[Federal Register Volume 60, Number 32 (Thursday, February 16, 1995)]
[Notices]
[Pages 9070-9072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3884]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20895; File No. 812-9244]
First SunAmerica Life Insurance Company, et al.; Notice of
Application
February 10, 1995.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'')
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'' or ``1940 Act'').
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Applicants: First SunAmerica Life Insurance Company (``First
SunAmerica''), FS Variable Separate Account (``Separate Account''), and
SunAmerica Capital Services, Inc.
Relevant Act Sections: Order requested under Section 6(c) for
exemptions from Sections 26(a)(2) and 27(c)(2).
Summary of Application: Applicants request exemptions from Sections
26(a)(2) and 27(c)(2) of the Act to the extent necessary to allow first
SunAmerica to deduct from the Separate Account the mortality and
expense risk charges and the distribution expense charge imposed under
the individual flexible payment deferred annuity contracts
(``Contracts'') to be funded in the Separate Account.
Filing Date: The application was filed on September 16, 1994 and
amended on February 3, 1995.
hearing or notification of hearing: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on March 7, 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 who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, D.C.
20549. Applicants, c/o Routier, Mackey and Johnson, P.C., 1700 K Street
NW., Suite 1003, Washington, D.C. 20006.
FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, Staff Attorney, or Wendy Friedlander, Deputy
Chief, at (202) 942-0670, Office of Insurance Products, Division of
Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. First SunAmerica is a stock life insurance company organized
under the laws of the State of New York and is admitted to conduct a
life insurance and annuity business in that state. SunAmerica Capital
Services, Inc., the distributor for the Contracts, is a broker-dealer
registered under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc.
2. The Separate Account was established by First SunAmerica to fund
variable annuity contracts. The Contracts that are the subject of the
application provide for accumulation of contract values and payment of
annuity benefits on a fixed and variable basis. The Contracts will be
initially funded through eighteen portfolios of the Separate Account;
each portfolio will invest its assets in the shares of one of four
available series of the Anchor Series Trust or one of fourteen
available series of the SunAmerica Series Trust. Both the Anchor Series
Trust and the SunAmerica Series Trust are registered under the 1940 Act
as diversified, open-end, management investment companies and the
securities they issue are registered under the Securities Act of 1933
(the ``1933 Act''). Additional underlying funds may become available in
the future. Prior to the issuance of any Contracts, the Separate
Account [[Page 9071]] will be registered under the 1940 Act as a Unit
Investment Trust and the Contracts thereunder will be registered under
the 1933 Act.
3. The Separate Account and each of its portfolios is administered
and accounted for as part of the general business of First SunAmerica,
but the income, gains or losses of each portfolio are credited to or
charged against the assets held in that portfolio in accordance with
the terms of the Contracts, without regard to other income, gains or
losses of any other portfolio or arising out of any other business
First SunAmerica may conduct.
4. The Contracts are available for both retirement plans which do
and do not qualify for the special federal tax advantages available
under the Internal Revenue Code. Purchase payments under the Contracts
may be made to the general account of First SunAmerica under one of the
Contracts' fixed account options (the ``Fixed Account''), the Separate
Account, or allocated between them. The minimum initial purchase
payment for a Contract issued on a non-qualified basis is $5,000 and
additional purchase payments may be made in amounts of at least $500.
The minimum initial purchase payment for a Contract issued on a
qualified basis is $2,000, additional purchase payments may be made in
amounts of at least $250.
5. If the contract owner dies during the accumulation period, a
death benefit will be payable to the beneficiary upon receipt by First
SunAmerica of due proof of death.
The standard death benefit is equal to the greater of:
(1) The contract value at the end of the valuation period during
which due proof of death (and an election of the type of payment to the
beneficiary) is received by First SunAmerica; or
(2) The total dollar amount of purchase payments, minus the sum of:
(a) The total dollar amount of any partial withdrawals and partial
annuitizations; and
(b) Premium taxes incurred.
In addition, where permitted by state law, First SunAmerica will
provide an enhanced death benefit after the seventh contract year. The
enhanced death benefit is: (A) The greater of (1) the contract value at
the end of the preceding contract year, plus purchase payments during
the current contract year, or (2) the death benefit on the last day of
the preceding contract year, minus (B) the total amount of withdrawals
and partial annuitizations during the current contract year plus
premium taxes incurred.
