[Federal Register Volume 71, Number 179 (Friday, September 15, 2006)]
[Notices]
[Pages 54532-54536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-15298]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27478; File No. 812-13022]


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

September 8, 2006.
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 (``1940 Act'') 
granting exemptions from the provisions of Sections 2(a)(32), 22(c) and 
27(i)(2)(A) of the 1940 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''), Ameriprise Financial Services, Inc.\1\ (``Ameriprise 
Financial Services''), IDS

[[Page 54533]]

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'').
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    \1\ Formerly American Express Financial Advisors Inc.
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    Summary of Application: Applicants seek an order (``2006 Order'') 
to amend Existing Orders (described below) to grant exemptions from the 
provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the 1940 Act 
and Rule 22c-1 thereunder to the extent necessary to permit Applicants 
to recapture certain credits applied to purchase payments made under: 
(i) Certain additional new or enhanced deferred variable annuity 
contracts (including certain data pages and endorsements) that the 
Insurance Companies propose to issue through the Accounts (``2006 
Contracts''); and; (ii) certain additional, amended contracts 
(including certain data pages and endorsements) that the Insurance 
Companies may in the future issue through the Accounts or any future 
accounts (``2006 Future Accounts'') that are substantially similar in 
all material respects to the 2006 Contracts described in the 
Application for 2006 Order (``2006 Future Contracts'' and, together 
with the 2006 Contracts, the ``2006 New Contracts''). Applicants also 
request that the 2006 Order being sought extend to the ``Affiliated 
Broker-Dealers,'' as defined in the applications for the Existing 
Orders (described below) (``Prior Applications'') and to any successors 
in interest to Applicants.\2\
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    \2\ Successors in interest is defined as any entity or entities 
that result from a reorganization, a merger, a change in control or 
a change in the type of business organization.
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    Filing Date: The application was filed on May 15, 2006 and amended 
and restated on August 21, 2006.
    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 October 3, 2006 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, 100 F Street, 
NE., Washington, DC 20549. 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) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Public Reference Branch of the Commission, 100 F Street, NE., 
Washington, DC 20549 (202-551-8090).

Applicant's Representations

    1. On January 19, 2000, the Commission issued an order pursuant to 
Section 6(c) of the 1940 Act exempting certain transactions of 
Applicants from the provisions of Sections 2(a)(32), 22(c) and 
27(i)(2)(A) of the 1940 Act and Rule 22c-1 thereunder (``January 2000 
Order'').\3\ The January 2000 Order specifically permits the recapture, 
under specified circumstances, of certain Credits \4\ applied to the 
initial or subsequent additional payments (``Purchase Payments'') made 
under the contracts (``2000 Contracts'') or future contracts (``2000 
Future Contracts'') as defined in the application for the January 2000 
Order.\5\ Specifically, the January 2000 Order permits the recapture of 
Credits: (a) If the owner returns a contract for a refund during the 
free look period; (b) if the Credits were applied within twelve months 
preceding the date of death that results in a lump sum death benefit; 
or (c) if the Credits were applied within twelve months preceding a 
request for a surrender or withdrawal due to one of the following 
Contingent Events: (i) Confinement to a nursing home or hospital; (ii) 
terminal illness; (iii) disability; or (iv) unemployment.
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    \3\ IDS Life Insurance Company, et al., Investment Company Act 
Release No. 24257 (Jan. 19, 2000) (File No. 812-11818).
    \4\ Contracts Covered by Existing Orders (defined below) issued 
by IDS Life and IDS Life of New York offer Credits of up to 3% of 
Purchase Payments received (limited to Purchase Payments received in 
the first contract year under certain contracts covered by Existing 
Orders) depending on the surrender charge schedule selected and the 
amount of the initial purchase payment. Contracts Covered by 
Existing Orders issued by American Enterprise Life offer Credits of 
up to 6% of the net current payment (current Purchase Payment less 
the amount of partial withdrawals that exceed all prior Purchase 
Payments). The percentage amount of the Credit could change for 
enhanced versions of the Contracts Covered by Existing Orders.
    \5\ IDS Life Insurance Company, et al., Investment Company Act 
Release No. 24220 (Dec. 23, 1999) (File No. 812-11818).
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    2. On February 20, 2004, the Commission issued an amended order 
exempting certain additional transactions of Applicants from the 
provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the 1940 Act 
and Rule 22c-1 thereunder (``February 2004 Order'' \6\ and, together 
with the January 2000 Order, the ``Existing Orders''). The February 
2004 Order specifically permits the recapture, under specified 
circumstances, of certain Credits applied to Purchase Payments under 
the amended contracts (``2004 Contracts'') or future amended contracts 
(``2004 Future Contracts'') as defined in the application for the 
February 2004 Order \7\ (the 2000 Contracts, 2004 Contracts, 2000 
Future Contracts and 2004 Future Contracts are collectively the 
``Contracts Covered by Existing Orders'' and the 2000 Future Contracts 
and 2004 Future Contracts are collectively the ``Future Contracts 
Covered by Existing Orders''). Specifically, the February 2004 Order 
permits the recapture of Credits under the same circumstances and under 
the additional circumstance of the owner's full or partial settlement 
under an annuity payout plan.
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    \6\ IDS Life Insurance Company, et al., Investment Company Act 
Release No. 26354 (Feb. 20, 2004) (File No. 812-13022).
    \7\ IDS Life Insurance Company, et al., Investment Company Act 
Release No. 26338 (Jan. 22, 2004) (File No. 812-13022).
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    3. Applicants seek this 2006 Order to grant exemptions from the 
provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the 1940 Act 
and Rule 22c-1 thereunder to the extent necessary to permit Applicants 
to recapture certain Credits applied to Purchase Payments made under 
the 2006 Contracts. IDS Life and IDS Life of New York offer two new 
2006 Contracts under which Credits will be available, RiverSource 
Retirement Advisor 4 AdvantageSM Variable Annuity (``RAVA 4 
Advantage'') and RiverSource Retirement Advisor 4 SelectSM 
Variable Annuity (``RAVA 4 Select''). RAVA 4 Advantage and RAVA 4 
Select currently permit the recapture of Credits under the 
circumstances described in the Prior Applications. IDS Life and IDS 
Life of New York propose to recapture Credits applied within twelve 
months preceding the date of death that results in any death benefit 
under those 2006 Contracts in addition

