[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