[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: 94-3316]


[[Page Unknown]]

[Federal Register: February 14, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20059; File No. 812-8686]

 

Transamerica Occidental Life Insurance Co., 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: Transamerica Occidental Life Insurance Company 
(``Transamerica'' or the ``Company''), Separate Account VA-5 of 
Transamerica Occidental 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., Transamerica Life Insurance Company, 1150 South Olive, Los 
Angeles, CA 90015.

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. Transamerica is a stock life insurance company incorporated 
under the laws of California in 1906.
    2. The Separate Account was established by Transamerica on 
September 28, 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 provisions 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. Transamerica will also 
deduct an annual Contract charge of $25 for each Contract at the end of 
each Contract Year for administrative services. While 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. Transamerica does not 
anticipate any profit from these charges. Transamerica will deduct the 
administrative charges in reliance upon and in compliance with Rule 
26a-1 under the 1940 Act.
    6. 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, 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 or surrender of a 
Contract. 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, 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 Transamerica. Conversely, if the charge is more than 
sufficient to cover costs, any excess will be profit to Transamerica. 
Transamerica currently anticipates a profit from this charge. According 
to Applicants, the mortality risk borne by 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. 
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 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 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 Transamerica assumes certain risks under the 
Contracts. The mortality and expense risk charge is a reasonable charge 
to compensate 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. 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 
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. 
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. 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 Transamerica at its administrative offices and will be available to 
the Commission.
    5. 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3316 Filed 2-11-94; 8:45 am]
BILLING CODE 8010-01-M