[Federal Register Volume 69, Number 19 (Thursday, January 29, 2004)]
[Notices]
[Pages 4323-4330]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1919]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26338; File No. 812-13022]


IDS Life Insurance Company, et al., Notice of Application

January 22, 2004.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order pursuant to Section 6(c) 
of the Investment Company Act of 1940, as amended (the ``Act'') 
granting exemptions from the provisions of Sections 2(a)(32), 22(c) and 
27(i)(2)(A) of the Act and Rule 22c-1 thereunder.

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    Applicants: IDS Life Insurance Company (``IDS Life''), IDS Life 
Insurance Company of New York (``IDS Life of New York''), American 
Enterprise Life Insurance Company (``American Enterprise Life''), 
American Centurion Life Assurance Company (``American Centurion Life'') 
(each, an ``Insurance Company'' and collectively, the ``Insurance 
Companies''), American Express Financial Advisors Inc. (``AEFA''), IDS 
Life Variable Account 10 (``IDS Life Account''), IDS Life of New York 
Variable Annuity Account (``IDS Life of New York Account''), American 
Enterprise Variable Annuity Account (``American Enterprise Life 
Account'') and ACL Variable Annuity Account 2 (``American Centurion 
Life Account'') (each, an ``Account'' and collectively, the 
``Accounts'') (collectively, the ``Applicants'').
    Summary of Application: Applicants seek an order to amend an 
Existing Order (described below) to grant exemptions from the 
provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and 
Rule 22c-1 thereunder to the extent necessary to permit the recapture 
of certain credits applied to contributions made under: (i) Certain 
additional, amended deferred variable annuity contracts, described 
herein, that IDS Life proposes to issue through the IDS Life Account 
(the contracts, including certain data pages and endorsements, are 
collectively referred to herein as the ``Amended Contracts''), and (ii) 
certain additional, amended

[[Page 4324]]

contracts that the Insurance Companies may in the future issue through 
the Accounts or any Future Account that are substantially similar in 
all material respects to the Amended Contracts described in the 
application (``Future Amended Contracts'') (Amended Contracts and 
Future Amended Contracts are collectively referred to herein as the 
``New Contracts''). Applicants also request that the order being sought 
extend to any other National Association of Securities Dealers, Inc. 
(``NASD'') member broker-dealer controlling or controlled by, or under 
common control with the Insurance Companies, whether existing or 
created in the future, that serves as distributor or principal 
underwriter of the New Contracts offered through the Accounts or any 
Future Account (collectively, the ``Affiliated Broker-Dealers'').
    Filing Date: The application was filed on September 24, 2003 and 
amended and restated on December 23, 2003.
    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 should be received by the 
Commission by 5:30 on February 17, 2004 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 who wish to be notified of a hearing may 
request notification by writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, Mary Ellyn Minenko, 
Vice President and Group Counsel, American Express Financial Advisors 
Inc., 50607 AXP Financial Center, Minneapolis, MN 55474.

FOR FURTHER INFORMATION CONTACT: Mark A. Cowan, Senior Counsel, or 
Zandra Y. Bailes, Branch 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 SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, 
DC 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. On January 19, 2000 the Commission issued an order exempting 
certain transactions of Applicants from the provisions of Sections 
2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder 
(the ``Existing Order''). The Existing Order permits, under specified 
circumstances, as described in the application for the Existing Order 
(the ``Prior Application''), the recapture of certain Credits applied 
to contributions made under: (i) Certain deferred variable annuity 
contracts that IDS Life and American Enterprise Life issued through the 
Accounts (the contracts, including certain data pages and endorsements, 
were referred to therein as the ``Contracts''), and (ii) contracts that 
are substantially similar in all material respects to the Contracts 
that the Insurance Companies may issue in the future (referred to 
therein as the ``Future Contracts'') (Contracts and Future Contracts 
are collectively referred to herein as the ``Existing Contracts'') 
through the Accounts or any other separate account of the Insurance 
Companies currently existing or established in the future by the 
Insurance Companies (the ``Future Accounts'').
    2. The Existing Order permits the recapture of Credits, as defined 
in the Prior Application, under Existing Contracts. Specifically, the 
Existing Order permits the recapture of these Credits: (i) If the owner 
returns the Existing Contract to the Insurance Company for a refund 
during the free look period; (ii) if the Credits were applied within 
twelve months preceding the date of death that results in a lump sum 
death benefit; or (iii) if the Credits were applied within twelve 
months preceding a request for a surrender due to a Contingent Event, 
as defined in the Prior Application.
    3. IDS Life and American Enterprise Life offered Contracts as 
described in the Prior Application. The Insurance Companies currently 
offer contracts that constitute Future Contracts covered by the 
Existing Order. At the appropriate time after effectiveness of the 
amended registration statement describing the Amended Contracts, IDS 
Life will begin offering the Amended Contracts.
    4. In view of certain differences in the Amended Contracts from 
these Existing Contracts, Applicants filed an application to extend the 
relief under the Existing Order with respect to the recapture of 
Credits under the New Contracts. This recapture will occur under 
circumstances substantially similar to those described in the Prior 
Application as well as under certain additional circumstances.
    5. IDS Life proposes to offer two new Amended Contracts, American 
Express Retirement Advisor Advantage Plus sm Variable 
Annuity (``RAVA Advantage Plus'') and American Express Retirement 
Advisor Select Plus sm Variable Annuity (``RAVA Select 
Plus''). RAVA Advantage Plus and RAVA Select Plus are available as 
nonqualified annuities for after-tax contributions only, or as 
qualified annuities under certain retirement plans. RAVA Advantage 
Plus--Band 3 and RAVA Select Plus--Band 3 are available to current or 
retired employees of AEFC and their spouses; current or retired 
American Express financial advisors and their spouses; or individuals 
who, with IDS Life's approval, invest an initial purchase payment of 
$1,000,000 or more (collectively, the ``Band 3 Contracts''). These 
Amended Contracts reflect certain differences from the IDS Life Account 
Existing Contracts. The primary differences between the IDS Life 
Account Existing Contracts and the Amended Contracts are as follows:

