[Federal Register Volume 61, Number 147 (Tuesday, July 30, 1996)]
[Notices]
[Pages 39682-39684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19249]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22088; No. 812-10144]


IDS Life Insurance Company of New York, et al.

July 23, 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'').

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Applicants: IDS Life Insurance Company of New York (``IDS Life''), IDS 
Life of New York Flexible Portfolio Annuity Account (the ``Variable 
Account''), and American Express Financial Advisors Inc. 
(``Advisors'').

Relevant 1940 Act Sections: Order requested pursuant to Section 6(c) of 
the 1940 Act granting exemptions from the 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''). Exemptive relief also is requested to the extent 
necessary to permit the offer and sale of Contracts for which certain 
broker-dealers other than Advisors serve as the principal underwriter.

Filing Date: The application was filed on May 14, 1996.

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 August 19, 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 N.W., Washington, D.C. 20549. Applicants, c/o Mary Ellyn 
Minenko, Counsel, IDS Life Insurance Company of New York, IDS Tower 10, 
Minneapolis, Minnesota 55440.

For Further information Contact: Kevin M. Kirchoff, Senior Counsel, or 
Wendy F. 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 which is organized 
under the laws of New York. IDS Life is a wholly-owned subsidiary of 
IDS Life Insurance Company, a stock insurance company organized under 
the laws of Minnesota, which is a wholly-owned subsidiary of American 
Express Financial Corporation.
    2. Advisors, the principal underwriter for the Variable Account, is 
registered as a broker-dealer pursuant to the Securities Exchange Act 
of 1934 (``1934 Act'') and is a member of the National Association of 
Securities Dealers, Inc. (``NASD'').
    3. The Variable Account was established on April 17, 1996, as a 
separate account pursuant to the laws of New York. The Variable Account 
will be used to fund the Existing Contracts.
    4. 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'').
    5. 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.
    6. The Variable Account currently has fourteen 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 Insurance Company (the 
``Funds''). IDS Life may create additional subaccounts and/or variable 
accounts to invest in additional Funds as future investment options.
    7. Prior to the annuity 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.
    8. 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:
    (a) If death occurs before the 75th birthday of the owner or the 
annuitant, the beneficiary receives the greater of:
    (1) The Contract value,
    (2) The Contract value as of the most recent sixth Contract 
anniversary, minus any surrenders since that anniversary, or
    (3) Purchase payments, minus any surrenders; or
    (b) If death occurs on or after the owner's or annuitant's 75th 
birthday, the beneficiary receives the greater of:
    (1) The Contract value, or
    (2) The Contract value as of the most recent sixth Contract 
anniversary, minus any surrenders since that anniversary.
    9. IDS Life will assess an annual Contract administrative charge

[[Page 39683]]

(``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 
Exist Contracts, and does not apply after annuity payments begin. 
Applicants represent that they rely on Rule 26a-1 under the 1940 Act in 
connection with the Administrative Charge.
    10. IDS Life does not currently assess any charges for premium 
taxes or other federal, state or local taxes paid in connection with 
the Existing Contracts, but reserves the right to assess such charges.
    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 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 any proper corporate purpose including, among 
other things, payment of distribution expenses.

Applicants' 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. Applicants also 
request exemptions to the extent necessary to permit the offer and sale 
of Contracts for which any broker-dealer that is registered pursuant to 
the 1934 Act and a member of the NASD serves as principal underwriter.
    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 a 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 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.
    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

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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 interest persons of such fund within the meaning of Section 
2(a)(19) of the 1940 Act.
    8. Applicants submit that their request 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 summaized above, Applicants represent that the 
exemptions requested are necessary and appropriate in the public 
interest and consistent with the protection of investors and the 
purpose 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. 96-19249 Filed 7-29-96; 8:45 am]
BILLING CODE 8010-01-M