[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