[Federal Register Volume 61, Number 147 (Tuesday, July 30, 1996)]
[Notices]
[Pages 39677-39679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19252]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22089; File No. 812-9946]
American Centurion Life Assurance Company, et al.
July 23, 1996.
AGENCY: The Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (``1940 Act'').
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Applicants: American Centurion Life Assurance Company (``ACL''), ACL
Variable Annuity Account 1 (``ACL Account``), and American Express
Service Corporation (``AESC'').
Relevant 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) of
the 1940 Act.
Summary of the Application: Applicants seek an order under Section 6(c)
of the 1940 Act granting exemptions from Sections 26(a)(2)(C) and
27(c)(2) to the extent necessary to permit the deduction of a mortality
and expense risk charge from the assets of the ACL Account or other
separate accounts
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established by ACL in the future (``Other ACL Accounts'') to support
certain group variable annuity contracts and related certificates
(``Existing Contracts'') as well as other variable annuity contracts
and any related certificates that are substantially similar in all
material respects to the Existing Contracts (``Future Contracts,''
together with the Existing Contracts, ``Contracts''). Applicants
request that such exemptive relief extend to any broker-dealer other
than AESC which may serve in the future as principal underwriter of the
Contracts offered by ACL and made available through the ACL Account or
Other ACL Accounts.
Filing Dates: The application was filed on January 4, 1996 and amended
on July 5, 1996.
Hearing or Notification: 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 SEC and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on August 19, 1996,
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 requestor'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.
ADDRESS: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Applicants, Mary Ellyn Minenko,
Counsel, American Centurion Life Assurance Company, IDS Tower 10,
Minneapolis, MN 55440.
For Further Information Contact: Mark C. Amorosi, Attorney, or Wendy
Finck Friedlander, Deputy Chief, Office of Insurance Products (Division
of Investment Management), at (202) 942-0670.
Supplementary Information: Following is a summary of the application;
the complete application is available for a fee from the Public
Reference Branch of the SEC.
Applicants' Representations
1. ACL, a stock life insurance company organized in New York, is
the sponsor and depositor of the ACL Account. ACL is a wholly-owned
subsidiary of IDS Life Insurance Company (``IDS Life''), a stock life
insurance company organized in Minnesota. IDS Life is a wholly-owned
subsidiary of American Express Financial Corporation, a Delaware
corporation that is a wholly-owned subsidiary of the American Express
Company.
2. The ACL Account was established on October 12, 1995 as a
separate account under New York law. The ACL Account is registered
under the 1940 Act as a unit investment trust and will be used to fund
the Contracts. The ACL Account is divided into thirteen subaccounts
(the ``Subaccounts''), each of which will invest solely in shares of a
registered open-end management investment company.
3. AESC, a wholly-owned subsidiary of the American Express Travel
Related Services Company, which is a wholly-owned subsidiary of the
American Express Company, is the principal underwriter of the ACL
Account. AESC is registered under the Securities Exchange Act of 1934
as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
4. The Existing Contract is designed to provide retirement payments
and other benefits for persons covered under certain plans qualified
for federal income tax advantages available under the Internal Revenue
Code of 1986, as amended, and for persons desiring such benefits who do
not qualify for such tax advantages. The Existing Contract is a group
deferred combination fixed/variable annuity contract. Participation in
the Existing Contract will be accounted for separately by the issuance
of a certificate (the ``Certificate'') showing interest in the Existing
Contract.
5 The Existing Contract provides for, among other things: (a)
minimum initial and subsequent purchase payments; (b) allocation of
purchase payments to one or more of the ACL Account's Subaccounts, or
to ACL's fixed account, or both; (c) several annuity payment options;
(d) the ability to surrender all or part of the Certificate value held
in one or more of the Subaccounts of the ACL Account and the fixed
account without charge; and (e) payment of a death benefit equal to the
greater of the Certificate value or purchase payments, minus any
partial surrenders, if the Certificate owner or annuitant dies (or, for
qualified Certificates, if the annuitant dies) before annuity payments
begin.
6. Certain fees and charges are assessed under the Existing
Contracts. Prior to the annuity start date, Certificate owners may
transfer all or part of their Certificate value held in one or more of
the Subaccounts of the ACL Account and fixed account to another one or
more of the Subaccounts. The minimum amount to be transferred to any
one Subaccount is $100. ACL reserves the right to impose or change
limits to the amount and frequency of transfers. No fee currently is
imposed for the first twelve transfers in a Certificate year, but ACL
will charge $25 dollars for each transfer in excess of twelve.
7. Applicants state that ACL will assess an annual administrative
charge of $30 for the Certificate on each Certificate anniversary. ACL
will waive this charge for any Certificate year where the total
purchase payments (less partial surrenders) on the current Certificate
anniversary is $10,000 or more or if, during the Certificate year, a
death benefit is payable or a Certificate is surrendered in full. The
charge does not apply after retirement payments begin. The charge
represents reimbursement for only the actual administrative costs
expected to be incurred over the life of the Certificate. Applicants
state that ACL and the ACL Account will rely on Rule 26a-1 under the
1940 Act to deduct this charge. ACL reserves the right to increase the
administrative charge up to $50 if warranted by the expenses incurred
and to assess the administrative charge against all Certificates.
