[Federal Register Volume 59, Number 30 (Monday, February 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3315]
[[Page Unknown]]
[Federal Register: February 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20061; File No. 812-8684]
First Transamerica Life Insurance Company, et al.; Application
for Exemption
February 7, 1994
Agency: Securities and Exchange Commission (``Commission'').
Action: Notice of application for exemption under the Investment
Company Act of 1940 (``1940 Act'').
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Applicants: First Transamerica Life Insurance Company (``First
Transamerica'' or the ``Company''), Separate Account VA-5 of First
Transamerica Life Insurance Company (the ``Separate Account''), and
Charles Schwab & Co., Inc. (``Schwab'') (collectively referred to
herein as ``Applicants'').
Relevant 1940 Act Section: Order requested under section 6(c) of the
1940 Act for exemptions from sections 26(a)(2)(C) and 27(c)(2) thereof.
Summary of Application: Applicants seek an order permitting the
deduction from the assets of the Separate Account of a mortality and
expense risk charge imposed under certain individual and group flexible
purchase payment deferred variable annuity contracts (the
``Contracts'').
Filing Date: The application was filed on November 17, 1993 and amended
on January 31, 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 must be received by the Commission by 5:30 p.m.,
on March 4, 1994, and should be accompanied by a proof of service on
the Applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons may request notification of the date of a hearing by
writing to the Secretary of the Commission.
Addresses: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW., Washington, DC 20549. Applicants, c/o James W. Dederer,
Esq., First Transamerica Life Insurance Company, 575 Fifth Avenue, New
York, NY 10017.
For Further Information Contact: Joyce M. Pickholz, Senior Attorney, or
Wendell M. Faria, Deputy Chief, at (202) 272-2060, Office of Insurance
Products, Division of Investment Management.
Supplementary Information: The following is a summary of the
application. The complete application is available for a fee from the
Commission's Public Reference Branch.
Applicants' Representations
1. First Transamerica is a stock life insurance company
incorporated under te laws of New York in 1986.
2. The Separate Account was established by First Transamerica on
November 10, 1993. Schwab will serve as the distributor and principal
underwriter of the Contracts.
3. The Contract is a flexible purchase payment deferred variable
annuity which can be purchased on a non-tax qualified basis or used as
a funding vehicle in connection with certain retirement plans which
qualify for favorable income tax treatment. Purchase payments under the
Contracts will be allocated to one or more sub-accounts of the Separate
Account. The initial purchase payment under a Contract must be at least
$5,000. Additional purchase payments of at least $1,000 each may be
made at any time before the annuity date.
4. Each Contract contains death benefit provisons that provide a
benefit equal to the greatest of (a) the sum of all purchase payments,
less the sum of all withdrawals and any applicable premium or similar
taxes, or (b) the account value, as of the end of the valuation period
during which the later of (1) due proof of death is received and (2)
the receipt of a written notice of the method of settlement elected by
the beneficiary.
5. A Transfer fee of $10 will be deducted under the Contract for
each transfer in excess of 10 per Contract year. First Transamerica
will also deduct an annual Contract charge of $25 for each Contract at
the end of each Contract Year for administrative services. While First
Transamerica does not currently impose an Administrative Expense
Charge, it reserves the right to deduct such a charge on a daily basis
in the future from the assets of the Separate Account. However, the
Administrative Expense Charge is guaranteed not to exceed an effective
annual rate of 0.15% of the average net assets held in each sub-
account. First Transamerica does not anticipate any profit from these
charges. First Transamerica will deduct the administrative charges in
reliance upon and in compliance with Rule 26a-1 under the 1940 Act.
6. First Transamerica will deduct any premium taxes related to a
particular Contract from purchase payments, upon surrender, or upon
annuitization, in reliance on Rule 26a-2 under the 1940 Act. No charges
are currently made for federal, state, or local taxes other than
premium taxes. However, First Transamerica may deduct such taxes in the
future.
7. There are no charges or deductions for sales load from purchase
payments, Separate Account assets, or upon withdrawal of surrender of a
Contract. First Transamerica will incur expenses relating to the sale
of the Contracts which will be paid from its general assets.
