[Federal Register Volume 60, Number 53 (Monday, March 20, 1995)]
[Notices]
[Pages 14808-14810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6749]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20954; No. 812-9364]
New York Life Insurance and Annuity Corporation, et al.
March 14, 1995.
AGENCY: The Securities and Exchange Commission (``Commission'').
ACTION: Notice of Application for an Order under the investment Company
Act of 1940 (``1940 Act'').
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APPLICANTS: New York Life Insurance and Annuity Corporation
(``NYLIAC''), NYLIAC LifeStages Annuity Separate Account (``Separate
Account'') and NYLIFE Distributors, Inc. (``Distributors'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act granting exemptions from the provisions of Sections
26(a)(2)(C) and 27(c)(2) of the 1940 Act.
SUMMARY OF THE APPLICATION: Applicants seek an order permitting the
deduction of mortality and expense risk charges from the assets of the
Separate Account in connection with the issuance and sale of certain
flexible premium variable annuity contracts (``Contracts''), and in
connection with certain other NYLIAC variable annuity contracts which
are substantially similar in all material respects to the Contracts
(``Other Contracts'') which are offered in the future through the
Separate Account. Applicants also seek to deduct mortality and expense
risk changes from the assets of any other similar separate account(s)
established by NYLIAC (``Other Accounts''), whether currently existing
or hereafter created, in connection with the issuance and sale of the
Other Contracts. Applicants also request that the exemptive relief
include any other broker-dealer (``Other Broker-Dealers'') which may
serve in the future as principal underwriter of the contracts or of the
Other Contracts.
FILING DATE: The application was filed on December 14, 1994.
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 Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m., on April 4, 1995, and should be accompanied by proof of service
on Applicants in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues contested
Persons may requests notification of hearing by writing to the
Commission's Secretary.
ADDRESSES: Secretary, The Securities and Exchange Commission, 450 Fifth
Street NW., Washington, DC 20549. Applicants, c/o New York Life
Insurance and Annuity Corporation, 51 Madison Avenue, New York 10010.
FOR FURTHER INFORMATION CONTACT:
Yvonne M. Hunold, Assistant Special Counsel or Wendy Friedlander,
Deputy Chief at (202) 942-0670, Office of Insurance Products (Division
of Investment Management)..
SUPPLEMENTARY INFORMATION: Following is a summary of the application;
complete application is available for a fee from the Commission's
Public Reference Branch.
Applicants' Representations
1. NYLIAC, a stock life insurance company, is wholly-owned by New
York Life Insurance Company (``New York Life''), a mutual life
insurance company. NYLIAC is principally engaged in offering life
insurance and annuities and is admitted to do business in all 50
states, the District of Columbia, Puerto Rico and Canada.
2. The Separate Account was established by NYLIAC to fund the
Contracts. The Separate Account and the Other Accounts may be used to
fund Other Contracts. The Separate Account has filed a notice of
registration under the 1940 Act to register as a unit investment trust,
and a registration statement under the 1940 Act and the Securities Act
of 1933 (``1933 Act'') to register the Contracts as securities. Other
Accounts each will file a notice of registration under the 1940 Act to
register as unit investment trusts, and a registration statement under
the 1940 Act and the 1933 Act to register any Other Contract as
securities.\1\
\1\Applicants undertake to amend the application during the
notice period to make this representation.
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The Separate Account currently has seven investment divisions, each
investing exclusively in one of seven corresponding portfolios of New
York Life MFA Series Fund, Inc. (``Fund''), a diversified, open-end
management investment company registered under the 1940 Act. Additional
investment divisions may be established in the future to invest in
other Fund portfolios or in other investments. Portfolio shares also
may be offered to Other Accounts.
3. Distributors, currently the principal underwriter of the
Contracts is an indirect wholly-owned subsidiary of New York Life.
Broker-Dealer and is a member of the National Association of Securities
Dealers (``NASD''). Distributors may enter into agreements for the sale
of the Contracts or the Other Contracts with Other Broker-Dealers which
will be registered under the 1934 Act,\2\ and which are or will be
members of the NASD.
\2\Applicants undertake to amend the application during the
notice period to make this representation.
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The Contracts are to be used either in connection with retirement
plans qualities under Sections 401(a), 403(a) 403(b), 403(b), 408 OR
457 of the Internal Revenue Code or by any other purchaser for whom the
Contracts may provide a suitable investment.
5. The Contracts provide for the payment of initial premium
payments and allow for additional premium payments at any time prior to
Annuity [[Page 14809]] Commencement Date for the life of the Annuitant.
