standards set out in Section 6(c) of 
    the 1940 Act, namely, that the exemptions requested
    
    [[Page 149]]
    
    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 1940 Act, and that, therefore, the 
    Commission should grant the requested order.
    
        For the Commission, by the Division of Investment Management, 
    pursuant to delegated authority.
    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 99-34014 Filed 12-30-99 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
01/03/2000
Department:
Securities and Exchange Commission
Entry Type:
Notice
Action:
Notice of Application for an order under Section 6(c) of the Investment Company Act of 1940 (the ``1940 Act'') granting exemptions from the provisions of Sections 2(a)(32), 22(c), and 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.
Document Number:
99-34014
Dates:
The application was filed on October 15, 1999, and amended and restated on December 7, 1999.
Pages:
143-149 (7 pages)
Docket Numbers:
Rel. No. IC-24220, File No. 812-11818
PDF File:
99-34014.pdf