[Federal Register Volume 59, Number 84 (Tuesday, May 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10475]
[[Page Unknown]]
[Federal Register: May 3, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20247; File No. 812-8872]
IDS Life Insurance Company of New York, et al.
April 25, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (``1940 Act'').
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APPLICANTS: IDS Life Insurance Company of New York (``IDS Life of New
York''), IDS Life of New York Accounts 4, 5, 6, 9, 10, and 11
(``Variable Accounts''), and IDS Financial Services Inc.
RELVANT 1940 ACT SECTIONS: Order requested under section 6(c) of the
1940 Act granting exemptions from sections 26(a)(2)(C) and 27(c)(2)
thereof.
SUMMARY OF APPLICATION: Applicants seek an order to permit the
deduction of a mortality and expense risk charge from the assets of the
Variable Accounts under a group, fixed/variable annuity contract and
related certificates to be issued in connection with retirement plans.
FILING DATE: The application was filed on March 8, 1994.
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 Secretary of the SEC and serving
the Applicants with a copy of the request, personally or by mail.
Hearing requests must be received by the SEC by 5:30 p.m. on May 20,
1994, 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 may request
notification of a hearing by writing to the Secretary of the SEC.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street NW., Washington, DC 20549. Applicants: Mary Ellyn Minenko,
Counsel, IDS Life Insurance Company, IDS Tower 10, Minneapolis, MN
55440.
FOR FURTHER INFORMATION CONTACT: W. Thomas Conner, Attorney, or Michael
V. Wible, Special Counsel, 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.
Applicants' Representations
1. IDS Life of New York is a stock life insurance company organized
under the laws of New York and is a wholly owned subsidiary of IDS Life
Insurance Company (``IDS Life'') of Minneapolis, Minnesota. IDS Life is
a wholly owned subsidiary of IDS Financial Corporation, which, in turn,
is a wholly owned subsidiary of the American Express Company. IDS
Financial Services Inc. is the principal underwriter of the Variable
Accounts and also is a subsidiary of IDS Financial Corporation.
2. Variable Accounts 4, 5, and 6 were established on November 12,
1981. Variable Account 9 was established on February 12, 1986. Variable
Accounts 10 and 11 were established on October 8, 1991. All Variable
Accounts were established as separate accounts under New York law to
fund variable annuity contracts issued by IDS Life of New York. The
Variable Accounts are registered together as a single unit investment
trust under the 1940 Act.
3. IDS Life of New York proposes to issue and distribute a group
deferred annuity contract (``Contract'') that is designed primarily to
fund retirement plans. The owners of the group Contracts are the
employers or other organizations that sponsor the plans. Participation
in the Contract will be accounted for separately by the issuance of
certificates showing the participants' interests under the Contract.
Purchase payments may be accumulated before retirement on a variable
and/or fixed basis, and annuity payments will be received after
retirement on a variable and/or fixed basis. A registration statement
on Form N-4 has been filed with the Commission in connection with the
Contracts.
4. The Contracts provide for allocation of purchase payments to the
Variable Accounts or to a fixed account of IDS Life of New York. The
Variable Accounts, in turn, will invest solely in the shares of the IDS
Life Retirement Annuity Mutual Funds (``Funds''). The Funds are
registered with the Commission as diversified open-end management
investment companies.
5. The Contracts and related certificates provide for certain
charges. IDS Life of New York will make a charge against the
certificate value for any premium taxes to the extent the taxes are
payable.
6. IDS Life of New York will deduct an annual administrative charge
of $30 from the value of each certificate. This annual administrative
charge can not be increased and does not apply after retirement
payments begin. The administrative charge represents reimbursement for
only the actual administrative costs expected to be incurred over the
life of the certificates.
7. No sales charge is collected or deducted at the time purchase
payments are applied under the Contracts and related certificates. A
contingent deferred sales charge (``surrender charge'') will be
assessed on certain full or partial surrenders. A surrender charge
applies if all or part of the certificate value is withdrawn within the
first eleven certificate years. The surrender charge is 8 percent of
the amount surrendered in the first through fourth certificate years,
and then declines by 1 percent from 7 percent in the fifth certificate
year to 1 percent in the eleventh certificate year. In no event will
the aggregate surrender charges exceed 8.5 percent of purchase payments
made to a certificate. The surrender charge can not be increased during
the life of the Contracts and related certificates.
8. There is no surrender charge on amounts surrendered: After the
eleventh certificate year, due to a participant's retirement under the
plan on or after age 55; due to the death of the participant; or upon
settlement of the certificate under an annuity payment plan.
9. IDS Life of New York will assess the Variable Accounts of a
daily mortality and expense risk charge equal to 1 percent of the
average daily net assets of the Variable Accounts on an annual basis.
IDS Life of New York estimates that two-thirds of this charge is for
assumption of the mortality risk and one-third is for the assumption of
the expense risk. This charge cannot be increased during the life of
the Contracts and does not apply after retirement payments begin.
