[Federal Register Volume 61, Number 147 (Tuesday, July 30, 1996)]
[Notices]
[Pages 39682-39684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19249]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22088; No. 812-10144]
IDS Life Insurance Company of New York, et al.
July 23, 1996.
AGENCY: Securities and Exchange Commission (the ``Commission'').
Action: Notice of application for an order pursuant to the Investment
Company Act of 1940 (the ``1940 Act'').
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Applicants: IDS Life Insurance Company of New York (``IDS Life''), IDS
Life of New York Flexible Portfolio Annuity Account (the ``Variable
Account''), and American Express Financial Advisors Inc.
(``Advisors'').
Relevant 1940 Act Sections: Order requested pursuant to Section 6(c) of
the 1940 Act granting exemptions from the provisions of Sections
26(a)(2)(C) and 27(c)(2) thereof.
Summary of Application: Applicants seek an order permitting the
deduction of a mortality and expense risk charge from the assets of (a)
the Variable Account in connection with the offer and sale of certain
variable annuity contracts (``Existing Contracts''); (b) the Variable
Account in connection with the issuance of variable annuity contracts
that are substantially similar in all material respects to the Existing
Contracts (``Future Contracts,'' together with Existing Contracts, the
``Contracts''); and (c) any other separate account established in the
future by IDS Life in connection with the issuance of Contracts
(``Future Accounts''). Exemptive relief also is requested to the extent
necessary to permit the offer and sale of Contracts for which certain
broker-dealers other than Advisors serve as the principal underwriter.
Filing Date: The application was filed on May 14, 1996.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Secretary of the
Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on August 19, 1996, and must 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 Secretary of the Commission.
Addresses: Secretary, Securities and Exchange Commission, 450 5th
Street N.W., Washington, D.C. 20549. Applicants, c/o Mary Ellyn
Minenko, Counsel, IDS Life Insurance Company of New York, IDS Tower 10,
Minneapolis, Minnesota 55440.
For Further information Contact: Kevin M. Kirchoff, Senior Counsel, or
Wendy F. Friedlander, Deputy 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 may be obtained for a fee from
the Public Reference Branch of the Commission.
Applicants' Representations
1. IDS Life is a stock life insurance company which is organized
under the laws of New York. IDS Life is a wholly-owned subsidiary of
IDS Life Insurance Company, a stock insurance company organized under
the laws of Minnesota, which is a wholly-owned subsidiary of American
Express Financial Corporation.
2. Advisors, the principal underwriter for the Variable Account, is
registered as a broker-dealer pursuant to the Securities Exchange Act
of 1934 (``1934 Act'') and is a member of the National Association of
Securities Dealers, Inc. (``NASD'').
3. The Variable Account was established on April 17, 1996, as a
separate account pursuant to the laws of New York. The Variable Account
will be used to fund the Existing Contracts.
4. The Existing Contracts are available for purchase in connection
with retirement plans that qualify for federal tax advantages available
pursuant to the Internal Revenue Code (``qualified contracts'') or for
plans that do not so qualify (``non-qualified contracts'').
5. The Existing Contracts provide for the accumulation of contract
values and payment of annuity benefits on a fixed and/or variable
basis. Purchase payments may be directed to the general account of IDS
Life pursuant to a fixed account option (the ``Fixed Account''), the
Variable Account, or allocated between them. Existing Contracts may be
purchased with either an initial purchase payment, of at least $2,000
for nonqualified Contracts and $1,000 for qualified Contracts, or
installment payments. Additional purchase payments may be made in
accordance with certain requirements.
6. The Variable Account currently has fourteen subaccounts
(``Subaccounts''), each of which will invest solely in the shares of
one of the corresponding funds of a registered open-end management
investment company managed by IDS Life Insurance Company (the
``Funds''). IDS Life may create additional subaccounts and/or variable
accounts to invest in additional Funds as future investment options.