6. During the accumulation period, amounts allocated to the
Separate Account may be transferred among the portfolios and/or the
Fixed Account. The first fifteen transactions effecting such transfers
in any contract year are permitted without the imposition of a transfer
fee. A transfer fee of $25 is assessed on the sixteenth and each
subsequent transfer within the contract year. This fee will be deducted
from contract values which remain in the portfolio (or the Fixed
Account) from which the transfer was made. If such remaining contract
value is insufficient to pay the transfer fee, then the fee will be
deducted from transferred contract values. After the annuity date,
contract values may be transferred from the Separate Account to the
Fixed Account but not from the Fixed Account to the Separate Account.
Applicants represent that the transfer fee is at cost with no
anticipation of profit.
7. Although there is a ``free withdrawal'' amount, a contingent
deferred sales charge, which is referred to as the withdrawal charge,
may be imposed upon certain withdrawals. Withdrawal charges will vary
in amount depending upon the contribution year of the purchase payment
at the time of withdrawal in accordance with the withdrawal charge
table shown below.
Withdrawal Charge Table
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Applicable
Withdrawal
Contribution year\1\ Charge
percentage
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Zero....................................................... 7
First...................................................... 6
Second..................................................... 5
Third...................................................... 4
Fourth..................................................... 3
Fifth...................................................... 2
Sixth...................................................... 1
Seventh and later.......................................... 0
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The withdrawal charge is deducted from remaining contract values so
that the actual reduction in contract value as a result of the
withdrawal will be greater than the withdrawal amount requested and
paid. For purposes of determining the withdrawal charge, withdrawals
will be allocated first to investment income, if any (which generally
may be withdrawn free of withdrawal charge), and then to purchase
payments on a first-in, first-out basis so that all withdrawal are
allocated to purchase payments to which the lowest (if any) withdrawal
charge applies.
\1\With respect to a given purchase payment, a Contribution Year
is a calendar year starting from the date of the purchase payment in
one calendar year and ending on the anniversary of such date in the
succeeding calendar year. The Contribution Year in which a purchase
payment is made is ``Contribution Year Zero,'' and subsequent
Contribution Years are successively numbered.
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8. First SunAmerica deducts a distribution expense charge from each
portfolio of the Separate Account during each valuation period which is
equal, on an annual basis, to 0.15% of the net asset value of each
portfolio. This charge is designed to compensate First SunAmerica for
assuming the risk that the cost of distributing the Contracts will
exceed the revenues from the withdrawal charge. In no event will this
charge be increased.
The distribution expense charge is assessed during both the
accumulation period and the annuity period; however, it is not applied
to contract values allocated to the Fixed Account.
9. The annuity rates may not be changed under the Contract. For
assuming the risks that (1) the life expectancy of an annuity will be
greater than that assumed in the guaranteed annuity purchase rates, (2)
for waiving the withdrawal charge in the event of the death of the
contract owner, and (3) for providing both a standard and enhanced
death benefit prior to the annuity date, First SunAmerica deducts a
mortality risk charge from the Separate Account. The charge is deducted
from each portfolio of the Separate Account during each valuation
period at an annual rate of 1.02% of the net asset value of each
portfolio. The portion of the total morality risk charge attributable
to First SunAmerica's assuming (1) and (2) and providing a standard
death benefit is 0.9%; the balance of 0.12% is assessed for providing
the enhanced death benefit. If the mortality risk charge is
insufficient to cover the actual costs of assuming the mortality risks,
First SunAmerica will bear the loss; however, if the charge proves more
than sufficient, the excess will be a gain to First SunAmerica. To the
extent First SunAmerica realizes any gain, those amounts may be used at
its discretion, including offsetting losses experienced when the
mortality risk charge is insufficient. The mortality risk charge may
not be increased under the Contract.
10. A maintenance fee of $30 is charged against each Contract. The
maintenance fee will be assessed each contract year on the anniversary
of the issue date of the Contract on or prior to the annuity date. In
the event that a total surrender of contract value is made other than
on such anniversary, the fee will be assessed as of the date of
surrender without proration. This fee reimburses First SunAmerica for
expenses incurred in establishing and maintaining records relating to
the [[Page 9072]] Contracts. The amount of this fee is guaranteed and
cannot be increased by First SunAmerica. The maintenance fee is at cost
with no anticipation of profit.