10. IDS Life of New York will assume certain mortality and expense
risks under the contracts. IDS Life of New York assumes certain
mortality risks by its contractual obligation to continue to make
retirement payments for the entire life of the annuitant under annuity
obligations involving life contingencies. This obligation assures each
annuitant that neither the annuitant's own longevity nor an improvement
in life expectancy generally will have an adverse effect on the
retirement payments received under the Contracts and related
certificates. This assurance relieves the annuitant from the risk of
outliving the amounts accumulated for retirement. The payment option
tables contained in the Contracts are based on the 1983 Individual
Annuity Mortality Table. The use of these tables is guaranteed for the
life of the Contracts and related certificates.
11. IDS Life of New York assumes additional mortality and certain
expense risks under the Contracts and certificates by its contractual
obligation to pay a death benefit in a lump sum (or in the form of an
annuity payment plan) upon the death of a participant prior to the
retirement date.
12. IDS Life of New York assumes an expense risk because the
administrative charge may be insufficient to cover administrative
expenses. These include the costs and expenses of processing purchase
payments, retirement payments, surrenders, and transfers; furnishing
confirmation notices and periodic reports; calculating mortality and
expense risk charges; preparing voting materials and tax reports;
updating registration statements; and actuarial and other expenses.
13. If the administrative charge and the mortality and expense risk
charge are insufficient to cover the costs and expenses assumed, the
loss will be borne by IDS Life of New York. Conversely, if the amount
deducted proves more than sufficient, the excess will represent a
profit to IDS Life of New York. As noted above, IDS Life of New York
does not expect to profit from the administrative charge. However, IDS
Life of New York does expect to profit from the mortality and expense
risk charge. Any profit realized from this charge would be available to
IDS Life of New York for, among other things, payment of distribution
expenses.
Applicants' Legal Analysis and Conditions
1. Section 26(a)(2)(C) and 27(c)(2) of the 1940 Act prohibit a
registered unit investment trust and any depositor or underwriter
thereof from selling periodic payment plan certificates unless the
proceeds of all payments (except such amounts as are deducted for sales
loads) are deposited with a trustee or custodian having the
qualifications prescribed by section 26(a)(1) of the 1940 Act and held
under an agreement that provides that no payment to the depositor or
principal underwriter shall be allowed except as a fee, not exceeding
such reasonable amount as the Commission may prescribe, for bookkeeping
and other administrative services.
2. Applicants request an exemption from sections 26(a)(2)(c) and
27(c)(2) to the extent necessary to permit the issuance and sale of the
Contracts and related certificates providing for the 1 percent
mortality and expense risk charge. Section 6(c) of the 1940 Act, in
pertinent part, provides that the Commission, by order upon
application, may conditionally or unconditionally exempt any person,
security, or transaction, or any class or classes of persons,
securities, or transactions, from any provisions of the 1940 Act 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.
Applicants state that, for the following reasons, their exemptive
requests meet the standards set out in section 6(c) and, therefore, an
order should be granted.
3. Applicants represent that the level of the mortality and expense
risk charge is within the range of industry practice for comparable
variable annuity products. IDS Life of New York has reviewed publicly
available information about other annuity products, taking into
consideration such factors as current charge levels, charge guarantees,
sales loads, surrender charges, availability of funds, investment
options avaiable under annuity contracts, market sector and the
availability of retirement plans. IDS Life of New York represents that
it will maintain at its principal office, and make available upon
request of the Commission or its staff, a memorandum setting forth its
analysis, including its methodology and results.
4. Applicants acknowledge that the surrender charge described above
may be insufficient to cover all costs relating to the distribution of
the Contracts and certificates and that, if a profit is realized from
the mortality and expense risk charge, all or a portion of such profit
may be offset by distribution expenses not reimbursed by the contingent
deferred sales charge. In such circumstances, a portion of the
mortality and expense risk charge might be viewed as providing for a
portion of the distribution costs of the Contracts and related
certificates.
5. Notwithstanding the foregoing, IDS Life of New York has
concluded that there is a reasonable likelihood that the proposed
distribution financing arrangements made with respect to the Contracts
will benefit the Variable Accounts and investors in the Contracts and
related certificates. The basis for such conclusion is set forth in a
memorandum that will be maintained by IDS Life of New York at its
principal office and will be available to the Commission or its staff
on request.
6. IDS Life of New York represents that the Variable Accounts will
invest only in an underlying mutual fund that, in the event the fund
should adopt any plan under Rule 12b-1 to finance distribution
expenses, would have such a plan formulated and approved by a board of
directors, a majority of the members of which are not interested
persons of such fund within the meaning of section 2(a)(19) of the 1940
Act.
Conclusion
For the reasons set forth above, Applicants represent 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.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-10475 Filed 5-2-94; 8:45 am]
BILLING CODE 8010-01-M