8. To compensate ACL for assuming certain mortality and expense
risks, ACL will deduct from the ACL Account a daily mortality and
expense risk charge equal, on an annual basis, to 1% of the average
daily net assets of the Subaccounts of the ACL Account. Applicants
state that 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. This charge can not be increased during the life of
the Existing Contract.
9. Applicants state that ACL assumes certain mortality risks by its
contractual obligation to continue to make annuity payments for the
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 annuity payments received under the Existing
Contract. This relieves the annuitant from the risk of outliving the
amounts accumulated for retirement. Applicants state that the payment
option tables contained in the Existing Contract are guaranteed for the
life of the Existing Contract. ACL assumes additional mortality and
certain expense risks under the Existing Contract by its contractual
obligation to pay a death benefit in a lump sum (or in the form of an
annuity payment plan) upon the
[[Page 39679]]
death of the Certificate owner or the annuitant prior to the annuity
start date.
10. Applicants state that ACL assumes an expense risk because the
administrative charge may be insufficient to cover actual
administrative expense. These include the costs and expenses of: (a)
Processing purchase payments, retirement payments, surrenders and
transfers; (b) furnishing conformation notices and periodic reports;
(c) calculating mortality and expense risk charges; (d) preparing
voting materials and tax reports; (e), updating registration
statements; and (f) actuarial and other expenses.
11. If the mortality and expense risk charge is insufficient to
cover the expenses and costs assumed, the loss will be borne by ACL.
Conversely, if the amount deducted proves more than sufficient, the
excess will represent profit to ACL expects to profit from the
mortality and expense risk charge. Any profit realized from this charge
will be available to ACL for any proper corporate purpose, including,
among other things, payment of distribution expenses.
12. Although no charges currently are made for premium taxes or
other federal, state or local taxes, ACL reserves the right to deduct
such taxes from the ACL Account in the future.
Applicant's Legal Analysis
1. 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.
2. 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 load, 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.
3. Applicants request an order under Section 6(c) 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 ACL Account or Other ACL Accounts that
issue the Contracts. Applicants also request that such relief extend to
certain other broker-dealers other than AESC that may serve in the
future as principal underwriter in respect of the Contracts offered by
ACL and make available through the ACL Account or Other ACL Accounts.
4. Applicants submit that the requested relief to permit the
deduction of the 1% morality and expense risk charge from the assets of
the ACL Account or Other ACL Accounts in connection with the issuance
of Future Contracts is appropriate in the public interest because it
would promote competitiveness in the variable annuity contract market
by eliminating the need for ADL to file redundant exemptive
applications, thereby reducing ACL's administrative expenses and
maximizing the efficient use of its resources. The delay and expense
involved in repeatedly having to seek exemptive relief would impair
ACL's ability effectively to take advantage of business opportunities
as these opportunities arise. If ACL 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 thereby. Rather, Applicants assert that investors may be
disadvantaged as a result of ACL's increased overhead expenses.
Therefore, Applicants maintain that the requested exemptions are
appropriate in the public interest and consistent with the protection
of investors and purposes fairly intended by the policy and provisions
of the 1940 Act.
5. Applicants represent that the level of the mortality and expense
risk charge under the Existing Contract is within the range of industry
practice for comparable variable annuity contracts. Applicants state
that ACL 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. Applicants state that ACL 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 represent that, prior to offering any Future
Contracts, Applicants will conclude that the mortality and expense risk
charge under any such contracts (which cannot exceed in amount the
mortality and expense risk charge under the Existing Contract) will be
within the range of industry practice for comparable contracts.
7. Applicants acknowledge that, if a profit is realized from the
mortality and expense risk charge under the Contracts, all or a portion
of the profit may be available to pay distribution expenses.
Notwithstanding the foregoing, ACL has concluded that there is a
reasonable likelihood that the proposed distribution financing
arrangement being used in connection with the Contracts will benefit
the ACL Account or Other ACL Accounts and owners of the Existing
Contract or Future Contracts and related Certificates. The basis for
such conclusion is set forth in a memorandum which will be maintained
by ACL at its service office and will be available to the Commission or
its staff on request.
8. ACL represents that the ACL Account and Other ACL Accounts will
invest only in underlying mutual funds which, in the event they should
adopt any plan pursuant to Rule 12b-1 under 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
``interested persons'' of such fund within the meaning of Section
2(a)(19) of the 1940 Act.
Conclusion
Applicants submit that, for the reasons stated in the application,
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 are necessary and appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by 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. 96-19252 Filed 7-29-96; 8:45 am]
BILLING CODE 8010-01-M