Contract owners may direct the allocation of premium payments, as well
as Accumulation Value, among the investment divisions and to the Fixed
Account, which is part of NYLIAC's General Account. Accumulation value
is determined on a variable basis by the investment experience of the
investment divisions selected for the allocation of premium payments,
other than the amount allocated to the Fixed Account.
6. The Contracts also provide for the payment of a minimum death
benefit equal to the greatest of: (a) Accumulation Value, less any
outstanding loan balance under the Contract, (b) the sum of all premium
payments made less any outstanding loan balance, partial withdrawals,
CDSL deductions and any rider premiums, or (c) the ``reset value'' plus
any additional premium payments, other than rider premiums, made since
the most recent ``reset date,'' less any outstanding loan balance,
withdrawals made since the most recent ``reset date,'' and any CDSL
deductions applicable to such withdrawals.\3\
\3\The ``reset value,'' is equal to the Accumulation Value, as
recalculated on each ``reset date'' (every 3 years from the date of
initial premium payments until age 85). If the new reset value
calculated on the most recent reset date is higher than the previous
reset value, the new reset value will be retained for purposes of
determining the available death benefit. If it is lower, the old
reset value will be retained. The formula guarantees that the amount
paid will at least equal the sum of all premium payments (less any
outstanding loan balance, partial withdrawals, CDSL deductions and
rider premiums), independent of the investment experience of the
Separate Account.
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7. Various fees and charges are deducted under the Contracts, An
annual Contract fee of the lesser of $30 or 2% of the Accumulation
Value at the end of the Contract Year will be deducted on each Contract
Anniversary during the Accumulation Period, or upon surrender of the
Contract if on that date the Accumulation Value is less than $20,000. A
daily charge equal, on an annual basis, of up to .15% of the net asset
value of the appropriate separate account will be deducted to cover
administration expenses of the Contract and of the Other Contracts.
These fees are guaranteed for the life of such Contracts or Other
Contracts and will not exceed the cost of services to be provided over
the life of such Contracts, in accordance with the provisions of Rule
26a-1 under the 1940 Act.
8. A charge for premium taxes imposed by state law may be deducted
under the Contracts, either when a surrender or cancellation occurs, or
at the Annuity Commencement Date or the Retirement Date, as applicable.
Currently, these taxes range up to 3.5%. The Separate Account and the
investment divisions may bear charges for federal income taxes, should
such taxes be incurred by NYLIAC in connection with the operation of
the Separate Account.
9. No charge currently is deducted for the first twelve transfers
during any Contract Year or for transfers prior to 30 days before the
Annuity Commencement Date. NYLIAC reserves the right to charge a $30
fee for each transfer in excess of twelve per Contract Year.
10. No sales charge currently is deducted from premium payments
under the Contracts, nor will be deducted under Other Contracts.
Surrenders and partial withdrawals, however, are subject to a maximum
contingent deferred sales load (``CDSL'') of 7% during the first three
years, declining by 1% per year thereafter until reaching 0% in the
sixth year. Other Contracts will be subject to a maximum 7% CDSL. The
total CDSL will not exceed 8.5% of the premium payments under the
Contract or Other Contracts. Applicants are relying on Rule 6c-8 under
the 1940 Act to deduct the CDSL.
11. A daily charge equal to an effective annual rate of 1.25% of
the net asset value of each investment division will be imposed to
compensate NYLIAC for bearing certain mortality and expense risks in
connection with the Contracts and Other Contracts. Of this amount,
0.75% is allocable to mortality risks and 0.50% is allocable to expense
risks. This charge may be a source of profit for NYLIAC which will be
added to its surplus and may be used for, among other things, the
payment of distribution expenses.
12. The mortality risk borne by NYLIAC arises from its obligation
to make annuity payments (determined in accordance with the Annuity
Tables and other provisions contained in the Contract), where a life
annuity is selected, regardless of how long an Annuitant may live. The
mortality risk under the Contract is the risk that, upon selection of
an annuity payment option which has a life contingency, Annuitants will
live longer than NYLIAC's actuarial projections indicate, resulting in
higher than expected income payments. NYLIAC also is assuming mortality
risk as a result of its promise to pay a minimum death benefit under
the Contracts.
13. The expense risk borne by NYLIAC under the Contract is the risk
that the charges for administrative expenses, which are guaranteed for
the life of the Contract, may be insufficient to cover the actual costs
of issuing and administering the Contracts.