a. Purchase Payments

    Under the Existing Contracts, the owner may allocate initial and 
subsequent additional payments (``Purchase Payments'') to the 
subaccounts or fixed account in even 1% increments. Under the Amended 
Contracts, the Owner may allocate Purchase Payments to the subaccounts, 
fixed account and/or special dollar-cost averaging account in even 1% 
increments. IDS Life reserves the right to not accept Purchase Payments 
allocated to the fixed account for twelve months following either: a 
partial surrender from the fixed account; or a lump sum transfer from 
the fixed account to a subaccount.

b. Credits

    Under the Existing Contracts, the Credits are 1% of each Purchase 
Payment received if the owner selected the ten-year contingent deferred 
sales charge (``CDSC'') schedule and the initial Purchase Payment is 
under $100,000 or if the owner selected the seven-year CDSC schedule 
and the initial Purchase Payment is at least $100,000; 2% of each 
Purchase Payment received if the owner selected the ten-year CDSC 
schedule and the initial Purchase Payment is at least $100,000. For 
RAVA Advantage Plus, the Credits are 1% of each Purchase Payment 
received if the owner selected the ten-year CDSC schedule and the 
initial Purchase Payment is under $100,000 or if the owner selected the 
seven-year

[[Page 4325]]

CDSC schedule and the initial Purchase Payment is at least $100,000 but 
less than $1,000,000; 2% of each Purchase Payment received if the owner 
selected the ten-year CDSC schedule and the initial Purchase Payment is 
at least $100,000 but less than $1,000,000. For RAVA Advantage Plus--
Band 3 Contracts, the Credits are 2% of each Purchase Payment received 
if the owner selected the seven-year CDSC schedule; 3% of each Purchase 
Payment received if the owner selected the ten-year CDSC schedule. For 
RAVA Select Plus, the Credits are 1% of each Purchase Payment received 
in the first contract year if the initial Purchase Payment is at least 
$250,000 but less than $1,000,000. For RAVA Select Plus--Band 3 
Contracts, the Credits are 2% of each Purchase Payment received in the 
first contract year.

c. Recapture of Credits

    Under the Existing Contracts, IDS Life may recapture Credits if: 
(i) The owner returns the Existing Contract during the free look period 
which is the period during which an owner may return an Existing 
Contract after it has been delivered and receive a full refund of the 
contract value, less the amount of any Credits; (ii) credits were 
applied within twelve months preceding the date of death that results 
in a lump sum death benefit; or (iii) credits were applied within 
twelve months preceding a request for surrender due to the following 
Contingent Events where no CDSC is incurred: (a) Owner's or annuitant's 
confinement to a nursing home when IDS Life waives surrender charges 
that normally are assessed upon a full or partial surrender if the 
owner provides satisfactory proof that, as of the date of the surrender 
request, the owner or annuitant is confined to a nursing home or 
hospital and has been for the prior 90 days, and the confinement began 
after the contract date; (b) terminal illness when IDS Life would waive 
surrender charges that normally are assessed upon a full or partial 
surrender if the owner or annuitant is diagnosed, in the second or 
later contract years, as disabled with a medical condition that with 
reasonable medical certainty will result in death within twelve months 
or less from the date of a licensed physician's statement; (c) 
disability when IDS Life would waive surrender charges that normally 
are assessed upon a full or partial surrender if the owner or annuitant 
becomes disabled, within the meaning of the Internal Revenue Code 
Section 72(m)(7), after the contract date; or (d) unemployment when IDS 
Life would waive surrender charges that normally are assessed upon a 
full or partial surrender if the owner or annuitant becomes unemployed 
at least one year after the contract date.
    Under the Amended Contracts, IDS Life proposes to recapture Credits 
if: (i) The owner returns the Amended Contract during the free look 
period which is the period during which an owner may return an Amended 
Contract after it has been delivered and receive a full refund of the 
contract value, less the amount of any Credits; (ii) credits were 
applied within twelve months preceding the date of death that results 
in a lump sum death benefit; (iii) credits were applied within twelve 
months preceding settlement under an annuity payout plan; or (iv) 
credits were applied within twelve months preceding a request for 
surrender due to either of the following Contingent Events where no 
CDSC is incurred: (a) Owner or owner's spouse's confinement to a 
nursing home when IDS Life waives surrender charges that normally are 
assessed upon a full or partial surrender if the owner provides 
satisfactory proof that, as of the date of the surrender request, the 
owner or owner's spouse is confined to a nursing home or hospital and 
has been for the prior 60 days, and the confinement began after the 
contract date or (b) terminal illness when IDS Life would waive 
surrender charges that normally are assessed upon a full or partial 
surrender if the owner is diagnosed, in the second or later contract 
years, as disabled with a medical condition that with reasonable 
medical certainty will result in death within twelve months or less 
from the date of a licensed physician's statement.
    With respect to settlement of the Amended Contracts under an 
annuity payout plan, to the extent the settlement amount includes 
Credits applied within twelve months preceding the settlement under an 
annuity payout plan, IDS Life proposes to assess a charge, similar to a 
surrender charge, equal to the amount of the Credits. Under the current 
Amended Contracts, the settlement amount available to the owner to 
purchase payouts under an annuity payout plan is the full contract 
value on the settlement date (less any applicable premium tax). IDS 
Life respectfully requests that the exemptive relief for recapture of 
certain Credits upon settlement under an annuity payout plan be 
extended to include Future Amended Contracts that may permit partial 
settlement under an annuity payout plan in addition to full settlement 
under an annuity payout plan as provided for in the current Amended 
Contracts.

