[Federal Register Volume 60, Number 53 (Monday, March 20, 1995)]
[Notices]
[Pages 14808-14810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6749]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20954; No. 812-9364]


New York Life Insurance and Annuity Corporation, et al.

March 14, 1995.
AGENCY: The Securities and Exchange Commission (``Commission'').

ACTION: Notice of Application for an Order under the investment Company 
Act of 1940 (``1940 Act'').

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APPLICANTS: New York Life Insurance and Annuity Corporation 
(``NYLIAC''), NYLIAC LifeStages Annuity Separate Account (``Separate 
Account'') and NYLIFE Distributors, Inc. (``Distributors'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act granting exemptions from the provisions of Sections 
26(a)(2)(C) and 27(c)(2) of the 1940 Act.

SUMMARY OF THE APPLICATION: Applicants seek an order permitting the 
deduction of mortality and expense risk charges from the assets of the 
Separate Account in connection with the issuance and sale of certain 
flexible premium variable annuity contracts (``Contracts''), and in 
connection with certain other NYLIAC variable annuity contracts which 
are substantially similar in all material respects to the Contracts 
(``Other Contracts'') which are offered in the future through the 
Separate Account. Applicants also seek to deduct mortality and expense 
risk changes from the assets of any other similar separate account(s) 
established by NYLIAC (``Other Accounts''), whether currently existing 
or hereafter created, in connection with the issuance and sale of the 
Other Contracts. Applicants also request that the exemptive relief 
include any other broker-dealer (``Other Broker-Dealers'') which may 
serve in the future as principal underwriter of the contracts or of the 
Other Contracts.

FILING DATE: The application was filed on December 14, 1994.

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 Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m., on April 4, 1995, and should be accompanied by proof of service 
on Applicants in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues contested 
Persons may requests notification of hearing by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, The Securities and Exchange Commission, 450 Fifth 
Street NW., Washington, DC 20549. Applicants, c/o New York Life 
Insurance and Annuity Corporation, 51 Madison Avenue, New York 10010.

FOR FURTHER INFORMATION CONTACT:
Yvonne M. Hunold, Assistant Special Counsel or Wendy Friedlander, 
Deputy Chief at (202) 942-0670, Office of Insurance Products (Division 
of Investment Management)..

SUPPLEMENTARY INFORMATION: Following is a summary of the application; 
complete application is available for a fee from the Commission's 
Public Reference Branch.

Applicants' Representations

    1. NYLIAC, a stock life insurance company, is wholly-owned by New 
York Life Insurance Company (``New York Life''), a mutual life 
insurance company. NYLIAC is principally engaged in offering life 
insurance and annuities and is admitted to do business in all 50 
states, the District of Columbia, Puerto Rico and Canada.
    2. The Separate Account was established by NYLIAC to fund the 
Contracts. The Separate Account and the Other Accounts may be used to 
fund Other Contracts. The Separate Account has filed a notice of 
registration under the 1940 Act to register as a unit investment trust, 
and a registration statement under the 1940 Act and the Securities Act 
of 1933 (``1933 Act'') to register the Contracts as securities. Other 
Accounts each will file a notice of registration under the 1940 Act to 
register as unit investment trusts, and a registration statement under 
the 1940 Act and the 1933 Act to register any Other Contract as 
securities.\1\

    \1\Applicants undertake to amend the application during the 
notice period to make this representation.
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    The Separate Account currently has seven investment divisions, each 
investing exclusively in one of seven corresponding portfolios of New 
York Life MFA Series Fund, Inc. (``Fund''), a diversified, open-end 
management investment company registered under the 1940 Act. Additional 
investment divisions may be established in the future to invest in 
other Fund portfolios or in other investments. Portfolio shares also 
may be offered to Other Accounts.
    3. Distributors, currently the principal underwriter of the 
Contracts is an indirect wholly-owned subsidiary of New York Life. 
Broker-Dealer and is a member of the National Association of Securities 
Dealers (``NASD''). Distributors may enter into agreements for the sale 
of the Contracts or the Other Contracts with Other Broker-Dealers which 
will be registered under the 1934 Act,\2\ and which are or will be 
members of the NASD.