7. Prior to the annuity date, the owner of an Existing Contract
can, at any time, transfer all or part of the Contract value held in
one or more of the Subaccounts or the Fixed Account to another
Subaccount or the Fixed Account. However, if an owner of an Existing
Contract has made a transfer from the Fixed Account to a Subaccount,
the Contract owner may not transfer from any Subaccount back to the
Fixed Account until the next Contract anniversary. Once annuity
payments begin, no transfers may be made to or from the Fixed Account,
but transfers may be made once per Contract year among the Subaccounts.
8. The Existing Contracts provide that if the Contract owner or the
annuitant dies (or, for qualified annuities, if the annuitant dies)
before annuity payments begin, IDS Life will pay the beneficiary a
death benefit as follows:
(a) If death occurs before the 75th birthday of the owner or the
annuitant, the beneficiary receives the greater of:
(1) The Contract value,
(2) The Contract value as of the most recent sixth Contract
anniversary, minus any surrenders since that anniversary, or
(3) Purchase payments, minus any surrenders; or
(b) If death occurs on or after the owner's or annuitant's 75th
birthday, the beneficiary receives the greater of:
(1) The Contract value, or
(2) The Contract value as of the most recent sixth Contract
anniversary, minus any surrenders since that anniversary.
9. IDS Life will assess an annual Contract administrative charge
[[Page 39683]]
(``Administrative Charge'') of $30 on each Contract anniversary or
earlier when an Existing Contract is fully surrendered. IDS Life
currently waives the Administrative Charge for any Contract year in
which total purchase payments under a Contract, less any payments
surrendered, equal or exceed $25,000 on the Contract anniversary.
However, IDS Life reserves the right to assess the Administrative
Charge against all Existing Contracts. The Administrative Charge
reimburses IDS Life for the administrative costs attributable to the
Exist Contracts, and does not apply after annuity payments begin.
Applicants represent that they rely on Rule 26a-1 under the 1940 Act in
connection with the Administrative Charge.
10. IDS Life does not currently assess any charges for premium
taxes or other federal, state or local taxes paid in connection with
the Existing Contracts, but reserves the right to assess such charges.
11. No sales charge is collected or deducted at the time purchase
payments are made, pursuant to the Existing Contracts. IDS Life will,
however, assess a contingent deferred sales charge (``CDSC'') on
certain full or partial surrenders. The amounts obtained from the CDSC
will be used to help defray expenses incurred in connection with the
sale of the Existing Contracts, including commissions and other
promotional or distribution expenses associated with the printing and
distribution of prospectuses and sales material. The CDSC applies to
all purchase payments surrendered in the first eight Contract years.
The CDSC is 7 percent of any purchase payments surrendered during the
first three Contract years, then declines by 1 percent per year from 6
percent in the fourth year to 2 percent in the eighth year. No CDSC
applies after 8 Contract years. In addition, no CDSC applies to
earnings under Existing Contracts, to minimum required distributions
from certain qualified plans, to Existing Contracts settled using an
annuity payout plan or to death benefits.
12. IDS Life assumes certain mortality risks through its
contractual obligation to continue to make retirement payments for the
entire life of the annuitant under annuity obligations which involve
life contingencies. This 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 Existing Contracts. IDS Life assumes additional
mortality risks under the Existing Contracts through its contractual
obligation to pay a death benefit upon the death of the owner or
annuitant prior to the retirement date.
13. IDS Life assumes an expense risk because the Administrative
Charge may be insufficient to cover actual administrative expenses,
which 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.
14. As compensation for assuming mortality and expense risks, IDS
Life will assess a daily charge (``Mortality and Expense Risk Charge'')
equaling 1.25 percent of the average daily net assets of the
Subaccounts on an annual basis. Approximately two-thirds of this charge
is for the assumption of the mortality risk and one-third is for the
assumption of the expense risk. The Mortality and Expense Risk Charge
cannot be increased during the life of the Existing Contracts and does
not apply to the Fixed Account.