d. Investment Funds

    The Existing Contracts have between 47 and 56 Investment Funds from 
21 fund families (depending on the Existing Contract) to which owners 
may allocate their contract values. The Amended Contracts have 54 
Investment Funds from 18 fund families.

e. CDSC Schedules

    The Existing Contracts have the following CDSC Schedules:

   [Contingent deferred sales load as a percentage of purchase payment
                              surrendered]
------------------------------------------------------------------------
              Seven-year schedule                   Ten-year schedule
------------------------------------------------------------------------
                                                 Number of
                                                 completed
                                    Surrender    years from   Surrender
  Number of completed years from      charge      date of       charge
  date of each purchase payment     percentage      each      percentage
                                                  purchase
                                                  payment
------------------------------------------------------------------------
0................................            7            0            8
1................................            7            1            8
2................................            7            2            8
3................................            6            3            7
4................................            5            4            7
5................................            4            5            6
6................................            2            6            5
7+...............................            0            7            4
                                                          8            3

[[Page 4326]]

 
                                                          9            2
                                                        10+            0
------------------------------------------------------------------------

    Under the Amended Contracts, the RAVA Advantage Plus Contracts have 
the same seven-year and ten-year CDSC schedules as the Existing 
Contracts noted above.
    The RAVA Select Plus Contracts have the following CDSC schedules:

            CDSC Schedule for RAVA Select Plus (Except Texas)
   [Contingent deferred sales load as a percentage of purchase payment
                              surrendered]
------------------------------------------------------------------------
                                                             Surrender
                Years from contract date                      charge
                                                            percentage
------------------------------------------------------------------------
1.......................................................               7
2.......................................................               7
3.......................................................               7
Thereafter..............................................               0
------------------------------------------------------------------------


                                   CDSC Schedule for RAVA Select Plus in Texas
                                        [Contingent deferred sales load]
----------------------------------------------------------------------------------------------------------------
                                                                   1            2            3        Thereafter
----------------------------------------------------------------------------------------------------------------
Payments made in contract year                                  Surrender charge percentage (as a percentage of
                                                                purchase payments surrendered in contract year)
-------------------------------------------------------------
1...........................................................           8%           7%           6%           0%
2...........................................................  ...........            8            7            0
3...........................................................  ...........  ...........            8            0
Thereafter..................................................  ...........  ...........  ...........            0
----------------------------------------------------------------------------------------------------------------

f. Transfers

    Under both the Existing Contracts and the Amended Contracts, the 
owner may transfer contract values between the subaccounts, or from the 
subaccounts to the fixed account at any time. Certain restrictions 
apply with respect to the timing of transfers from the fixed account. 
However, under the Amended Contracts, IDS Life reserves the right to 
limit transfers to the fixed account if the current interest crediting 
rate is equal to the minimum interest rate stated in the Amended 
Contract. Currently transfers out of the fixed account are limited to 
the greater of 30% of the fixed account value at the beginning of the 
contract year or the amount transferred out of the fixed account in the 
previous contract year, excluding automated transfers.

g. All Standard and Optional Death Benefits

    Under the Existing Contracts, payment to the beneficiary occurs 
upon the earlier of the owner or annuitant's death and benefits are 
based on the age of both the owner and annuitant. Under the Amended 
Contracts, payment to the beneficiary occurs upon the owner's death and 
benefits are based on the age of the owner.