    \2\Applicants undertake to amend the application during the 
notice period to make this representation.
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    The Contracts are to be used either in connection with retirement 
plans qualities under Sections 401(a), 403(a) 403(b), 403(b), 408 OR 
457 of the Internal Revenue Code or by any other purchaser for whom the 
Contracts may provide a suitable investment.
    5. The Contracts provide for the payment of initial premium 
payments and allow for additional premium payments at any time prior to 
Annuity [[Page 14809]] Commencement Date for the life of the Annuitant. 
Contract owners may direct the allocation of premium payments, as well 
as Accumulation Value, among the investment divisions and to the Fixed 
Account, which is part of NYLIAC's General Account. Accumulation value 
is determined on a variable basis by the investment experience of the 
investment divisions selected for the allocation of premium payments, 
other than the amount allocated to the Fixed Account.
    6. The Contracts also provide for the payment of a minimum death 
benefit equal to the greatest of: (a) Accumulation Value, less any 
outstanding loan balance under the Contract, (b) the sum of all premium 
payments made less any outstanding loan balance, partial withdrawals, 
CDSL deductions and any rider premiums, or (c) the ``reset value'' plus 
any additional premium payments, other than rider premiums, made since 
the most recent ``reset date,'' less any outstanding loan balance, 
withdrawals made since the most recent ``reset date,'' and any CDSL 
deductions applicable to such withdrawals.\3\

    \3\The ``reset value,'' is equal to the Accumulation Value, as 
recalculated on each ``reset date'' (every 3 years from the date of 
initial premium payments until age 85). If the new reset value 
calculated on the most recent reset date is higher than the previous 
reset value, the new reset value will be retained for purposes of 
determining the available death benefit. If it is lower, the old 
reset value will be retained. The formula guarantees that the amount 
paid will at least equal the sum of all premium payments (less any 
outstanding loan balance, partial withdrawals, CDSL deductions and 
rider premiums), independent of the investment experience of the 
Separate Account.
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    7. Various fees and charges are deducted under the Contracts, An 
annual Contract fee of the lesser of $30 or 2% of the Accumulation 
Value at the end of the Contract Year will be deducted on each Contract 
Anniversary during the Accumulation Period, or upon surrender of the 
Contract if on that date the Accumulation Value is less than $20,000. A 
daily charge equal, on an annual basis, of up to .15% of the net asset 
value of the appropriate separate account will be deducted to cover 
administration expenses of the Contract and of the Other Contracts. 
These fees are guaranteed for the life of such Contracts or Other 
Contracts and will not exceed the cost of services to be provided over 
the life of such Contracts, in accordance with the provisions of Rule 
26a-1 under the 1940 Act.
    8. A charge for premium taxes imposed by state law may be deducted 
under the Contracts, either when a surrender or cancellation occurs, or 
at the Annuity Commencement Date or the Retirement Date, as applicable. 
Currently, these taxes range up to 3.5%. The Separate Account and the 
investment divisions may bear charges for federal income taxes, should 
such taxes be incurred by NYLIAC in connection with the operation of 
the Separate Account.
    9. No charge currently is deducted for the first twelve transfers 
during any Contract Year or for transfers prior to 30 days before the 
Annuity Commencement Date. NYLIAC reserves the right to charge a $30 
fee for each transfer in excess of twelve per Contract Year.
    10. No sales charge currently is deducted from premium payments 
under the Contracts, nor will be deducted under Other Contracts. 
Surrenders and partial withdrawals, however, are subject to a maximum 
contingent deferred sales load (``CDSL'') of 7% during the first three 
years, declining by 1% per year thereafter until reaching 0% in the 
sixth year. Other Contracts will be subject to a maximum 7% CDSL. The 
total CDSL will not exceed 8.5% of the premium payments under the 
Contract or Other Contracts. Applicants are relying on Rule 6c-8 under 
the 1940 Act to deduct the CDSL.
    11. A daily charge equal to an effective annual rate of 1.25% of 
the net asset value of each investment division will be imposed to 
compensate NYLIAC for bearing certain mortality and expense risks in 
connection with the Contracts and Other Contracts. Of this amount, 
0.75% is allocable to mortality risks and 0.50% is allocable to expense 
risks. This charge may be a source of profit for NYLIAC which will be 
added to its surplus and may be used for, among other things, the 
payment of distribution expenses.
    12. The mortality risk borne by NYLIAC arises from its obligation 
to make annuity payments (determined in accordance with the Annuity 
Tables and other provisions contained in the Contract), where a life 
annuity is selected, regardless of how long an Annuitant may live. The 
mortality risk under the Contract is the risk that, upon selection of 
an annuity payment option which has a life contingency, Annuitants will 
live longer than NYLIAC's actuarial projections indicate, resulting in 
higher than expected income payments. NYLIAC also is assuming mortality 
risk as a result of its promise to pay a minimum death benefit under 
the Contracts.
    13. The expense risk borne by NYLIAC under the Contract is the risk 
that the charges for administrative expenses, which are guaranteed for 
the life of the Contract, may be insufficient to cover the actual costs 
of issuing and administering the Contracts.