[[Page 54534]]

to recapturing Credits under the same circumstances described in the 
Prior Applications. American Enterprise Life currently offers two 
contracts that constitute Contracts Covered by Existing Orders, Wells 
Fargo Advantage[supreg] Builder Select Variable Annuity (``Wells Fargo 
Select'') and RiverSource Signature One SelectSM Variable 
Annuity (``Signature One Select''). Wells Fargo Select and Signature 
One Select currently permit the recapture of Credits under the same 
circumstances described in the Prior Applications. American Enterprise 
Life proposes to recapture Credits applied within twelve months 
preceding the date of death that results in any death benefit payment 
as a 2006 Contract enhancement to Wells Fargo Select and Signature One 
Select.
    4. The respective Accounts will fund the variable benefits 
available under the 2006 Contracts. Units of interest in the Accounts 
under the 2006 Contracts they fund will be registered under the 
Securities Act of 1933. The Insurance Companies may issue 2006 Future 
Contracts through the Accounts. The Insurance Companies also may issue 
2006 Future Contracts through Future Accounts. That portion of the 
respective assets of the Accounts that is equal to the reserves and 
other 2006 Contract liabilities with respect to the Accounts is not 
chargeable with liabilities arising out of any other business of the 
Insurance Companies. Any income, gains or losses, realized or 
unrealized, from assets allocated to the Accounts are, in accordance 
with the 2006 Contracts of the respective Accounts, credited to or 
charged against the Accounts, without regard to other income, gains or 
losses of the Insurance Companies. The same will be true of any Future 
Account of the Insurance Companies.
    5. The 2006 Contracts reflect certain differences from the 
Contracts Covered by Existing Orders. However, these differences have 
no impact on the Credits applied or potentially recaptured under the 
2006 Contracts. For this reason, Applicants believe that the 2006 
Contracts are substantially similar in all material respects relevant 
to the Existing Orders such that they constitute Future Contracts 
Covered by Existing Orders. Nevertheless, in view of certain 
differences from the Contracts Covered by Existing Orders and in light 
of Applicants' request to extend the relief under the Existing Orders 
to the recapture of Credits applied within twelve months preceding the 
date of death that results in any death benefit payment, Applicants 
filed the application for a 2006 Order. To avoid any uncertainty 
regarding the availability of such relief with respect to the recapture 
of Credits under the 2006 Contracts under the same circumstances 
described in Prior Applications and under the one additional 
circumstance described in the application for a 2006 Order, Applicants 
note the following differences between the Contracts Covered by 
Existing Orders and the 2006 Contracts:

