[Federal Register Volume 59, Number 196 (Wednesday, October 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25187]


[[Page Unknown]]

[Federal Register: October 12, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-20601; File No. 812-9162]

 

First ING Life Insurance Company of New York et al.

October 5, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' of ``Commission'').

ACTION: Notice of Application for Exemptions under the Investment 
Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: First ING Life Insurance Company of New York (``First ING 
Life''), First ING of New York Separate Account Al (the ``Account''), 
any other separate account established by First ING Life in the future 
to support certain deferred variable annuity contracts issued by First 
ING Life (``Other Account''; together with the Account, the ``Separate 
Account,'' unless the context otherwise requires), and SLD Equities, 
Inc. (``SLD Equities'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for 
exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order to permit the 
deduction of a mortality and expense risk charge from the assets of the 
Account in connection with the offering of certain deferred variable 
annuity contracts issued by First ING Life through the Account (the 
``Account Contracts''). Applicants also seek an order to permit the 
deduction of a mortality and expense risk charge from the assets of the 
Account and of any Other Account in connection with the offering of 
deferred variable annuity contracts issued by First ING Life through 
the Account or any Other Account, respectively, which contracts are 
offered on a basis that is similar in all material respects to the 
basis on which the Account Contracts are offered (the ``Other 
Contracts''; together with the Account Contracts, the ``Contracts,'' 
unless the context otherwise requires).

FILING DATE: The application was filed on August 15, 1994.

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 SEC's Secretary and 
serving 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 October 
31, 1994 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 
reasons for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street NW., Washington, DC 20549. Applicants, 225 Broadway, Suite 1901, 
New York, New York 10017.

FOR FURTHER INFORMATION CONTACT:
C. Christopher Sprague, Senior Counsel, at (202) 942-0670, or Brenda D. 
Sneed, Assistant Director, at (202) 942-0670, Office of Insurance 
Products, Division of Investment Management.

SUPPLEMENTARY INFORMATION: The 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. First ING Life is a stock life insurance company organized under 
the laws of New York, and is the depositor and sponsor of the Account. 
First ING Life may establish one or more Other Accounts in the future, 
for which it will serve as sponsor and depositor.
    2. First ING Life established the Account on March 15, 1994 under 
the laws of New York pursuant to a resolution of its Board of 
Directors. The Account is a segregated asset account of First ING Life, 
and is registered under the 1940 Act as a unit investment trust. The 
underlying investment media for the Account will be Neuberger & Berman 
Advisers Management Trust, Van Eck Investment Trust, Fidelity Variable 
Insurance Products Fund, Fidelity Variable Insurance Products Fund II, 
Alger American Fund and INVESCO Variable Investment Funds (each, a 
``Fund''). Each Fund is registered under the 1940 Act as an open-end 
management investment company.
    3. SLD Equities, a registered broker-dealer, will be the principal 
underwriter of the Account Contracts. SLD Equities may act as a 
principal underwriter for any Other Contracts issued by First ING Life 
in the future.
    4. The Contracts provide retirement payments or other long-term 
benefits for persons covered under plans qualified for federal income 
tax advantages available under the Internal Revenue Code of 1986 and 
for persons desiring such benefits who do not qualify for such tax 
advantages. Holders of the Contracts will direct purchase payments to 
one of several Divisions of the Separate Account or to the Guaranteed 
Interest Division (which is part of First ING Life's general account). 
Payments directed to the Separate Account then will be invested by the 
Divisions in shares of corresponding portfolios of the Funds.
    5. The minimum initial purchase payment for a Contract is $5,000 
for a non-qualified Contract and $1,000 for a qualified Contract. The 
minimum additional purchase payment is $500 for a non-qualified 
Contract, $250 for a qualified Contract, and $90 for a qualified 
Contract on a monthly program of purchase payments.
    6. No front-end sales charge will be imposed when purchase payments 
are applied under the Contracts. However, a surrender charge will be 
assessed if the Contract is surrendered or partial withdrawals 
exceeding certain amounts are taken during the six year period from the 
date First ING Life receives and accepts each purchase payment. The 
surrender charge is determined by the number of Contract anniversaries 
that have passed since the purchase payment that is being withdrawn was 
made. The charge is 7% if no Contract anniversary has passed with 
respect to the payment. 6% if one Contract Anniversary has passed, and 
declines by 1% per year thereafter. No surrender charge applies to a 
purchase payment that has been held for 6 Contract anniversaries or 
more. In no event is the surrender charge greater than the amount 
withdrawn. Proceeds from the surrender charge may not cover the 
expected costs of distributing the Contracts. Any shortfall will be 
recovered from First ING Life's general assets, which may include 
revenue from the proposed mortality and expense risk charge.
    7. The administrative charges to be assessed will be (a) an annual 
administrative charge of $30 per Contract year, during the accumulation 
period only, if total purchase payments paid in the first Contract year 
are less than $100,000, and (b) a daily asset charge, at an annual 
effective rate of 0.15% assessed against each Division of the Separate 
Account, during both the accumulation and annuity periods. First ING 
Life guarantees that it will not raise these administrative charges for 
the duration of the Contracts. First ING Life also represents that it 
does not expect that the total revenues from the administrative charges 
will be greater than the total expected cost of administering the 
Contracts, on average, excluding costs that are properly categorized as 
distribution expenses, over the period that the Contracts are in force.
    8. If more than one demand partial withdrawal occurs during a 
Contract year, there will be a charge of the lesser of $25 or 2% of the 
amount withdrawn for each additional demand partial withdrawal. In 
addition, each transfer in excess of 12 in a Contract year will be 
subject to a charge of $25. Applicants indicate that the partial 
withdrawal transaction charge and excess transfer charge will meet the 
``at cost'' requirement of Rule 26a-1 under the 1940 Act.
    9. First ING Life will assume certain risks, described below, in 
connection with its sale of the Contracts. Accordingly, First ING Life 
proposes to receive compensation for assuming these risks by deducting, 
from the assets of the Separate Account, a daily asset charge for 
mortality and expense risks.
    10. First ING Life will assume several mortality risks under the 
Contracts. First, First ING Life will assume a mortality risk by its 
contractual obligation to pay a death benefit to the beneficiary if the 
Owner dies prior to the annuity date. The Contracts provide a death 
benefit that is the greater of: (a) the accumulation value at the time 
of death and (b) the step-up benefit plus purchase payments made, less 
partial withdrawals and any surrender and partial withdrawal 
transaction charges taken since the last step-up anniversary. Second, 
First ING Life assumes a mortality risk arising from the fact that the 
Contract does not impose any surrender charge on the death benefit. 
Third, First ING Life assumes an additional mortality risk by its 
contractual obligation to continue to make annuity payments for the 
entire life of the Annuitant under annuity options involving 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 a Contract. 
This relieves the Annuitant from the risk of outliving the amounts 
accumulated for retirement. At the same time, First ING Life assumes 
the risk that Annuitants as a group would live a longer time than First 
ING Life's annuity tables predict, which would require First ING Life 
to pay out more in annuity income than planned. The Contracts contain 
annuity tables that are based on the 1983a Individual Annuity Mortality 
Table and, for variable annuity options, alternative net investment 
factors of 3% or 5% and, for fixed annuity options, and interest rate 
of 3%. First ING Life guarantees these annuity tables for the life of a 
Contract.
    11. In addition to mortality risks, First ING life will assume an 
expense risk under the Contracts. This is because the administrative 
charges under outstanding Contracts, which cannot be raised, may be 
insufficient to cover actual administrative expenses.
    12. In order to receive compensation for assuming these mortality 
and expense risks, First ING Life will assess the Separate Account with 
a daily charge for mortality and expense risks at an annual aggregate 
rate of 1.25% Approximately 0.90% of this annual charge is allocated to 
the mortality risks that First ING Life will assume, and 0.35% is 
allocated to the expense risks that First ING Life will assume.
    13. If the administrative charges and the mortality and expense 
risk charges are insufficient to cover the expenses and costs assumed, 
the loss will be borne by First ING Life. Conversely, if the amounts 
deducted prove more than sufficient, the excess will be profit to First 
ING Life. First ING Life will likely earn a profit from the mortality 
and expense risk charge.