Applicants' Legal Analysis and Conditions

    1. Applicants request an order under Section 6(c) granting 
exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act to 
permit the deduction from the assets of the Separate Account or Other 
Accounts of a charge for mortality and expense risks under the 
Contracts or Other Contracts. Applicants also request that the 
exemptive relief extend to Other Broker-Dealers which may serve in the 
future as principal underwriters of the Contracts or Other Contracts.
    2. Section 6(c) of the 1940 Act authorizes the Commission, by order 
upon application, to conditionally or unconditionally grant an 
exemption from any provision, rule or regulation of the 1940 Act to the 
extent that the 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.
    3. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant 
part, prohibit a registered unit investment trust, its depositor or 
principal underwriter, from selling periodic payment plan certificates 
unless the proceeds of all payments, other than sales loads, are 
deposited with a qualified bank and held under arrangements which 
prohibit any payment to the depositor or principal underwriter except a 
reasonable fee, as the Commission may prescribe, for performing 
bookkeeping and other administrative duties normally performed by the 
bank itself.
    4. Applicants submit that their request for an order is appropriate 
in the public interest because it would promote competitiveness in the 
variable annuity contract market by eliminating the need for NYLIAC to 
file redundant exemptive applications, thereby reducing its 
administrative expenses and maximizing the efficient use of its 
resources. Investors would not receive any benefit or additional 
protection by requiring NYLIAC repeatedly to seek exemptive relief with 
respect to the same issues addressed in this Application.
    5. Applicants represent that the 1.25% mortality and expense risk 
charge under the Contracts is within the range of industry practice for 
comparable annuity contracts. This representation is based upon 
Applicants' analysis of publicly available information about similar 
industry products, taking into consideration such factors as current 
[[Page 14810]] charge levels, the manner in which charges are imposed, 
the presence of charge level or annuity rate guarantees and the markets 
in which the Contracts will be offered. Based upon this review, 
Applicants represent that the mortality and expense risk charges under 
the Contracts are within the range of industry practice for comparable 
contracts. Applicants state that NYLIAC will maintain at its corporate 
headquarters\4\ and make available to the Commission, upon request, a 
memorandum outlining the methodology underlying this representation.

    \4\Applicants undertake to amend the application during the 
notice period to make this representation.
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    Similarly, prior to making available any Other Contracts, 
Applicants will determine that the mortality and expense risk charges 
under any such Other Contracts will be within the range of industry 
practice for comparable contracts. Applicants state that NYLIAC will 
maintain at corporate headquarters\5\ and make available to the 
Commission, upon request, a memorandum outlining the methodology 
underlying such conclusion.

    \5\Applicants undertake to amend the application during the 
notice period to make this representation.
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    6. Applicants acknowledge that, if a profit is realized from the 
mortality and expense risk charge under the Contracts, all or a portion 
of such profit may be available to pay distribution expenses not 
reimbursed by the CDSC. NYLIAC has concluded that there is a reasonable 
likelihood that the proposed distribution financing arrangements will 
benefit the Separate Account and the Contract Owners. NYLIAC will keep 
at its corporate headquarters\6\ and make available to the Commission, 
upon request, a memorandum setting forth the basis for this 
representation.

    \6\Applicants undertake to amend the application during the 
notice period to make this representation.
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    7. Similarly, Applicants recognize that, if a profit is realized 
from the mortality and expense risk charge under the Other Contracts, 
all or a portion of such profit may be available to pay distribution 
expenses not reimbursed by the CDSL. Prior to issuing Other Contracts, 
NYLIAC will determine that there is a reasonable likelihood that the 
proposed distribution financing arrangements will benefit the relevant 
separate account and the Other Contract Owners. The basis for that 
conclusion will be set forth in a memorandum which will be maintained 
by NYLIAC at its corporate headquarters\7\ and will be made available 
to the Commission, upon request.

    \7\Applicants undertake to amend the application during the 
notice period to make this representation.
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    8. Applicants represent that the Separate Account, and any Other 
Accounts, will invest only in underlying funds that have undertaken to 
have a board of directors/trustees, a majority of whom are not 
interested persons of any such fund, formulate and approve any plan 
under Rule 12b-1 under the 1940 Act to finance distribution expenses.

Applicants' Conditions

    Applicants agree that if the requested order is granted such order 
will be expressly conditioned on Applicants' compliance with the 
undertakings set forth above. In addition, Applicants undertake to rely 
on the exemptive relief requested herein with respect to Other 
Contracts only if such Other Contracts are substantially similar in all 
material respects to the Contracts.

Conclusion

    Applicants assert that, for the reasons and upon the facts set 
forth above, the requested exemptions from Sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to deduct the mortality and expense risk 
charge under the Contracts, or under Other Contracts, offered by the 
Separate Account or by Other Accounts, meets the standards in Section 
6(c) of the 1940 Act. Applicants assert that the exemptions requested 
are necessary and appropriate in the public interest and consistent 
with the protection of investors and the policies 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. 95-6749 Filed 3-17-95; 8:45 am]
BILLING CODE 8010-01-M