h. Standard Death Benefit

    Under the Existing Contracts, if the owner and annuitant are age 80 
or younger on the date of death, the death benefit is the greatest of: 
the contract value; the contract value as of the most recent sixth 
contract anniversary plus subsequent Purchase Payments less adjusted 
partial surrenders; or Purchase Payments less adjusted partial 
surrenders. If the owner or annuitant is age 81 or older on the date of 
death, the death benefit is the greatest of: the contract value; or 
Purchase Payments less adjusted partial surrenders. Under the Amended 
Contracts, if the owner is age 75 or younger at contract issue, the 
death benefit is the greater of: the contract value, less Credits 
subject to recapture and less a pro-rata portion of any rider fees; or 
Purchase Payments less adjusted partial surrenders. If the owner is age 
76 or older at contract issue, the death benefit is the contract value 
less Credits subject to recapture and less a pro-rata portion of any 
rider fees.

i. Optional Return of Purchase Payment (``ROPP'') Death Benefit

    The ROPP Death Benefit is not available under the Existing 
Contracts. Under the Amended Contracts, the ROPP Death Benefit is 
available (in approved states) if the owner is age 76 or older at 
contract issue. The ROPP Death Benefit is included in the standard 
death benefit if the owner is age 75 or younger at contract issue at no 
additional cost. The ROPP Death Benefit states that, upon the owner's 
death, before annuity payouts begin and while the Amended Contract is 
in force, IDS Life will pay the designated beneficiary the greater of: 
(i) The contract value, less

[[Page 4327]]

Credits subject to recapture and less a pro-rata portion of any rider 
fees; or (ii) Purchase Payments minus adjusted partial surrenders. The 
current cost of the ROPP Death Benefit is 0.20%. IDS Life reserves the 
right to increase the cost after the tenth rider anniversary to a 
maximum of 0.30%.

j. Optional Maximum Anniversary Value (``MAV'') Death Benefit

    The optional MAV death benefit is available under both the Existing 
and the Amended Contracts. Under the Existing Contracts, the MAV Death 
Benefit is available (in approved states) if both the owner and 
annuitant are age 75 or younger at contract issue. The MAV death 
Benefit states that, upon the earlier of the owner or annuitant's 
death, before annuity payouts begin and while the Existing Contract is 
in force, IDS Life will pay the designated beneficiary the MAV. On the 
first contract anniversary, IDS Life sets the MAV equal to the highest 
of the (i) current contract value; or (ii) total Purchase Payments 
minus adjusted partial surrenders. Every contract anniversary after 
that, through the earlier of the owner's or annuitant's age 80, IDS 
Life compares the previous anniversary's MAV plus subsequent Purchase 
Payments less subsequent adjusted partial surrenders to the current 
contract value and resets the MAV to the higher of these values. IDS 
Life stops resetting the MAV after the owner or annuitant reaches age 
81. However, IDS Life continues to add subsequent Purchase Payments and 
subtract adjusted partial surrenders from the MAV. The current cost of 
the optional MAV Death Benefit under the Existing Contracts is 0.25% 
(0.15% for Existing Contracts purchased prior to May 1, 2003). IDS Life 
reserves the right to increase this cost on new Existing Contracts up 
to a maximum of 0.45%.
    Under the Amended Contracts, the MAV Death Benefit is available (in 
approved states) if the owner is age 75 or younger at contract issue. 
On the first contract anniversary after the rider effective date, IDS 
Life sets the MAV equal to the highest of the (i) current contract 
value; or (ii) total Purchase Payments minus adjusted partial 
surrenders. Every contract anniversary after that through age 80, IDS 
Life compares the previous anniversary's MAV plus subsequent Purchase 
Payments less subsequent adjusted partial surrenders to the current 
contract value and resets the MAV to the higher of these values. IDS 
Life stops resetting the MAV after the owner reaches age 81. However, 
IDS Life continues to add subsequent Purchase Payments and subtract 
adjusted partial surrenders from the MAV. The MAV Death Benefit states 
that, upon the owner's death, before annuity payouts begin and while 
the Amended Contract is in force, IDS Life will pay the designated 
beneficiary the greatest of (i) contract value, less Credits subject to 
recapture and less a pro-rata portion of any rider fees; (ii) Purchase 
Payments minus adjusted partial surrenders; or (iii) the MAV value as 
calculated on the most recent contract anniversary plus subsequent 
Purchase Payments made to the Amended Contract and minus adjustments 
for partial surrenders since that contract anniversary. The current 
cost of the optional MAV death benefit under the Amended Contracts is 
0.25%. IDS Life reserves the right to increase this cost after the 
tenth rider anniversary to a maximum of 0.35%. A fee discount of 0.10% 
applies if the owner purchases the MAV Death Benefit with either the 
EEB or EEP.