15. If the Mortality and Expense Risk Charge is insufficient to
cover the expenses and costs assumed, the loss will be borne by IDS
Life. Conversely, if the amount deducted proves more than sufficient,
the excess will represent a profit to IDS Life. IDS Life expects to
profit from the Mortality and Expense Risk Charge. The profit will be
available to IDS Life for any proper corporate purpose including, among
other things, payment of distribution expenses.
Applicants' Legal Analysis
1. Pursuant to Section 6(c) of the 1940 Act, the Commission may
exempt any person, security, or transaction, or any class or classes of
persons, securities or transactions, from any provision or provisions
of the 1940 Act or from any rule or regulation 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.
2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act prohibit a
registered unit investment trust and any depositor thereof or
underwriter therefor from selling periodic payment plan certificates
unless the proceeds of all payments (other than sales load) are
deposited with a qualified bank as trustee or custodian and held under
arrangements which prohibit any payment to the depositor or principal
underwriter except a fee, not exceeding such reasonable amount as the
Commission may prescribe, for performing bookkeeping and other
administrative services normally performed by the bank itself.
3. Applicants request an order pursuant to Section 6(c) of the 1940
Act exempting them from Sections 26(a)(2)(C) and 27(c)(2) of the 1940
Act to the extent necessary to permit the deduction of the Mortality
and Expense Risk Charge from the assets of the Variable Account and any
Future Accounts in connection with the Contracts. Applicants also
request exemptions to the extent necessary to permit the offer and sale
of Contracts for which any broker-dealer that is registered pursuant to
the 1934 Act and a member of the NASD serves as principal underwriter.
4. 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 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 available
under annuity contracts, and market sector. IDS Life represents that it
will maintain at its executive office, and make a available on request
of the Commission or its staff, a memorandum setting forth its
analysis, including its methodology and results.
5. Applicants represent that, prior to offering Future Contracts,
they will conclude that any mortality and expense risk charge under
such Contracts (which cannot exceed in amount the Mortality and Expense
Risk Charge) will be within the range of industry practice for
comparable annuity contracts. IDS Life represents that it will maintain
at its executive office, and make available on request of the
Commission or its staff, a memorandum setting forth its analysis,
including its methodology and results.
6. Applicants acknowledge that, if a profit is realized from the
Mortality and Expense Risk Charge, all or a portion of such profit may
be available to pay distribution expenses not reimbursed under the
Contracts. IDS Life has concluded that there is a reasonable likelihood
that the proposed distribution financing arrangements will benefit the
Variable Account (or Future Accounts) and owners of the Existing
Contracts (or Future Contracts). The basis for such conclusion is set
forth in a memorandum which will be maintained by IDS Life at its
executive
[[Page 39684]]
office and will be available to the Commission or its staff on request.
7. IDS Life represents that the Variable Account, or future
accounts, will invest only in underlying mutual funds which, in the
event they should adopt any plan under Rule 12b-1 of the 1940 Act 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 interest persons of such fund within the meaning of Section
2(a)(19) of the 1940 Act.
8. Applicants submit that their request for exemptive relief for
Future Contracts and Future Accounts would promote competitiveness in
the variable annuity contract market by eliminating the need for
redundant exemptive applications, thereby reducing Applicants'
administrative expenses and maximizing the efficient use of their
resources. Applicants further submit that the delay and expense
involved in having repeatedly to seek exemptive relief would impair
their ability effectively to take advantage of business opportunities
as they arise. Further, if Applicants were required repeatedly to seek
exemptive relief with respect to the same issues addressed in this
application, investors would not receive any benefit or additional
protection.
Conclusion
For the reasons summaized above, Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and the
purpose fairly intended by the policy 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. 96-19249 Filed 7-29-96; 8:45 am]
BILLING CODE 8010-01-M
