[Federal Register Volume 61, Number 30 (Tuesday, February 13, 1996)]
[Notices]
[Pages 5587-5590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3134]



=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-21738; No. 812-9752]


IDS Life Insurance Company, et al.

February 7, 1996.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of application for an order pursuant to the Investment 
Company Act of 1940 (the ``1940 Act'').

-----------------------------------------------------------------------

APPLICANTS: IDS Life Insurance Company (``IDS Life'') and IDS Life 
Variable Account 10 (the ``Variable Account'').

RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 6(c) of 
the 1940 Act granting exemptions from the 

[[Page 5588]]
provisions of Sections 26(a)(2)(C) and 27(c)(2) thereof.

SUMMARY OF APPLICATION: Applicants seek an order permitting the 
deduction of a mortality and expense risk charge from the assets of (a) 
the Variable Account in connection with the offer and sale of certain 
variable annuity contracts (``Existing Contracts''); (b) the Variable 
Account in connection with the issuance of variable annuity contracts 
that are substantially similar in all material respects to the Existing 
Contracts (``Future Contracts,'' together with Existing Contracts, the 
``Contracts''); and (c) any other separate account established in the 
future by IDS Life in connection with the issuance of Contracts 
(``Future Accounts'').

FILING DATE: The application was filed on September 7, 1995, and 
amended on December 21, 1995.

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 Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on March 4, 1996, 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 reason for the request, and the 
issues contested. Persons may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street NW., Washington, DC 20549. Applicants, c/o Mary Ellyn Minenko, 
Counsel, IDS Life Insurance Company, IDS Tower 10, Minneapolis, 
Minnesota 55440.

FOR FURTHER INFORMATION CONTACT: Kevin M. Kirchoff, Senior Counsel, or 
Wendy Friedlander, Deputy Chief, 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 may be obtained for a fee from 
the Public Reference Branch of the Commission.

Applicants' Representations

    1. IDS Life is a stock life insurance company, organized under the 
laws of the State of Minnesota, which conducts life insurance business 
in the District of Columbia and all states except New York. IDS Life is 
a wholly-owned subsidiary of American Express Financial Corporation, 
which is a wholly-owned subsidiary of American Express Company. IDS 
Life, which will serve as the principal underwriter for the Variable 
Account, is registered as a broker-dealer pursuant to the Securities 
Exchange Act of 1934 and is a member of the National Association of 
Securities Dealers, Inc.
    2. The Variable Account was established on August 23, 1995, as a 
separate account pursuant to the laws of the State of Minnesota. The 
Variable Account is registered with the Commission pursuant to the 1940 
Act as a unit investment trust and will be used to fund the Existing 
Contracts.
    3. The Existing Contracts are available for purchase in connection 
with retirement plans that qualify for federal tax advantages available 
pursuant to the Internal Revenue Code (``qualified contracts'') or for 
plans that do not so qualify (``non-qualified contracts'').
    4. The Existing Contracts provide for the accumulation of contract 
values and payment of annuity benefits on a fixed and/or variable 
basis. Purchase payments may be directed to the general account of IDS 
Life pursuant to a fixed account option (the ``Fixed Account''), the 
Variable Account, or allocated between them. Existing Contracts may be 
purchased with either an initial purchase payment, of at least $2,000 
for nonqualified contracts and $1,000 for qualified contracts, or 
installment payments. Additional purchase payments may be made in 
accordance with certain requirements.
    5. The Variable Account currently has six subaccounts 
(``Subaccounts''), each of which will invest solely in the shares of 
one of the corresponding funds of a registered open-end management 
investment company managed by IDS Life (the ``Funds''). IDS Life plans 
to create additional subaccounts and/or variable accounts to invest in 
additional Funds which will be available as future investment options.
    6. Prior to the retirement date, the owner of an Existing Contract 
can, at any time, transfer all or part of the contract value held in 
one or more of the Subaccounts or the Fixed Account to another 
Subaccount or the Fixed Account. However, if an owner of an Existing 
Contract has made a transfer from the Fixed Account to a Subaccount, 
the contract owner may not transfer from any Subaccount back to the 
Fixed Account until the next contract anniversary. Once annuity 
payments begin, no transfers may be made to or from the Fixed Account, 
but transfers may be made once per contract year among the Subaccounts.
    7. The Existing Contracts provide that if the contract owner or the 
annuitant dies (or, for qualified annuities, if the annuitant dies) 
before annuity payments begin, IDS Life will pay the beneficiary a 
death benefit as follows:
    (1) If death occurs before the 75th birthday of the owner or the 
annuitant, the beneficiary receives the greatest of:
    (a) The contract value,
    (b) The contract value of the most recent sixth contract 
anniversary, minus any surrenders since that anniversary, or
    (c) Purchase payments, minus any surrenders; or
    (2) If death occurs on or after the owner's or annuitant's 75th 
birthday, the beneficiary receives the greater of:
    (a) The contract value, or
    (b) The contract value as of the most recent sixth contract 
anniversary, minus any surrenders since that anniversary.
    8. IDS Life will assess an annual contract administrative charge 
(``Administrative Charge'') of $30 on each contract anniversary or 
earlier when an Existing Contract is fully surrendered. IDS Life 
currently waives the Administrative Charge for any contract year in 
which total purchase payments under a contract, less any payments 
surrendered, equal or exceed $25,000 on the contract anniversary. 
However, IDS Life reserves the right to assess the Administrative 
Charge against all Existing Contracts. The Administrative Charge 
reimburses IDS Life for the administrative costs attributable to the 
Existing Contracts, and does not apply after retirement payments begin.
    9. Applicants represent that they rely on Rule 26a-1 under the 1940 
Act in connection with the Administrative Charge.
    10. Certain state and local governments impose taxes of up to 3.5 
percent of premiums. IDS Life will make a charge against the contract 
value for any premium taxes to the extent the taxes are payable.
    11. No sales charge is collected or deducted at the time purchase 
payments are made, pursuant to the Existing Contracts. IDS Life will, 
however, assess a contingent deferred sales charge (``CDSC'') on 
certain full or partial surrenders. The amounts obtained from the CDSC 
will be used to help defray expenses incurred in connection with the 
sale of the Existing Contracts, including commissions and other 
promotional or distribution expenses associated with the printing and 
distribution of prospectuses and sales material. the CDSC applies to 
all purchase payments surrendered in the first eight contract years. 
The CDSC is 