k. Optional Maximum Five-Year Anniversary Value (``5-Year MAV'') Death 
Benefit

    The Amended Contracts also contain a new optional benefit that 
currently is not available under the Existing Contracts. The 5-Year MAV 
Death Benefit is available (in approved states) if the owner is age 75 
or younger at contract issue. On the fifth contract anniversary after 
the rider effective date, IDS Life sets the MAV equal to the highest of 
the (i) current contract value; or (ii) total Purchase Payments minus 
adjusted partial surrenders. Every fifth contract anniversary after 
that through age 80, IDS Life compares the previous 5-Year 
anniversary's MAV plus subsequent Purchase Payments less subsequent 
adjusted partial surrenders to the current contract value and resets 
the MAV to the higher of these values. IDS Life stops resetting the MAV 
after the owner reaches age 81. However, IDS Life continues to add 
subsequent Purchase Payments and subtract adjusted partial surrenders 
from the MAV. The 5-Year MAV Death Benefit states that, upon the 
owner's death, before annuity payouts begin and while the Amended 
Contract is in force, IDS Life will pay the designated beneficiary the 
greatest of (i) contract value, less Credits subject to recapture and 
less a pro-rata portion of any rider fees; or (ii) Purchase Payments 
minus adjusted partial surrenders; or (iii) the MAV as calculated on 
the most recent fifth contract anniversary plus subsequent Purchase 
Payments made to the Amended Contract minus adjustments for partial 
surrenders since that contract anniversary. The current cost of the 5-
Year MAV Death Benefit is 0.10%. IDS Life reserves the right to 
increase this cost after the tenth rider anniversary to a maximum of 
0.20%. A fee discount of 0.05% applies if the owner purchases the 5-
Year MAV Death Benefit with either the EEB or EEP.

l. Optional Enhanced Earnings Death Benefit (``EEB'')

    The optional EEB is available under both the Existing Contracts and 
the Amended Contracts. Under the Existing Contracts, the EEB is 
available (in approved states) if both the owner and annuitant are age 
75 or younger at the rider effective date. The EEB states that, upon 
the earlier of the owner's or annuitant's death, after the first 
contract anniversary but before annuity payouts begin and while the 
Existing Contract is in force, IDS Life will pay the designated 
beneficiary the standard death benefit or the MAV Death Benefit, if 
applicable, plus: (i) 40% of earnings at death if the owner and the 
annuitant were under age 70 on the rider effective date, up to a 
maximum of 100% of Purchase Payments not previously surrendered that 
are one or more years old; or (ii) 15% of earnings at death if the 
owner or the annuitant were age 70 to 75 on the rider effective date, 
up to a maximum of 37.5% of Purchase Payments not previously 
surrendered that are one or more years old. The current cost of the EEB 
under the Existing Contracts is 0.30%. IDS Life reserves the right to 
increase this cost on new Existing Contracts up to a maximum of 0.90%.
    Under the Amended Contracts, the EEB is available (in approved 
states) if the owner is age 75 or younger at the rider effective date. 
The EEB states that, upon the owner's death, after the first contract 
anniversary but before annuity payouts begin and while the Amended 
Contract is in force, IDS Life will pay the designated beneficiary the 
standard death benefit or the MAV Death Benefit, if applicable, or 5-
Year MAV Death Benefit, if applicable, plus: (i) 40% of earnings at 
death if the owner was under age 70 on the rider effective date, up to 
a maximum of 100% of Purchase Payments not previously surrendered that 
are one or more years old; or (ii) 15% of earnings at death if the 
owner was age 70 to 75 on the rider effective date, up to a maximum of 
37.5% of Purchase Payments not previously surrendered that are one or 
more years old. The current cost of the EEB under the Amended Contracts 
is 0.30%. IDS Life reserves the right to increase this cost after the 
tenth rider anniversary to a maximum of 0.40%. A fee discount of 0.10% 
applies if the owner purchases

[[Page 4328]]

the MAV Death Benefit with the EEB and a fee discount of 0.05% applies 
if the owner purchases the 5-Year MAV Death Benefit with the EEB.

m. Optional Enhanced Earnings Plus Death Benefit (``EEP'')

    The optional EEP is available under both the Existing Contracts and 
the Amended Contracts. Under the Existing Contracts, the EEP is 
available (in approved states) if both the owner and annuitant are age 
75 or younger at contract issue. The EEP is available only under 
Existing Contracts purchased through an exchange. The EEP states that, 
upon the earlier of the owner's or annuitant's death, after the first 
contract anniversary but before annuity payouts begin and while this 
Existing Contract is in force, IDS Life will pay the designated 
beneficiary: (i) EEP Part I benefits, which equal the benefits payable 
under the EEB described above; plus (ii) EEP Part II benefits, which 
equal a percentage of exchanged Purchase Payments identified at issue 
and not previously surrendered as follows:

------------------------------------------------------------------------
                                           Percentage if   Percentage if
                                             owner and       owner or
                                           annuitant are   annuitant are
              Contract year                under age 70    age 70-75 on
                                           on the rider      the rider
                                          effective date  effective date
------------------------------------------------------------------------
One and Two.............................               0               0
Three and Four..........................              10            3.75
Five or more............................              20             7.5
------------------------------------------------------------------------