Applicants' Legal Analysis and Conditions
1. Applicants request an order under Section 6(c) granting
exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act to
permit the deduction from the assets of the Separate Account or Other
Accounts of a charge for mortality and expense risks under the
Contracts or Other Contracts. Applicants also request that the
exemptive relief extend to Other Broker-Dealers which may serve in the
future as principal underwriters of the Contracts or Other Contracts.
2. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally grant an
exemption from any provision, rule or regulation of the 1940 Act to the
extent that the exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act.
3. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant
part, prohibit a registered unit investment trust, its depositor or
principal underwriter, from selling periodic payment plan certificates
unless the proceeds of all payments, other than sales loads, are
deposited with a qualified bank and held under arrangements which
prohibit any payment to the depositor or principal underwriter except a
reasonable fee, as the Commission may prescribe, for performing
bookkeeping and other administrative duties normally performed by the
bank itself.
4. Applicants submit that their request for an order is appropriate
in the public interest because it would promote competitiveness in the
variable annuity contract market by eliminating the need for NYLIAC to
file redundant exemptive applications, thereby reducing its
administrative expenses and maximizing the efficient use of its
resources. Investors would not receive any benefit or additional
protection by requiring NYLIAC repeatedly to seek exemptive relief with
respect to the same issues addressed in this Application.
5. Applicants represent that the 1.25% mortality and expense risk
charge under the Contracts is within the range of industry practice for
comparable annuity contracts. This representation is based upon
Applicants' analysis of publicly available information about similar
industry products, taking into consideration such factors as current
[[Page 14810]] charge levels, the manner in which charges are imposed,
the presence of charge level or annuity rate guarantees and the markets
in which the Contracts will be offered. Based upon this review,
Applicants represent that the mortality and expense risk charges under
the Contracts are within the range of industry practice for comparable
contracts. Applicants state that NYLIAC will maintain at its corporate
headquarters\4\ and make available to the Commission, upon request, a
memorandum outlining the methodology underlying this representation.
\4\Applicants undertake to amend the application during the
notice period to make this representation.
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Similarly, prior to making available any Other Contracts,
Applicants will determine that the mortality and expense risk charges
under any such Other Contracts will be within the range of industry
practice for comparable contracts. Applicants state that NYLIAC will
maintain at corporate headquarters\5\ and make available to the
Commission, upon request, a memorandum outlining the methodology
underlying such conclusion.
\5\Applicants undertake to amend the application during the
notice period to make this representation.
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6. Applicants acknowledge that, if a profit is realized from the
mortality and expense risk charge under the Contracts, all or a portion
of such profit may be available to pay distribution expenses not
reimbursed by the CDSC. NYLIAC has concluded that there is a reasonable
likelihood that the proposed distribution financing arrangements will
benefit the Separate Account and the Contract Owners. NYLIAC will keep
at its corporate headquarters\6\ and make available to the Commission,
upon request, a memorandum setting forth the basis for this
representation.
\6\Applicants undertake to amend the application during the
notice period to make this representation.
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7. Similarly, Applicants recognize that, if a profit is realized
from the mortality and expense risk charge under the Other Contracts,
all or a portion of such profit may be available to pay distribution
expenses not reimbursed by the CDSL. Prior to issuing Other Contracts,
NYLIAC will determine that there is a reasonable likelihood that the
proposed distribution financing arrangements will benefit the relevant
separate account and the Other Contract Owners. The basis for that
conclusion will be set forth in a memorandum which will be maintained
by NYLIAC at its corporate headquarters\7\ and will be made available
to the Commission, upon request.
\7\Applicants undertake to amend the application during the
notice period to make this representation.
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8. Applicants represent that the Separate Account, and any Other
Accounts, will invest only in underlying funds that have undertaken to
have a board of directors/trustees, a majority of whom are not
interested persons of any such fund, formulate and approve any plan
under Rule 12b-1 under the 1940 Act to finance distribution expenses.
Applicants' Conditions
Applicants agree that if the requested order is granted such order
will be expressly conditioned on Applicants' compliance with the
undertakings set forth above. In addition, Applicants undertake to rely
on the exemptive relief requested herein with respect to Other
Contracts only if such Other Contracts are substantially similar in all
material respects to the Contracts.
Conclusion
Applicants assert that, for the reasons and upon the facts set
forth above, the requested exemptions from Sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act to deduct the mortality and expense risk
charge under the Contracts, or under Other Contracts, offered by the
Separate Account or by Other Accounts, meets the standards in Section
6(c) of the 1940 Act. Applicants assert that the exemptions requested
are necessary and appropriate in the public interest and consistent
with the protection of investors and the policies and provisions of the
1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-6749 Filed 3-17-95; 8:45 am]
BILLING CODE 8010-01-M