[[Page 5589]]
7 percent of any purchase payments surrendered during the first three 
contract years, then declines by 1 percent per year from 6 percent in 
the fourth year to 2 percent in the eighth year. No CDSC applies after 
8 contract years. In addition, no CDSC applies to earnings under 
Existing Contracts, to minimum required distributions from certain 
qualified plans, to Existing Contracts settled using an annuity payout 
plan or to death benefits.
    12. IDS Life assumes certain mortality risks through 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 Existing Contracts. IDS Life assumes additional 
mortality risks under the Existing Contracts through its contractual 
obligation to pay a death benefit upon the death of the owner or 
annuitant prior to the retirement date.
    13. IDS Life assumes an expense risk because the Administrative 
Charge may be insufficient to cover actual administrative expenses, 
which 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.
    14. As compensation for assuming mortality and expense risks, IDS 
Life will assess a daily charge (``Mortality and Expense Risk Charge'') 
equaling 1.25 percent of the average daily net assets of the 
Subaccounts on an annual basis. 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. The Mortality and Expense Risk Charge 
cannot be increased during the life of the Existing Contracts and does 
not apply to the Fixed Account.
    15. If the Mortality and Expense Risk Charge is insufficient to 
cover the expenses and costs assumed, the loss will be borne by IDS 
Life. Conversely, if the amount deducted proves more than sufficient, 
the excess will represent a profit to IDS Life. IDS Life expects to 
profit from the Mortality and Expense Risk Charge. The profit will be 
available to IDS Life for an proper corporate purpose including, among 
other things, payment of distribution expenses.

Applicant's Legal Analysis

    1. Pursuant to Section 6(c) of the 1940 Act, the Commission may 
exempt any person, security, or transaction, or any class or classes of 
persons, securities or transactions, from any provision or provisions 
of the 1940 Act or from any rule or regulation 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 1940 Act.
    2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 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 (other than sales load) are 
deposited with a qualified bank as trustee or custodian and held under 
arrangements which prohibit any payment to the depositor or principal 
underwriter except a fee, not exceeding such reasonable amount as the 
Commission may prescribe, for performing bookkeeping and other 
administrative services normally performed by the bank itself.
    3. Applicants request an order pursuant to Section 6(c) of the 1940 
Act 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 Variable Account and any 
Future Accounts in connection with the Contracts.
    4. 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 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. IDS Life represents that it 
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.
    5. Applicants represent that, prior to offering Future Contracts, 
they will conclude that any mortality and expense risk charge under 
such contracts (which cannot exceed in amount the Mortality and Expense 
Risk Charge) will be within the range of industry practice for 
comparable annuity contracts. IDS Life represents that it will maintain 
at it 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 acknowledge that, if a profit is realized from the 
Mortality and Expense Risk Charge, all or a portion of such profit may 
be available to pay distribution expenses not reimbursed under the 
Contracts. IDS Life has concluded that there is a reasonable likelihood 
that the proposed distribution financing arrangements will benefit the 
Variable Account (or Future Accounts) and owners of the Existing 
Contracts (or Future Contracts). The basis for such conclusion is set 
forth in a memorandum which will be maintained by IDS Life at its 
executive office and will be available to the Commission or its staff 
on request.
    7. IDS Life represents that the Variable Account, or future 
accounts will invest only in underlying mutual funds which, in the 
event they should adopt any plan under Rule 12b-1 of 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.
    8. Applicants submit that their requires for exemptive relief for 
Future Contracts and Future Accounts would promote competitiveness in 
the variable annuity contract market by eliminating the need for 
redundant exemptive applications, thereby reducing Applicants' 
administrative expenses and maximizing the efficient use of their 
resources. Applicants further submit that the delay and expense 
involved in having repeatedly to seek exemptive relief would impair 
their ability effectively to take advantage of business opportunities 
as they arise. Further, if Applicants 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.
Conclusion
    For the reasons summarized above, Applicants represent that the 
exemptions requested are necessary and 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.


[[Page 5590]]

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-3134 Filed 2-12-96; 8:45 am]
BILLING CODE 8010-01-M