    Additional death benefits payable under the EEP are not included in 
the adjusted partial surrender calculation. The current cost of the EEP 
under the Existing Contracts is 0.40%. IDS Life reserves the right to 
increase this cost on new Existing Contracts up to a maximum of 1.25%.
    Under the Amended Contracts, the EEP is available (in approved 
states) if the owner is age 75 or younger at contract issue. The EEP 
states that, upon the owner's death, after the first contract 
anniversary but before annuity payouts begin and while the Amended 
Contract is in force, IDS Life will pay the designated beneficiary: (i) 
EEP Part I benefits, which equal the benefits payable under the EEB 
described above; plus (ii) EEP Part II benefits, which equal a 
percentage of exchanged Purchase Payments identified at issue and not 
previously surrendered as follows:

------------------------------------------------------------------------
                                           Percentage if   Percentage if
                                          owner is under   owner is age
              Contract year                age 70 on the   70-75 on the
                                               rider           rider
                                          effective date  effective date
------------------------------------------------------------------------
One and Two.............................               0               0
Three and Four..........................              10            3.75
Five or more............................              20             7.5
------------------------------------------------------------------------

    Additional death benefits payable under the EEP are not included in 
the adjusted partial surrender calculation. The current cost of the EEP 
under the Amended Contracts is 0.40%. IDS Life reserves the right to 
increase this cost after the tenth rider anniversary to a maximum of 
0.50% A fee discount of 0.10% applies if the owner purchases the MAV 
Death Benefit with the EEP and a fee discount of 0.05% applies if the 
owner purchases the 5-Year MAV Death Benefit with the EEP.

n. Other Charges

    The Existing Contracts contain the following additional charges: 
(i) A mortality and expense risk fee of 0.95% for nonqualified 
annuities and 0.75% for qualified annuities; (ii) a $30 annual contract 
administrative charge that IDS Life waives when the contract value, or 
total Purchase Payments less any Purchase Payments surrendered, is 
$50,000 or more on the current contract anniversary, except at full 
surrender; and (iii) a premium tax charge of up to 3.5% depending on 
the owner's state of residence or the state in which the Existing 
Contract was sold. In addition, assets invested in Investment Funds are 
charged with the annual operating expenses of those Funds.
    The Amended Contracts contain the following additional charges: (i) 
A mortality and expense risk fee for RAVA Advantage Plus of 0.95% for 
nonqualified annuities, 0.75% for qualified annuities and 0.55% for 
Band 3 Contracts and a mortality and expense risk fee for RAVA Select 
Plus of 1.20% for nonqualified annuities, 1.00% for qualified annuities 
and 0.75% for Band 3 Contracts; (ii) a current $30 annual contract 
administrative charge (which IDS Life reserves the right to increase 
after the first contract anniversary to a maximum of $50) that IDS Life 
waives when the contract value, or total Purchase Payments less any 
Purchase Payments surrendered, is $50,000 or more on the current 
contract anniversary, except at full surrender; and (iii) a premium tax 
charge of up to 3.5% depending on the owner's state of residence or the 
state in which the Amended Contract was sold. In addition, assets 
invested in Investment Funds are charged with the annual operating 
expenses of those Funds.

o. Other Contract Features

    The Existing Contracts and the Amended Contracts provide for the 
same surrender options, annuity payout options, dollar-cost averaging 
program and asset-rebalancing program. In addition, the Amended 
Contracts provide for a special dollar-cost averaging program. The 
Insurance Companies reserve the right to add new Contract features, 
including asset allocation programs, to Future Contracts and/or Future 
Amended Contracts.

Applicants' Legal Analysis

    1. Section 6(c) of the Act authorizes the Commission 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

[[Page 4329]]

