[Federal Register Volume 60, Number 83 (Monday, May 1, 1995)]
[Notices]
[Pages 21230-21232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10608]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21026; No. 812-9296]
New York Life Insurance Annuity Corp. et al.
April 24, 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 Variable Annuity Separate Account I (``NVA Account
I''), NYLIAC Variable Annuity Separate Account II (``NVA Account II''),
NYLIAC MFA Separate Account I (``MFA Account I'') and NYLIAC MFA
Separate Account II (``MFA Account II'') (collectively, ``Separate
Accounts''); and NYLIFE Distributors, Inc. (``NYLIFE Distributors'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) 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 Accounts in connection with the offering of certain single
premium or flexible premium variable annuity contracts (``Policies'')
and certain other variable annuity contracts that are substantially
similar in all material respects to the Policies (``Other Policies'').
Applicants also request that the order permit the deduction of a
mortality and expense risk charge from the assets of any other separate
accounts established in the future by NYLIAC in connection with the
offering of the Other Policies.
FILING DATES: The Application was filed on October 21, 1994 and amended
on March 29, 1995 and April 6, 1995.
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 May 19, 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 request notification of a 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 A. Thomas Smith,
III, Esq., New York Life Insurance and Annuity Corporation, 51 Madison
Avenue, New York, New York 10010.
FOR FURTHER INFORMATION CONTACT:
Yvonne M. Hunold, Assistant Special Counsel, or Wendy Friendlander,
Deputy Chief, at (202) 942-0670, Office of Insurance Products (Division
of Investment Management).
SUPPLEMENTARY INFORMATION: Following is a summary of the application;
the complete application is available for a fee from the Commission's
Public Reference Branch.
Applicants' Representations
1. NYLIAC is a Delaware stock life insurance company that is
wholly-owned by New York Life Insurance Company (``New York Life''), a
New York mutual life insurance company. NYLIAC is licensed to sell life
insurance policies and annuity contracts in all 50 states and the
District of Columbia.
2. The Separate Accounts were established by NYLIAC as funding
vehicles for the Policies. Each Separate Account has filed a
registration statement under the 1940 Act and the Securities Act of
1933 (``1933 Act''). Future Accounts established by NYLIAC will be
organized as unit investment trusts and will file registration
statements under the 1940 Act and the 1933 Act.
3. The policies include flexible premium variable annuity contracts
(``NVA Policies'') offered by NVA Accounts I and II and single premium
and flexible premium variable annuity contracts (``MFA Policies'')
offered by MFA Separate Accounts I and II. Policies funded by NVA
Account II and MFA Account I are used in connection with plans
qualified under sections 401(a), 403(a), 403(b), 408 or 457 of the
Internal Revenue Code (``Code''). Policies funded by NVA Account I and
MFA Account II are not offered in connection with such qualified plans.
4. The investment divisions of the Separate Accounts invest solely
in corresponding portfolios of New York Life MFA Series Fund, Inc.
(``Fund''), a diversified open-end management company registered under
the 1940 Act. Additional investment divisions may be established in the
future within the Separate Accounts and may invest in other portfolios
of the Fund or in other investments.
5. NYLIFE Distributors will replace NYLIFE Securities, Inc.
(``NYLIFE Securities'')\1\ as the principal under-writer of the
Policies pursuant to an agreement between NYLIAC, the Separate Accounts
and NYLIFE Distributors. NYLIFE Distributors also will serve as
principal underwriter for the Other Policies. NYLIFE Distributors may
enter into selling agreements with other broker-dealers, including
NYLIFE [[Page 21231]] Securities. NYLIFE Securities and NYLIFE
Distributors are registered under the Securities Exchange Act of 1934
as broker-dealers and are members of the National Association of
Securities Dealers, Inc. The Policies currently are, and will continue
to be offered by registered representatives of NYLIFE Securities who
are licensed NYLIAC insurance agents. NYLIFE Securities and NYLIFE
Distributors are indirect wholly-owned subsidiaries of New York Life.
\1\The Commission previously has granted NYLIAC, the Separate
Accounts and NYLIFE Securities exemptive relief to permit the
deduction of mortality and expense risk charges from the assets of
the Separate Accounts in connection with the Policies. Rel. Nos. IC-
19197 (Order) (Dec. 30, 1992) and IC-13592 (Notice) (Dec. 2, 1992);
and IC-13736 (Order) (Jan. 25, 1984) and IC-13592 (Notice) (Oct. 21,
1983). NYLIFE Distributors was not a party to such applications.