Applicants' Legal Analysis

    1. Applicants request exemptions 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 Separate Account under the Contracts. Applicants state that the 
terms of the relief requested with respect to any Other Contracts 
funded by the Account or any Other Account, in the future, are 
consistent with the standards set forth in Section 6(c) of the 1940 
Act. Applicants state that, without the requested relief, Applicants 
would have to request and obtain exemptive relief in connection with 
Other Contracts under certain circumstances. Any such additional 
request for exemption would present no issues under the 1940 Act that 
have not already been addressed in this application. Applicants submit 
that the requested relief is appropriate in the public interest, 
because it would promote competitiveness in the variable annuity 
contract market by eliminating the need for First ING Life to file 
redundant exemptive applications, thereby reducing its administrative 
expenses and maximizing the efficient use of its resources. The delay 
and expense involved in having to repeatedly seek exemptive relief 
would impair First ING Life's ability to effectively take advantage of 
business opportunities as they arise. Applicants further submit that 
the requested relief is consistent with the purposes of the 1940 Act 
and the protection of investors for the same reasons. If First ING Life 
were required to repeatedly seek exemptive relief with respect to the 
same issues addressed in this application, investors would not receive 
any benefit or additional protection thereby. Indeed, they might be 
disadvantaged as a result of First ING Life's increased overhead 
expenses. Thus, Applicants believe that the requested exemption id 
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) prohibit a registered unit 
investment trust and any depositor or underwriter thereof from selling 
periodic payment plan certificates unless the proceeds of all payments 
are deposited with a trustee or custodian having the qualifications 
prescribed by Section 26(a)(1) of the 1940 Act and are 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.
    3. Applicants have concluded that the mortality and expense risk 
charge of 1.25% is reasonable in relation to the risks assumed by First 
ING Life under the Contracts and reasonable in amount as determined by 
industry practice with respect to comparable annuity products. 
Applicants state that these determinations are based on their analysis 
of publicly available information about similar industry practices, and 
by taking into consideration such factors as current charge levels and 
benefits provided, the existence of expense charge guarantees, and 
guaranteed annuity rates. First ING Life undertakes to maintain at its 
home office, and make available to the Commission and its staff upon 
request, a memorandum setting forth in detail the methodology used in 
making the foregoing determinations.
    4. The surrender charge may be insufficient to cover all costs 
relating to the distribution of the Contracts. In that event, 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 surrender charge. Notwithstanding the foregoing, 
First ING Life has concluded that there is a reasonable likelihood that 
the proposed distribution financing arrangements will benefit the 
Separate Account and Owners. First ING Life also represents that it 
will maintain at its home office, and make available on request to the 
Commission and its staff, a memorandum setting out the basis for such 
conclusion.
    5. First ING Life also represents that the Separate Account will 
invest only in an underlying mutual fund which undertakes, in the 
event it should adopt any plan under Rule 12b-1 under the 1940 Act 
to finance distribution expenses, to have such 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.

Applicants' Conclusion

    Applicants submit that, for all of the reasons stated herein,the 
requested exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 
Act meet the standards set out in Section 6(c) of the 1940 Act. 
Applicants assert 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 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-25187 Filed 10-11-94; 8:45 am]
BILLING CODE 8010-01-M