[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] ----------------------------------------------------------------------- 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''). ----------------------------------------------------------------------- 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