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6. The Policies provide for the payment of initial premium payments
and allow additional premium payments prior to the annuity commencement
date. Policy owners may direct the allocation of premium payments, as
well as accumulation or policy value, among the investment divisions
and to the relevant NYLIAC Fixed Accounts, which are part of NYLIAC's
General Account. The Policies also provide for the accumulation of
values on a variable basis determined by the investment experience of
the Divisions selected for the allocation of premium payments, other
than that amount allocated to the relevant Fixed Account.
7. The Policies also provide for the payment of a minimum death
benefit equal to the greater of: (a) Accumulation value (in the case of
NVA Policies) or policy value (in the case of MFA Policies, or (b) the
sum of all premium payments made less any partial withdrawals and
surrender charges, less any rider premiums.
8. Various fees and charges are deducted under the Policies. During
the accumulation period, NVA Policies are subject to an annual Policy
fee of the lesser of $30 or 2% of the accumulation value, and
outstanding flexible premium MFA Policies are subject to an annual
Policy fee of the lesser of $30 or 1% of Policy Value. The annual
Policy fee will be deducted on each Policy Anniversary during the
accumulation period, or upon surrender of the Policies if on that date
the accumulation value under NVA Policies, or policy value under MFA
Policies, is less than $10,000.
9. All NVA Policies are subject to a daily charge equal, on an
annual basis, to .10% of the net asset value of the NVA Accounts, which
will be deducted to cover Policy administration expenses. Other
Policies that are substantially similar in all material respects to the
NVA Policies may have a daily charge not to exceed, on an annual basis,
.15% of the net asset value of the relevant separate account to cover
Policy administration expenses. All outstanding flexible premium MFA
Policies are subject to a daily charge equal, on an annual basis, to
.50% of the net asset value of the MFA Accounts to cover Policy
administration expenses. These daily and annual fees are guaranteed for
the life of the MFA Policies and will not exceed the cost of services
to be provided over the life of such Policies, in accordance with the
applicable provisions of Rule 26a-1 under the 1940 Act. Single Premium
MFA Policies are not subject to such daily and annual administrative
fees.
10. A charge for premium taxes imposed by state law may be deducted
under the Policies, either: (i) When a surrender or cancellation
occurs, or (ii) at the annuity commencement date or the retirement
date, as applicable. Currently, these taxes range up to 3.5%. The
Separate Accounts 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 Accounts. No transfer fee
currently is deducted under the NVA Policies for the first twelve
transfers during any Policy Year or for transfers between the
investment divisions or to the relevant Fixed Account 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 Policy Year
to compensate it for transfer administrative expenses. MFA Policies
currently provide for unlimited transfers without charge, although
NYLIAC reserves the right to limit the number of transfers among MFA
Divisions to no more than four in any one Policy Year.
11. No sales charge currently is deducted from Premium Payments
under the Policies. However, the Policies are subject to a maximum 7%
contingent deferred sales load (``CDSL'') of the amount of any
surrender or partial withdrawals when made during: (a) The first three
Policy Years under the NVA Policies, declining by 1% per year until
reaching 0% in the tenth year; (b) the first four Policy Years under
outstanding flexible premium MFA Policies, declining by 1% per year
until reaching 0% in the eleventh year; and (c) the first Policy Year
under single premium MFA Policies, declining by 1% per year until
reaching 0% in the eighth year. For NVA Policies and single premium MFA
Policies, up to 10% of the Policies' accumulation value or Policy
Value, respectively, at the time of surrender can be withdrawn in any
Policy Year without a CDSL charge. The total CDSL will not exceed 8.5%
of the premium payments under any Policy or Future Policy.
12. The following exceptions apply to the application of the CDSL:
(a) For all NVA Policies, the CDSL will only be applied to any amounts
withdrawn in any Policy Year which, when aggregated with any other
withdrawals during such Policy Year, exceed 10% of accumulation value
at the time of surrender; and (b) for NVA Policies with accumulated
Premium Payments of $100,000 or more, no CDSL charge will be applied if
either (i) the total amount withdrawn in any Policy Year is 10% or less
of the accumulation value at the time of surrender, or (ii) the amount
withdrawn is less than or equal to the gain in the NVA Policy which is
measured as the accumulation value of the Policy less accumulated
Premium Payments. In addition, no CDSL will be applied if: (a) NYLIAC
cancels an NVA Policy; (b) proceeds are paid on the death of the Owner
or Annuitant; (c) an income payment option is selected in any Policy
Year after the first Policy Year; (d) an NVA Policy's required minimum
distribution option is selected; however, amounts withdrawn under this
option will count against exception (a); (e) withdrawals are at age
59\1/2\ or older if the Policy is tax-qualified and if the NVA Policy
was acquired as a result of a transfer or rollover of a NYLIAC tax-
deferred annuity policy; and (f) withdrawals are made in accordance
with the terms of the Living Needs Benefit Rider or Unemployment
Benefit Rider.