a. Recapture of Credits

    Under the Contracts Covered by Existing Orders, the Insurance 
Companies allocate Credits up to a total of 6% to the owner's account 
when they receive Purchase Payments. The Insurance Companies currently 
are permitted to recapture Credits from an owner under the following 
circumstances: (i) Any Credits applied if the owner returns a Contract 
Covered by Existing Orders 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; (iii) Credits applied within 
twelve months preceding a request for a surrender or withdrawal due to 
the following Contingent Events: Confinement of the owner, owner's 
spouse or annuitant, as applicable, to a nursing home or hospital and 
terminal illness; \8\ and (iv) the owner's full or partial settlement 
of the Contract Covered by Existing Orders under an annuity payout 
plan. The amount the Insurance Companies pay under these circumstances 
will always equal or exceed the surrender or withdrawal value. Under 
the 2006 Contracts, the Insurance Companies intend to recapture Credits 
up to a total of 6% under the same circumstances described above for 
the Contracts Covered by Existing Orders and propose to recapture 
Credits applied within twelve months preceding the date of death that 
results in a death benefit payment of any kind.\9\
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    \8\ Under the Existing Orders, the Insurance Companies also have 
the authority to recapture Credits from an owner under the 
disability or unemployment Contingent Events.
    \9\ IDS Life, IDS Life of New York and American Enterprise Life 
do not assess surrender or withdrawal charges (contingent deferred 
sales charges) on death benefits available under the Contracts 
Covered by the 2006 Contracts.
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b. Investment Funds

    The 2006 Contracts will add subaccounts to their respective 
Accounts that will invest in some Investment Funds (as defined in the 
Prior Applications) not currently offered under the Contracts Covered 
by Existing Orders. The Insurance Companies, at a later date, may 
decide to substitute the Investment Funds in which the subaccounts 
invest. The Insurance Companies also may create additional subaccounts 
to invest in any additional Investment Funds as may now or in the 
future be available. The Insurance Companies, from time to time, also 
may combine or eliminate subaccounts, or transfer assets to and from 
subaccounts. Similarly, 2006 Future Contracts may offer additional or 
different subaccounts.

c. Mortality and Expense Risk Fees

    The mortality and expense risk fees for RAVA 4 Advantage and RAVA 4 
Select are higher than the fees for the earlier generations of RAVA 4 
Advantage and RAVA 4 Select which are Contracts Covered by Existing 
Orders. The mortality and expense risk fees are as follows:

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                                        Earlier
                                    generations of      Earlier
                                        RAVA 4      generations of     RAVA 4 advantage        RAVA 4 select
                                       advantage     RAVA 4 select
                                       (percent)       (percent)
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Nonqualified Annuities............            0.95            1.20  1.05%................  1.30%.
Qualified Annuities...............            0.75            1.00  0.85%................  1.10%.
Band 3 Annuities (described below)            0.55            0.75  No separate fee:       No separate fee:
                                                                     1.05% for              1.30% for
                                                                     nonqualified           nonqualified
                                                                     annuities and 0.85%    annuities and 1.10%
                                                                     for qualified          for qualified
                                                                     annuities.             annuities.
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[[Page 54535]]

d. Band 3 Annuities

    Some of the earlier generations of RAVA 4 Advantage and RAVA 4 
Select offer Band 3 annuities which are available to current or retired 
employees of Ameriprise Financial and their spouses; current or retired 
Ameriprise Financial advisors and their spouses; or individuals who, 
with the approval of IDS Life or IDS Life of New York, as applicable, 
invest an initial purchase payment of $1,000,000 or more. Under RAVA 4 
Advantage and RAVA 4 Select, Band 3 annuities will be available to 
current or retired employees of Ameriprise Financial and their spouses 
or domestic partners; current or retired Ameriprise Financial advisors 
and their spouses or domestic partners; or individuals who, with the 
approval of IDS Life or IDS Life of New York, as applicable, invest an 
initial purchase payment of $1,000,000 or more.

e. Living Benefits

    Both the Contracts Covered by Existing Orders and the 2006 
Contracts offer a number of optional living benefit riders that owners 
can purchase for an additional fee. The Contracts Covered by Existing 
Orders issued by American Enterprise Life offer three different 
optional guaranteed income benefit (``Income Benefit'') riders. The 
Income Benefit riders guarantee minimum income regardless of the 
volatility inherent in the Investment Funds. The Contracts Covered by 
Existing Orders also offer an optional guaranteed accumulation benefit 
(``Accumulation Benefit'') rider. The Accumulation Benefit rider may 
provide a one-time adjustment to the contract value at the end of the 
specified waiting period on the benefit date. The Contracts Covered by 
Existing Orders also offer an optional guaranteed minimum withdrawal 
benefit (``Withdrawal Benefit'') rider. The Withdrawal Benefit 
initially gives the owner the right to take limited partial withdrawals 
in each contract year that over time will total an amount equal to 
Purchase Payments plus any Credits.
    In addition to the same optional living benefit riders described 
above, the 2006 Contracts introduce a new optional guaranteed minimum 
withdrawal benefit for life (``Withdrawal Benefit for Life'') rider. 
The Withdrawal Benefit for Life guarantees that the owner will be able 
to withdraw up to a certain amount each year from the 2006 Contract, 
regardless of investment performance, before the annuity payouts begin, 
until the owner has recovered, at a minimum, all Purchase Payments plus 
any Credits. Under certain limited circumstances defined in the rider, 
the owner has the right to take a specified amount of partial 
withdrawals in each contract year until death, even if the contract 
value is zero. The Insurance Companies reserve the right to add new or 
enhanced living benefits to the Contracts Covered by Existing Orders 
and/or 2006 New Contracts.

