request the staff's advice that it will not recommend that the Commission take

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1 Ul, Alu, MASSACHUSETTS AVENUE, N W. WASHINGTON, D. C = JEFFREY C.MARTIN 01-CCT LINK (202) ' November 20, 1987 TELEPHONE:;202) fla-2000 CABLE ADORESW "SANOO" TELEX: TELECOPIER: c.'a.' 3 W. Rolph Thompson, Esquire Chief, Office Insurance Products Legal Compliance Division Investment Management Securities Exchange Commission 50 Fifth Street, N.W. Washington, D.C C, C. 9 - PUBLIC AVAILABILITY DATE: ACT SECTION RULE 190C 22(c) 22c- 1 Dear Mr. Thompson: Re: Investments Variable Annuity Account I 22c-1 under Investment Comp Act 190 ( "190 Act") 1 i We are writing on behalf Investments Life Insurance Comp (" Life"), Investments Variable Annuity Account I ( "Account"), Distributors Corporation ("Distributors") to request staff's advice that it not recommend that Commission take enforcement action under Section 22(c) 190 Act 22c-1 reunder if initial purchase payments under certain variable annuity contracts it;sued by Life funded by Account are allocated to investment s Account in manner described below. Life is a stock life insurance comp organized under ("contracts"). The contracts be funded by Account, which is a separate account established under Pennsylvania insurance law a unit investment trust registered under 190 Act on Form N-, Reg. No The Account currently has five investment s, a Money Market, High Income, Equity-Income, Growth, Overseas. Each invests in shares a specific corresponding portfolio Variable Insurance Products Fund, an open-end, diversified management investment comp registered under 190 Act, Reg. No Additional s portfolios may be added in future. Distributors is a broker-dealer registered under Securities Exchange Act 193 is principal underwriter laws Pennsylvania. It proposes to issue certain variable annuity contracts contracts. Under several states' insurance laws, a purchaser a variable annuity contract is given ten days after he or she receives contract to L 6,.C 18 «

2 review it determine wher to retain it ( "free look" right). A person who chooses not to retain contract can, in that period, return contract to issuer's fice or agent who sold contract. If a purchaser exercises this free look right, contract be cancelled purchaser be refunded purchase payment or, under some state laws, all charges deducted prior to allocation payment to separate account plus owner',s account value as end valuation period (i.e., business day) in which returned contract is received. In or wc cds, some states permit issuer to refund payment plus or minus investment performance while a few states mate return payment out adjustment for negative investment performance. Life does not believe it is appropriate or desirable for Life to assume investment risk resulting from fact that some states do not allow an investment adjustment to be made to amount refunded upon exercise free look right. This risk may be significant in that minimum initial payment required to purchase a contract is $5,000. Thus, some contract owners could exercise free look right solely in order to avoid consequences a market drop obtain return payment. Life thus proposes to implement following procedures. The contract, application prospectus disclose that initial payment must be allocated to money market during free look period. In application, however, applicant may designate (subject to revocation) how he or she wishes to allocate initial payment after free look period expires. The free look period commences owner's receipt contract. These contracts be mailed to purchasers. Life assume a five-day mailing time from contract date. Thus, Life process transfers from money market to selected s fifteen days after contract date. If a contract owner exercises his or her free look right, he or she be refunded greater (i) purchase payment or (ii) contract value Under his or her contract (out reduction for contingent deferred sales load applicable under contract) plus amount ducted from premium payment prior to its allocation to Account.- disclosed in prospectus. This all be fully Life's proposed procedures regarding crediting purchase payments, in our view, be consistent 22c-1. To al 1/ Life generally not deduce amount prior to allocation contract owner's payment to Account. In a few states, however, Life may be required to pay premium taxes upon receipt an owner's payments. If owner lives in such a state, Life make a deduction for such taxes before allocating remainder payment to Account. mr.- 7-