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.
    2. Applicants request that the Commission issue an amended order 
pursuant to Section 6(c) from Sections 2(a)(32), 22(c), and 27(i)(2)(A) 
of the Act and Rule 22c-1 thereunder to the extent deemed necessary to 
permit the Insurance Companies to recapture certain Credits under 
substantially the same circumstances described in the Prior Application 
as well as certain additional circumstances, specifically: (i) Any 
Credits applied when an owner returns a New Contract to an Insurance 
Company for a refund during the free look period; (ii) Credits applied 
within twelve months preceding the date of death that results in a lump 
sum death benefit (including death benefits under optional death 
benefit riders); (iii) Credits applied within twelve months preceding a 
request for a surrender charge waiver due to Contingent Events 
described in the New Contracts; and (iv) Credits applied within twelve 
months preceding the owner's full settlement of the Amended Contract or 
full or partial settlement of a Future Amended Contract under an 
annuity payout plan. The amount an Insurance Company pays under these 
circumstances will always equal or exceed the surrender value.
    3. Applicants represent that it is not administratively feasible to 
track the Credit amount in the Accounts after the Credit is applied. 
Accordingly, the asset-based charges applicable to the Accounts will be 
assessed against the entire amounts held in the respective Accounts, 
including the Credit amount, during the free look period and the 
twelve-month recapture periods. As a result, during such periods, the 
aggregate asset-based charges assessed against an owner's contract 
value will be higher than those that would be charged if the owner's 
contract value did not include the Credit.
    4. Subsection (i) of Section 27 of the Act provides that Section 27 
does not apply to any registered separate account funding variable 
insurance contracts, or to the sponsoring insurance company and 
principal underwriter of such account, except as provided in paragraph 
(2) of the subsection. Paragraph (2) provides that it shall be unlawful 
for such a separate account or sponsoring insurance company to sell a 
contract funded by the registered separate account unless such contract 
is a redeemable security. Section 2(a)(32) defines ``redeemable 
security'' as any security, other than short-term paper, under the 
terms of which the holder, upon presentation to the issuer, is entitled 
to receive approximately his proportionate share of the issuer's 
current net assets, or the cash equivalent thereof.
    5. Applicants submit that the recapture of the Credit amount in the 
circumstances set forth in the application would not deprive an owner 
of his or her proportionate share of the issuer's current net assets. 
An owner's interest in the Credit amount allocated to his or her 
contract value upon receipt of an initial Purchase Payment is not 
vested until the applicable free look period has expired without return 
of the New Contract. Similarly, an owner's interest in the Credit 
amounts allocated to his or her New Contract within twelve months 
preceding a Contingent Event or settlement under an annuity payout plan 
also is not vested. Applicants submit that until the right to recapture 
has expired and any Credit amount is vested, the Insurance Companies 
retain the right and interest in the Credit amount, although not in the 
earnings attributable to that amount. Thus, when the Insurance 
Companies recapture any Credit, they are merely retrieving their own 
assets, and the owner has not been deprived of a proportionate share of 
the applicable Account's assets because his or her interest in the 
Credit amount has not vested.
    6. In addition, Applicants believe that permitting an owner to 
retain a Credit amount under a New Contract upon the exercise of the 
free look period would not only be unfair, but also would encourage 
individuals to purchase a New Contract with no intention of keeping it 
and returning it for a quick profit. Applicants submit that the 
recapture of Credit amounts within twelve months preceding a Contingent 
Event and within twelve months of settlement under an annuity payout 
plan is designed to provide the Insurance Companies with a measure of 
protection against anti-selection. The anti-selection risk is that an 
owner can collect a Credit shortly before death, a Contingent Event or 
settlement under an annuity payout plan thereby leaving the Insurance 
Companies little time to recover the cost of the Credit. As noted 
earlier, the amounts recaptured equal the Credits provided by the 
Insurance Companies from their general account assets, and any gain 
would remain a part of the owner's contract value. In addition, the 
amount the owner receives in any of the circumstances where Credits are 
recaptured will always equal or exceed the surrender value of the New 
Contract.
    7. For the foregoing reasons, Applicants submit that the provisions 
for recapture of any Credit under the Amended Contracts does not, and 
any Future Amended Contract provisions will not, violate Section 
2(a)(32) and 27(i)(2)(A) of the Act. Applicants believe that a contrary 
conclusion would be inconsistent with a stated purpose of the National 
Securities Markets Improvement Act of 1996 (``NSMIA''), which is to 
amend the Act to ``provide more effective and less burdensome 
regulation.'' Sections 26(e) and 27(i) were added to the Act to 
implement the purposes of NSMIA and Congressional intent. To avoid any 
uncertainty as to full compliance with the Act, Applicants request an 
exemption from Section 2(a)(32) and 27(i)(2)(A), to the extent deemed 
necessary, to permit the recapture of any Credit under the 
circumstances described in the application with respect to New 
Contracts, without the loss of relief from Section 27 provided by 
Section 27(i).
    8. Section 22(c) of the Act authorizes the Commission to make rules 
and regulations applicable to registered investment companies and to 
principal underwriters of, and dealers in, the redeemable securities of 
any registered investment company to accomplish the same purposes as 
contemplated by Section 22(a). Rule 22c-1 thereunder prohibits a 
registered investment company issuing any redeemable security, a person 
designated in such issuer's prospectus as authorized to consummate 
transactions in any such security, and a principal underwriter of, or 
dealer in, such security, from selling, redeeming, or repurchasing any 
such security except at a price based on the current net asset value of 
such security which is next computed after receipt of a tender of such 
security for redemption or of an order to purchase or sell such 
security.
    9. Applicants represent that the Insurance Companies' recapture of 
the Credit might arguably be viewed as resulting in the redemption of 
redeemable securities for a price other than one based on the current 
net asset value of the Accounts. Applicants contend, however, that the 
recapture of the Credit does not violate Section 22(c) and Rule 22c-1.
    10. Applicants submit that the recapture of the Credit does not 
involve either of the evils that Rule 22c-1 was intended to eliminate 
or reduce as far as reasonably practicable, namely: (i) The dilution of 
the value of outstanding redeemable securities of registered investment 
companies through their sale at a price below net asset value or