13. Applicants represent that they are relying on Rule 6c-8 under
the 1940 Act to deduct the CDSL. Other Policies that are substantially
similar in all material respects to the MFA Policies will be subject to
a maximum CDSL of 7% of the amount withdrawn or surrendered.
14. NYLIAC imposes charges as compensation for bearing certain
mortality and expense risks under the Policies. A daily charge equal to
an effective annual rate of 1.20% (of which 0.70% is allocable to
mortality risks and 0.50% to expense risks) of the net asset value of
the NVA Accounts will be imposed under the NVA Policies. A daily charge
equal to an effective annual rate of 1.25% (of which .75% is
attributable to mortality risks and .50% to expense risks) of the net
asset value of the MFA Accounts will be imposed under the MFA Policies.
The maximum mortality and expense risk charge for Other Policies that
are substantially similar in all material respects to the NVA or MFA
Policies will be equal, on an annual basis, to 1.25% (of which .75%
would be attributable to mortality risks and .50% to expense risks) of
the daily net asset value of the relevant Separate Account. This charge
may be a [[Page 21232]] 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.
15. 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 relevant Policy), where a
life annuity is selected, regardless of how long an Annuitant may live.
The mortality risk under the Policy is the risk that, upon selection of
an annuity payment option which has life contingencies, Annuitants will
live longer than NYLIAC's actuarial projections indicate, resulting in
higher than expected income payments. NYLIAC is also assuming a
mortality risk as a result of its promise to pay a minimum death
benefit under the Policies.
16. The expense risk borne by NYLIAC under the Policy is the risk
that the charges for administrative expenses, which are guaranteed for
the life of the Policies, may be insufficient to cover the actual costs
of issuing and administering the Policies.
Applicants' Legal Analysis
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 Accounts and the
Future Accounts of mortality and expense risk charges under the
Policies or Other Policies, as appropriate.
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 that applies
to Other Policies offered by the Separate Accounts and by Future
Accounts is appropriate in the public interest because it would promote
competitiveness in the variable annuity policy 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 to repeatedly seek exemptive relief with
respect to the same issues addressed in this Application.
5. Applicants represent that the mortality and expense risk charges
under the NVA Policies and MFA Policies are within the range of
industry practice for comparable variable annuity contracts. This
representation is based upon Applicants' analysis of publicly available
information about similar industry products, taking into consideration
such factors as current charge levels, the manner in which charges are
imposed, the presence of charge levels or annuity rate guarantees and
the markets in which the Policies will be offered. Applicants state
that NYLIAC will maintain at its headquarters and make available to the
Commission, upon request, a memorandum outlining the methodology
underlying this representation.
Similarly, prior to making available any Other Policies, Applicants
will represent that the mortality and expense risk charges under any
such Other Policies will be within the range of industry practice for
comparable variable annuity contracts. NYLIAC will maintain at its
headquarters and make available to the Commission, upon request, a
memorandum outlining the methodology underlying such representation.
6. Applicants acknowledge that, if a profit is realized from the
mortality and expense risk charge under the Policies, 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 Accounts and the Policy Owners. NYLIAC will keep
at its headquarters and make available to the Commission, upon request,
a memorandum setting forth the basis for this representation. In
addition, NYLIAC will keep at its headquarters and make available to
the Commission, upon request, a memorandum setting forth the basis for
the same representation with respect to Other Policies offered by the
Separate Accounts and by Future Accounts.
8. Applicants represent that the Separate Account and any Future
Account 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, as defined in the 1940 Act,
formulate and approve any plan under Rule 12b-1 under the 1940 Act to
finance distribution expenses.
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 Policies, or under Other Policies, offered by the Separate Account
or by Future Accounts 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. 95-10608 Filed 4-28-95; 8:45 am]
BILLING CODE 8010-01-M
