[Federal Register Volume 60, Number 122 (Monday, June 26, 1995)]
[Notices]
[Pages 33018-33020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15570]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21151; 812-9484]


American Partners Life Insurance Company, et al.

June 20, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

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

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APPLICANTS: American Partners Life Insurance Company (``American 
Partners Life''), APL Variable Annuity Account 1 (the ``Variable 
Account''), and American Express Financial Advisors Inc. (``American 
Express Financial'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
that would exempt applicants from sections 26(a)(2)(C) and 27(c)(2) of 
the Act.

SUMMARY OF APPLICATION: Applicants request an order to permit American 
Partners Life to deduct a mortality and expense risk charge from the 
assets of the Variable Account in connection with the offering of 
certain flexible premium individual deferred variable annuity contracts 
as well as other variable annuity contracts.

FILING DATE: The application was filed on February 16, 1995, and 
amended on June 6, 1995.

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 SEC's Secretary 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 July 17, 1995, 
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 writer's interest, the reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street N.W., Washington, D.C. 20549. 
Applicants, c/o Mary Ellyn Minenko, Counsel, American Partners Life 
Insurance Company, IDS Tower 10, Minneapolis, MN 55440.

FOR FURTHER INFORMATION CONTACT:
James M. Curtis, Senior Counsel, at (202) 942-0563, or Robert A. 
Robertson, Branch Chief, (202) 942-0564 (Office of Investment Company 
Regulation, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. American Partners Life is a wholly-owned subsidiary of IDS Life 
Insurance Company (``IDS Life''). IDS Life is a stock life insurance 
company organized under the laws of the State of Minnesota. IDS Life is 
a wholly-owned subsidiary of American Express Financial Corporation, a 
Delaware corporation.
    2. The Variable Account was established as a separate account under 
the laws of the State of Arizona to fund variable annuities issued by 
American Partners Life. The Variable Account is registered as a unit 
investment trust under the Act. The Variable Account has filed with the 
SEC a registration statement on Form N-4 in connection with the 
offering of certain flexible premium individual deferred variable 
annuity contracts (``Contracts'') issued by American Partners Life. The 
Variable Account will be used to fund these Contracts.
    3. Applicants request that exemptive relief permit the deduction of 
a mortality and expense risk charge from the assets of any subaccounts 
or variable accounts established by APL to support future individual 
deferred variable annuity contracts that are substantially similar in 
all material respects to the Contract.
    4. Each subaccount of the Variable Account will invest solely in 
the shares of one of the corresponding funds of a registered investment 
company (the ``Funds''). Currently, there are six subaccounts that will 
invest in the shares of six corresponding Funds. The Funds currently 
available for investment by the subaccounts are registered open-end 
management investment companies managed by IDS Life. American Partners 
Life plans to create additional subaccounts and/or variable accounts to 
invest in additional Funds which will be available as future investment 
options.
    5. American Express Financial is the principal underwriter of the 
Variable Account. American Express Financial is registered as a broker-
dealer under the Securities Exchange Act of 1934 and is a member of the 
National Association of Securities Dealers, Inc.
    6. The Contracts are individual deferred combination fixed/variable 
annuity contracts. The Contracts allow the owners to elect to have 
contract values accumulate in the Variable Account as well as in a 
fixed account.
    7. Contract owners must make an initial lump sum purchase payment 
or set up installment payments. Contract owners may make additional 
purchase payments under the Contracts. The initial purchase payment 
must be at least $2,000 for nonqualified Contracts and $1,000 for 
qualified Contracts. The installment payments must be set up for at 
least $100 monthly or $50 biweekly. Installment payments must total at 
least $1000 in the first year. After making the initial purchase 
payment or setting up the installment payments, Contract owners may 
make additional payments of at least $100 for nonqualified and 
qualified Contracts. The maximum first year payment(s) is $1 million up 
to age 75; $500,000 for ages 76-85; and $50,000 for ages 86-90. The 
maximum is based on the Contract owner's age or the age of the 
annuitant (whomever is older) on the effective date of the Contract. 
The maximum payment for each subsequent year is $50,000. American 
Partners Life reserves the right to increase maximum limits or reduce 
age limits. The Contracts provide for allocation of purchase payments 
to [[Page 33019]] the subaccounts of the Variable Account and/or to a 
fixed account in even 1% increments. There is no minimum value 
requirement of a Contract owner's investment in a subaccount of the 
Variable Account or in the fixed account.
    8. Prior to the annuity start date, the Contract owner can, at any 
time, surrender all or part of the Contract value held in one or more 
of the subaccounts of the Variable Account and the fixed account. There 
is no charge for a partial or total surrender. Upon retirement, annuity 
payments will be made on a fixed basis. Retirement benefits may be made 
in a lump sum, under one of five annuity payment plans or under any 
other arrangement acceptable to American Partners Life.
    9. American Partners Life will assess an annual contract 
administrative charge of $30 for the Contracts on each contract 
anniversary. American Partners Life waives this contract administrative 
charge for any contract year where the total purchase payments (less 
partial surrenders) on the current contract anniversary is $10,000 or 
more or if, during the contract year, a death benefit is payable or the 
Contract is surrendered in full. This charge reimburses American 
Partners Life for the administrative services attributable to the 
Contracts. The annual contract administrative charge does not apply 
after retirement payments begin. This charge represents reimbursement 
for only the actual administrative costs expected to be incurred over 
the life of the Contracts. American Partners Life reserves the right to 
increase the administrative charges up to $50 if warranted by the 
expenses incurred. American Partners Life also reserves the right to 
assess the contract administrative charge against all Contracts.
    10. American Partners Life and the Variable Account rely on rules 
0-1(e), 6c-8, 26a-1, and 26a-2 under the Act in connection with the 
deduction of the contract administration charge and certain other 
charges under the Contracts. American Partners Life does not expect to 
profit from the contract administrative charge. In some cases, American 
Partners Life may expect to incur lower sales and administrative 
expenses or perform fewer services. In those cases, American Partners 
Life may, in its discretion, reduce or eliminate the contract 
administrative charge. American Partners Life expects this to occur 
infrequently, if at all.
    11. Prior to the annuity start date, the Contract owner can, at any 
time, transfer all or part of the contract value held in one or more of 
the subaccounts of the Variable Account and fixed account to another 
one or more of the subaccounts. The minimum amount to be transferred to 
any one subaccount is $100. American Partners Life reserves the right 
to impose or change limits to amount and frequency of transfers. There 
is no charge for the first 12 transfers in a contract year, but 
American Partners Life will charge $25 for each transfer in excess of 
12.
    12. American Partners Life will make a charge against the contract 
value for any premium taxes to the extent the taxes are payable. No 
charges are currently made for federal, state or local taxes other than 
premium taxes. American Partners Life reserves the right to deduct such 
taxes from the Variable Account in the future.
    13. To compensate American Partners Life for assuming mortality and 
expense risks, it will apply a daily mortality and expense risk charge 
to the Variable Account. This charge equals 1% of the average daily net 
assets of the subaccounts of the Variable Account on an annual basis. 
American Partners Life estimates that approximately 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.
    14. American Partners Life assumes certain mortality risks by 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 Contracts. This relieves the annuitant from the risk 
of outliving the amounts accumulated for retirement. American Partners 
Life assumes additional mortality and certain expense risks under the 
Contracts 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 
the owner or the annuitant prior to the annuity start date. In 
addition, American Partners Life assumes an expense risk because the 
contract administrative charge may be insufficient to cover actual 
administrative expenses.
    15. If the contract administrative charge and the mortality and 
expense risk charge are insufficient to cover the expenses and costs 
assumed, the loss will be borne by American Partners Life. Conversely, 
if the amount deducted proves more than sufficient, the excess will 
represent a profit to American Partners Life. American Partners Life 
does expect to profit from the mortality and expense risk charge.