f. Asset Allocation Programs

    Both the Contracts Covered by Existing Orders and the 2006 
Contracts offer asset allocation programs. Owners are required to 
participate in these asset allocation programs if they elect one of the 
optional living benefits riders described above. In this case, there is 
no separate charge for the asset allocation program. Owners may choose 
to participate in the standalone asset allocation program if they do 
not elect a living benefit. Under the Contracts Covered by Existing 
Orders issued by American Enterprise Life, there is no charge for this 
standalone asset allocation program. With respect to the Contracts 
Covered by Existing Orders issued by IDS Life and IDS Life of New York, 
owners may purchase the optional standalone asset allocation rider for 
an additional fee. The current fee is 0.10% (not to exceed 0.20%) as a 
percentage of contract value charged annually. Under the 2006 Contracts 
issued by IDS Life and IDS Life of New York, the standalone asset 
allocation program is available at no additional charge.

g. Annuity Payout Plans

    Both the Contracts Covered by Existing Orders and the 2006 
Contracts offer a number of annuity payout plans with payouts available 
under a fixed or variable basis or a combination of both. These annuity 
payout plans include the following: (A) Life annuity--no refund; (B) 
life annuity with five, ten, 15 years or 20 years certain; (C) life 
annuity--installment refund; (D) joint and last survivor life annuity--
(i) no refund; or (ii) with 20 years certain; and (E) payouts for a 
specified period. The Insurance Companies also may agree to other 
payout arrangements. The 2006 Contracts introduce an additional annuity 
payout plan available in connection with the Withdrawal Benefit for 
Life. This payout plan is available on a fixed basis only.
    6. Applicants submit that their request for an order that applies 
to the Accounts or any Future Accounts, in connection with the issuance 
of 2006 Contracts described herein and 2006 Future Contracts that are 
substantially similar in all material respects to the 2006 Contracts 
and underwritten or distributed by IDS Life, Ameriprise Financial 
Services or Affiliated Broker-Dealers is appropriate in the public 
interest for the same reasons as those given in support of the Existing 
Orders.

Applicants' Legal Analysis

    1. Section 6(c) of the 1940 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 1940 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 1940 Act.
    2. Applicants request that the Commission issue an order pursuant 
to Section 6(c) of the 1940 Act, granting exemptions from the 
provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the 1940 Act 
and Rule 22c-1 thereunder, to the extent necessary to permit Applicants 
to recapture Credits under the 2006 Contracts under the same 
circumstances covered by the Existing Orders and also to recapture 
Credits applied within twelve months preceding the date of death that 
results in any death benefit payment.
    3. Applicants submit that the provisions for recapture of any 
Credit applied within twelve months preceding the date of death that 
results in any death benefit payment under the 2006 New Contracts does 
not, and will not, violate Sections 2(a)(32) and 27(i)(2)(A) of the 
1940 Act. Subsection (i) of Section 27 of the 1940 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 or her proportionate share of 
the issuer's current net assets, or the cash equivalent thereof.
    4. Applicants assert that the recapture of the Credit amount in the 
circumstances set forth in the application for 2006 Order would not 
deprive an owner of his or her proportionate share of the issuer's

[[Page 54536]]

current net assets. An owner's interest in the Credit amounts allocated 
to his or her 2006 New Contract within twelve months preceding the date 
of death is not vested. Applicants argue 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. Therefore, 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.
    5. Applicants submit that the recapture of Credit amounts within 
twelve months preceding the date of death 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 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.
    6. Section 22(c) of the 1940 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.
    7. 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. 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 redemption or repurchase at a price 
above it, and (ii) other unfair results, including speculative trading 
practices.
    8. Applicants assert 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. Therefore, 
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.
    9. For the foregoing reasons, Applicants submit that the provisions 
for recapture of any Credit applied within twelve months preceding the 
date of death that results in any death benefit payment under the 2006 
New Contracts does not and will not violate Sections 2(a)(32), 22(c) 
and 27(i)(2)(A) of the 1940 Act and Rule 22c-1 thereunder, and that the 
requested relief therefrom is consistent with the exemptive relief 
provided under the Existing Orders.

Conclusion

    Applicants submit, based on the grounds summarized above, that 
their exemptive requests meet the standards set out in Section 6(c) of 
the 1940 Act, namely, that the exemptions requested are 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, and that, therefore, an amended order should be 
granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-15298 Filed 9-14-06; 8:45 am]
BILLING CODE 8010-01-P