8. For assuming certain mortality and expenses risks under the
Contracts, First Transamerica will assess a mortality and expense risk
charge at an annual rate of 0.85% of the value of net assets in the
Separate Account. Of this amount, approximately 0.30% represents
mortality risk and approximately 0.55% is estimated to be attributable
to expense risks. This charge will not increase. If the mortality and
expense risk charge is insufficient to cover actual costs and assumed
risks, the loss will fall on First Transamerica. Conversely, if the
charge is more than sufficient to cover costs, any excess will be
profit to First Transamerica. First Transamerica currently anticipates
a profit from this charge. According to Applicants, the mortality risk
borne by First Transamerica arises from its contractual obligation to
make annuity payments (determined in accordance with the annuity tables
and other provisions contained in the Contract) regardless of how long
all annuitants or any individual annuitant may live. This undertaking
assures that neither an annuitant's own longevity, nor an improvement
in general life expectancy, will adversely affect the periodic annuity
payments. First Transamerica also assumes a risk in connection with the
payment of death benefits, since the death benefit could be higher than
the account value. The expense risk assumed by First Transamerica is
the risk that administrative costs will be greater than anticipated, or
exceed the amount recovered through the administrative charges.
Applicants' Legal Analysis
1. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act require that
all payments received under a periodic payment plan certificate be held
by a qualified trustee or a custodian and held under arrangements which
prohibit any payment to the depositor or principal underwriter except
for the payment of a fee, not exceeding such reasonable amount as the
Commission may prescribe, for bookkeeping and other administrative
services. Applicants request exemptions from those Sections to the
extent necessary to permit the assessment of the charge for mortality
and expenses risks in the manner described in the application.
2. Applicants submit that First Transamerica is entitled to
reasonable compensation for its assumption of mortality and expense
risks. Applicants represent that the mortality and expense risk charge
under the Contracts is consistent with the protection of investors
because it is a reasonable and proper insurance charge. As described
above, in return for this amount First Transamerica assumes certain
risks under the Contracts. The mortality and expense risk charge is a
reasonable charge to compensate First Transamerica for the risk that
annuitants under the Contracts will live longer than has been
anticipated in setting the annuity rates guaranteed in the Contracts,
for the risk that death benefit proceeds will be greater than the
Account Value, and for the risk that administrative expenses will be
greater than anticipated or exceed amounts derived from the
administrative charges.
3. First Transamerica represents that the mortality and expense
risk charge is within the range of industry practice for comparable
annuity products. Applicants state that this representation is based
upon First Transamerica's analysis of publicly available information
about similar industry products, taking into consideration such factors
as current charge levels, the existence of charge level guarantees,
death benefit guarantees, guaranteed annuity rates and other policy
options. First Transamerica will maintain at its administrative
offices, available to the Commission, a memorandum setting forth in
detail the products analyzed in the course of, and the methodology and
results of, its comparative survey.
4. Applicants acknowledge that, if a profit is realized from the
mortality and expense risk charge, all or a portion of such profit may
be viewed as being offset by distribution expenses. First Transamerica
represents that there is a reasonable likelihood that the proposed
distribution financing arrangements will benefit the Separate Account
and the Contract owners. Applicants also represent that the basis for
this conclusion is set forth in a memorandum which will be maintained
by First Transamerica at its administrative offices and will be
available to the Commission.
5. First Transamerica represents that the Separate Account will
only invest in management investment companies which undertake, in the
event any such company adopts a plan under Rule 12b-1 to finance
distribution expenses, to have a board of directors (or trustees), a
majority of whom are not interested persons of the company, formulate
and approve any such plan under Rule 12b-1.
Conclusion
Applicants submit that for the reasons and upon the facts set forth
above, their request for exemptions from sections 26(a)(2))C) and
27(c)(2) of the 1940 Act 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.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margarate H. McFarland,
Deputy Secretary.
[FR Doc. 94-3315 Filed 2-11-94; 8:45 am]
BILLING CODE 8010-01-M