3 purchase a contract an applicant must make a purchase payment at least $5,000 complete an application form. If application initial premium payment can be accepted in form received, payment be applied to purchase a contract in two business days after receipt at Variable Products Service Center. The date that payment is credited contract issued is called contract date. If an incomplete application is received, Life request information necessary to complete application. Once application is completed, initial premium payment be applied to purchase a contract in two business days after application is made complete. If application remains incamplete for five business days, Life return tbe premium payment unless it obtains applican' s specific permission to retain premium payment pending completion application. An owner may make additional premium payments during life annuitant before annuity date. The smallest such payment Life accept is $500. These subsequent payments are allocated immediately to selected s. These premiums be credited under contract based on next computed value selected s'i accumulation units following receipt ot payment at Variable Products Service Center. Thus, initial payment be credited in accordance 22c-1(c) all payments be credited consistent 22c-1. Moreover, transfer from money market to or selected s be effected as end valuation period in which fifteen-day period expires, based on respective accumulation unic values s at that time. In our view, 22c-1 is not abridged by fact that only purchase order that may be made initially is to purchase shares money market. Neir 22c-1 nor or provision 190 Act prohibits limiting fer shares in one or more portfolios to those who have first made anor investment. Furr, applicant' s ability in application to direct (subject to revocation) that, after free look period is up, amounts should be transferred to or selected s, does not appear to violate 22c-1. Indeed, in Data*Sys*Tance Inc. (available May 12, 1976), Fed. Sec. L. Rep. 1 80,60, staff in anor context interpreted 22c-1 as not prohibiting future transfer orders. Cf. Aetna Variable Annuity Life Insurance Comp (available May 23, 1979), Fed. Sec. L. Rep. 1 82,08 (no-action position taken regarding future redemption requests). The staff has also indicated that it would not recommend Commission action if a fund or its principal underwriter held a cuatomer's purchase order funds for an individual retirement account until after end a 8even-day revocation period mated by Internal Revenue Service consummated investment at price next determined after end such period. Investment Comp Institute (available Dec. 8, 1975). pk B K E. =

4 9 '1:1,., '' 1 w 6 f *11 '111, 1 1,11 '1 1 1, Fu'rrmore, practice proposed by Life is fully consistent particular. There is policies no possibility 190 backward Act in general pricing or shareholder 22c-1 in dilution involved here. Finally, Life' s proposed procedures regarding free look right free look are right in interest receive grea_0 investing public. premium An owner payment exercising or contract payment value (plus to Account). charge for Because premium taxes required deducted allocation prior to to allocation money market, latter amount almost always be greater. This provision is thus more advantageous to customer than a flat return premium, which is perhaps t most common form free look provision for variabl 3 annui ty contracts- For above reasons, we are opinion that above procedures reunder do not we respectfully violate Section request 22(c) that y-ou 190 recommend Act or that 22c-1 Commission not take action if procedures are implemented. Sincerely yours, A. q yv 0 Jeffrey C. Martin JCM:ch cc: Heidi Stam, Esquire E.. 1-/ by It is noteworthy Life are that quite premium common allocation respect procedures to variable such life as those insurance. proposed question 6e-2(b)(12)(ii) wher such procedures 6e-3(T)(b)(12)(iii), are consistent however, render 22c-1. mooc From policy stpoint, re is certainly no reason to distinguish variable life a insurance from variable annuities on this issue...

5 ,11, Ir 1 M 111 1,11, " " 'I, Il ", 'I.,.., 11< RESPONSE OF THE OFFICE OF INSURANCE PRODUCTS AND LEGAL COMPLIANCE DIVISION OF INVESTMENT MANAGEMENT Our Ref. No. IP il L<*p Investments Variable Annuity Account I. November-20, Based on 1987, facts out representations necessarily agreeing in your letter your dated legal analysis, Division would not recommend that Variable Commission Annuity take enforcement I ("") action under against 22c-1 if Investments allocates initial purchase payments to money market as described in your letter. that: We base our position particularly upon your representations that (1) initial payment contract, must application be allocated prospectus to money market disclose payments during be credited free-look to money period; market (2) all initial purchase in accordance for 15 days that purchasers 22c-1(c); (3) be priced free-look into period last expiration ir 15 day choice period; at () price a purchaser next computed who exercises after free-look right be refunded greater (i) amount initial purchase payment, or (ii) contract plus value (out amount reduction deducted by contingent for premium deferred taxes; sales load) respect (S) prospectus to a purchaser's fully exercise disclose 's free-look procedures right. Please be advised that facts or conditions different from conclusion. those presented in your letter might require a different Furrmore, this response only expresses express Division's position legal conclusion on enforcement on action questions presented. does not purport As we to a reed, this-letter shall become public immediately.. <6/ (llc:u Heidi Stam Staff Attorney December 8, I L *25