Applicants' Legal Analysis

    1. Applicants request an exemption under section 6(c) of the Act 
from sections 26(a)(2)(C) and 27(c)(2) of the Act to permit the 
deduction of a mortality and expense risk charge from the assets of the 
Separate Account under the Contracts.
    2. Sections 26(a)(2)(C) and 27(c)(2) of the 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 (except such amounts as are 
deducted for sales load) are deposited with a trustee or custodian 
having the qualifications prescribed by Section 26(a)(1) of the Act and 
held under an agreement which provides that no payment to the depositor 
or principal underwriter shall be allowed except as a fee, not 
exceeding such reasonable amount as the SEC may prescribe, for 
bookkeping and other administrative services. American Partners Life's 
deduction of a mortality and expense risk charge from the assets of the 
Variable Account may be deemed to be a payment prohibited by sections 
26(a)(2)(c) and 27(c)(2).
    3. Section 6(c) authorizes the SEC to exempt any person, security, 
or transaction, or any class or classes of persons, securities, or 
transactions from the provisions of the Act and the rules promulgated 
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 Act.
    4. Applicants represent that the requested relief is appropriate in 
the public interest because it would promote competitiveness in the 
variable annuity market by eliminating the need for American Partners 
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 request 
exemptive relief repeatedly would impair American Partners Life's 
ability to effectively take advantage of business opportunities that 
arise. Applicants represent that, for the same reasons, the requested 
relief is consistent with the purposes of the Act and the protection of 
investors. If American Partners Life were required to seek exemptive 
relief repeatedly with respect to the same issues addressed in this 
application, [[Page 33020]] investors would not receive any benefit or 
additional protection thereby. Indeed, they might be disadvantaged as a 
result of American Partners Life's increased overhead expenses.
    5. Applicants represent that the level of the mortality and expense 
risk charge is within the range of industry practice for comparable 
variable annuity products. American Partners 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. American 
Partners Life represents that it will maintain at its executive office, 
and make available on request of the SEC or its staff, a memorandum 
setting forth its analysis, including its methodology and results.
    6. American Partners Life has concluded that there is a reasonable 
likelihood that the proposed distribution financing arrangements made 
with respect to the Contracts will benefit the Variable Account and 
investors in the Contracts. The basis for such conclusion is set forth 
in a memorandum which will be maintained by American Partners Life at 
its service office and will be available to the SEC or its staff on 
request.
    7. American Partners Life represents that the Variable Account will 
invest only in an underlying mutual fund which, in the event it should 
adopt any plan under rule 12b-1 of the 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 Act.

Conclusion

    For the reasons set forth above, applicants believe that the 
requested 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.

    For the SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-15570 Filed 6-23-95; 8:45 am]
BILLING CODE 8010-01-M