[[Page 4330]]

redemption or repurchase at a price above it, and (ii) other unfair 
results, including speculative trading practices. These evils were the 
result of backward pricing, the practice of basing the price of a 
mutual fund share on the net asset value per share determined as of the 
close of the market on the previous day. Backward pricing allowed 
investors to take advantage of increases or decreases in net asset 
value that were not yet reflected in the price, thereby diluting the 
values of outstanding mutual fund shares.
    11. Applicants submit that the proposed recapture of the Credit 
does not pose such a threat of dilution. To effect a recapture of a 
Credit, the Insurance Companies will redeem interests in an owner's 
account at a price determined on the basis of the current net asset 
value of that account. The amount recaptured will equal the amount of 
the Credit that the Insurance Companies paid out of their general 
account assets. Although the owner will be entitled to retain any 
investment gain attributable to the Credit, the amount of that gain 
will be determined on the basis of the current net asset value of the 
Account. Thus, no dilution will occur upon the recapture of the Credit. 
Applicants also submit that the second harm that Rule 22c-1 was 
designed to address, namely speculative trading practices calculated to 
take advantage of backward pricing, will not occur as a result of the 
recapture of the Credit.
    12. Applicants submit that because neither of the harms that Rule 
22c-1 was meant to address is found in the recapture of the Credit, 
Rule 22c-1 and Section 22(c) should not apply to any Credit. However, 
to avoid any uncertainty as to full compliance with the Act, Applicants 
request an exemption from the provisions of Section 22(c) and Rule 22c-
1 to the extent deemed necessary to permit them to recapture the Credit 
under the New Contracts.
    13. Applicants request an amended order pursuant to Section 6(c) 
from Sections 2(a)(32), 22(c), and 27(i)(2)(A) of the Act and Rule 22c-
1 thereunder to the extent deemed necessary to permit the Insurance 
Companies to issue the New Contracts, allowing the Insurance Companies 
to offer and, where applicable, to recapture any Credits as described 
herein. Applicants represent that the Credit will be attractive to and 
in the interest of investors because it will permit owners to put up to 
103% of their Purchase Payments to work for them in the selected 
Investment Funds. In addition, the owner will retain any earnings 
attributable to the Credit, as well as the principal Credit amount once 
vested after the twelve-month recapture period.
    14. Applicants further submit that the recapture of any Credit only 
applies in relation to the risk of anti-selection against the Insurance 
Companies. In the context of the Contingent Events described in the 
Prior Application or Contingent Events or settlement under an annuity 
payout plan described in the application, anti-selection can generally 
be described as a risk that New Contract owners obtain an undue 
advantage based on elements of fairness to the Insurance Companies and 
the actuarial and other factors they take into account in designing the 
New Contracts. Applicants submit that there is no difference in the 
risk of anti-selection arising from settlement under an annuity payout 
plan as described in the application and the risk of anti-selection 
discussed in the Prior Application with respect to Contingent Events. 
The Insurance Companies provide the Credits from their general account 
on a guaranteed basis. Thus, the Insurance Companies undertake a 
financial obligation that contemplates the retention of the New 
Contracts by their owners for at least the duration of the CDSC period. 
The Insurance Companies generally expect to recover their costs, 
including Credits, over an anticipated duration while a New Contract is 
in force. The right to recapture Credits applied to Purchase Payments 
made within twelve months preceding settlement under an annuity payout 
plan protects the Insurance Companies against the risk that an owner 
will make additional Purchase Payments or purchase a New Contract with 
the knowledge that he or she is about to settle the New Contract under 
an annuity payout plan.
    15. Applicants represent that with respect to refunds paid upon the 
return of the New Contracts within the free look period, the amount 
payable by the Insurance Companies must be reduced by the Credit 
amount. Otherwise, purchasers could apply for New Contracts for the 
sole purpose of exercising the free look provision and making a quick 
profit.

Conclusion

    Applicants submit that their request for an amended order that 
applies to the Accounts or any other Future Accounts established by the 
Insurance Companies in connection with the issuance of Amended 
Contracts and Future Amended Contracts that are substantially similar 
in all material respects to the Amended Contracts described herein 
(including the Contingent Events and settlement under an annuity payout 
plan described in the application), and underwritten or distributed by 
IDS Life, AEFA, or Affiliated Broker-Dealers is appropriate in the 
public interest. Such an amended order would promote competitiveness in 
the variable annuity market by eliminating the need to file redundant 
exemptive applications, thereby reducing administrative expenses and 
maximizing the efficient use of Applicants' resources. Investors would 
not receive any benefit or additional protection by requiring 
Applicants to repeatedly seek exemptive relief that would present no 
issue under the Act that has not already been addressed in the 
application. Having Applicants file additional applications would 
impair Applicants' 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 the application, investors would not receive any benefit 
or additional protection thereby.
    Applicants undertake that Future Amended Contracts funded by the 
Accounts, or by Future Accounts, which seek to rely on the amended 
order will be substantially similar in all material respects to the 
Amended Contracts.
    Section 6(c) of the Act, in pertinent part, provides that the 
Commission, by order upon application, may conditionally or 
unconditionally exempt any persons, security or transaction, or any 
class or classes of persons, securities or transactions, from any 
provision or provisions of the Act, or any rule or regulation 
thereunder, 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. Applicants submit, for the reasons stated 
herein, that their exemptive requests meet the standards set out in 
Section 6(c) and that an amended order should, therefore, be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-1919 Filed 1-28-04; 8:45 am]
BILLING CODE 8010-01-P