11. First SunAmerica bears to risk that the maintenance fee will be
insufficient to cover the cost of administering the Contracts. For
assuming this expense risk, First SunAmerica deducts an expense risk
charge from the Separate Account. The charge is deducted from each
portfolio of the Separate Account during each valuation period at an
annual rate of 0.35% of the net asset value of each portfolio. If the
expense risk charge is insufficient to cover the actual cost of
administering the Contracts, First SunAmerica will bear the loss;
however, if the charge is more than sufficient, the excess will be a
gain to First SunAmerica. To the extent First SunAmerica realizes any
gain, those amounts may be used at its discretion, including offsetting
losses when the expense risk charge is insufficient. The expense risk
charge may not be increased under the Contract.
Applicants' Legal Analysis
1. Pursuant to Section 6(c) of the Act the Commission may, by order
upon application, conditionally or unconditionally exempt any person,
security, or transaction, or any class or classes of persons,
securities or transactions, from any provision or provisions of the Act
or from any rule or regulation thereunder, if and to the extent that
such 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 Act.
2. Sections 26(a)(2)(C) and 27(c)(2) of the Act, in pertinent part,
prohibit a registered unit investment trust and any depositor thereof
or underwriter therefor from selling periodic payment plan certificates
unless the proceeds of all payments (other than sales load) are
deposited with a qualified bank as trustee or custodian and held under
arrangements which prohibit any payment to the depositor or principal
underwriter except a fee, not exceeding such reasonable amount as the
Commission may prescribe, for performing bookkeeping and other
administrative services of a character normally performed by the bank
itself.
3. Applicants request an order under Section 6(c) of the Act
exempting them from Sections 26(a)(2)(C) and 27(c)(2) of the Act to the
extent necessary to permit the deduction of the mortality and expense
risk charge and distribution expense charge from the assets of the
Separate Account under Contracts.
4. Applicants assert that the mortality and expense risk charge of
1.25% (which includes all risk charges imposed under the Contracts with
the exception of the 0.12% risk charge for the enhanced death benefit)
is reasonable in relation to the risks assumed by First SunAmerica
under the Contracts and reasonable in amount as determined by industry
practice with respect to comparable annuity products. Applicants state
that these determinations are based on their analysis of publicly
available information about similar industry practices, and by taking
into consideration such factors as current charge levels and benefits
provided, the existence of expense charge guarantees and guaranteed
annuity rates. First SunAmerica undertakes to maintain at its home
office a memorandum, available to the Commission upon request, setting
forth in detail the methodology used in making these determinations.
5. Applicants assert that the mortality risk charge of 0.12% for
the enhanced death benefit is reasonable in relation to the risks
assumed by First SunAmerica under the Contracts for the enhanced death
benefit. First SunAmerica undertakes to maintain at its home office a
memorandum, available to the Commission upon request, setting forth in
detail the methodology used in determining that the risk charge of
0.12% for the enhanced death benefit is reasonable in relation to the
risks assumed by First SunAmerica under the Contracts.
6. First SunAmerica has concluded that there is a reasonable
likelihood that the Separate Account's distribution financing
arrangement will benefit the Separate Account and its investors. First
SunAmerica represents that it will maintain and make available to the
Commission upon request a memorandum setting forth the basis of such
conclusion. First SunAmerica further represents that the assets of the
Separate Account will be invested only in management investment
companies which undertake, in the event they should adopt a plan for
financing distribution expenses pursuant to Rule 12b-1 under the 1940
Act, to have such plan formulated and approved by their board of
directors, the majority of whom are not ``interested persons'' of the
management investment company within the meaning of Section 2(a)(19) of
the 1940 Act.
7. With respect to the distribution expense charge, Applicants
represent that the amount of any withdrawal charge imposed when added
to any distribution expense charge previously paid, will not exceed 9%
of purchase payments and that First SunAmerica will monitor each
Contract owner's account for the purpose of ensuring that this
limitation is not exceeded.
Conclusion
For the reasons summarized above, Applicants represent that the
exemptive relief requested is necessary or appropriate in the public
interest and otherwise meets the standards of Section 6(c) of the Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary
[FR Doc. 95-3884 Filed 2-15-95; 8:45 am]
BILLING CODE 8010-01-M