[Federal Register Volume 60, Number 16 (Wednesday, January 25, 1995)]
[Notices]
[Pages 4938-4941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1841]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20846; File No. 812-9140]
Anchor National Life Insurance Company, et al.
January 19, 1995.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (the ``1940 Act'').
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APPLICANTS: Anchor National Life Insurance company (``Anchor
National''), Variable Annuity Account Two (``Separate Account'') and
Vista Broker-Dealer Services, Inc. (``Vista'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act for exemptions from Sections 26(a)(2) and 27(c)(2) thereof.
SUMMARY OF APPLICATION: Applicants seek an order to the extent
necessary to permit the deduction of mortality and expense risk charges
and a distribution expense charge from the assets of the Separate
Account under certain individual and group variable annuity contracts
(the ``Contracts'') funded through the Separate Account and under
materially similar contracts which may be funded in the future by the
Separate Account (the ``future contracts''), and from the assets of any
other separate account established in the future by Anchor National
(the ``future separate accounts'') in connection with the issuance of
contracts that are materially similar to the Contracts.\1\
\1\Applicants have agreed to amend this application during the
notice period to reflect that the future contracts and the contracts
issued by future separate accounts relying on the exemptive relief
requested here shall be materially similar to the Contracts.
FILING DATE: The application was filed on August 3, 1994, and amended
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on November 22, 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 on the application by writing to the
Secretary of the Commission and serving the 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 February 13, 1995, and should be
accompanied by 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
a hearing by writing to the Secretary of the Commission.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants, c/o Mark J. Mackey, Esq., Routier, Mackey and Johnson,
P.C., 1700 K Street NW., Suite 1003, Washington, DC 20006.
FOR FURTHER INFORMATION CONTACT:
Patrice M. Pitts, Attorney, or Wendy Finck Friedlander, Deputy Chief,
Office of Insurance Products, Division of Investment Management, at
(202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application.
The complete application is available for a fee from the Public
Reference Branch of the Commission. [[Page 4939]]
Applicants' Representations
1. Anchor National is a stock life insurance company organized
under the laws of the State of California. On May 24, 1994, Anchor
National established the Separate Account to fund variable annuity
contracts. The Separate Account is registered under the 1940 Act as a
unit investment trust. The Separate Account is administrated and
accounted for as part of the general business of Anchor National, but
the income, gains or losses of each subaccount of the Separate Account
is/are credited to or charged against the assets held in that
subaccount in accordance with the terms of the Contracts, without
regard to other income, gains or losses of any other subaccount or
arising out of any other business Anchor National may conduct.
2. Vista is a broker-dealer registered under the Securities
Exchange Act of 1934, and is the distributor for the Contracts.
3. The Contracts are tax deferred annuities that provide for the
accumulation of values and the payment of annuity benefits on a fixed
basis, or a combination of both. Typically, a group Contract is issued
to a contract holder and covers all participants in the group. Each
participant receives a certificate that evidences his or her
participation under the Contract. In those states where the group
Contract is not available, an individual Contract may be available
instead. The individual Contract is substantially similar to the group
Contract except that the individual Contract is issued directly to the
owner, rather than to a contract holder for the benefit of a
participant. (For convenience, references to ``participant'' and
``certificate'' herein shall include a Contract owner and the Contract,
respectively, in the case of an individual Contract.)
4. The Contracts are available for retirement plans that do not
qualify for the special federal tax advantages available under the
Internal Revenue code (``non-qualified plans'') as well as for
retirement plans that do qualify for the federal tax advantages
available under the Internal Revenue code (``qualified plans'').
5. Purchase payments under the Contracts may be made to the
Separate Account, to the general account of Anchor National under the
Contract's fixed account option (``Fixed Account''), or allocated
between the Separate Account and the Fixed Account. The minimum initial
purchase payment for a Contract is $5,000 for non-qualified contracts,
or $2,000 for qualified contracts. Additional purchase payments may be
made in amounts of at least $250, or $100 in the case of an automatic
payment plan.
6. Initially, the Contracts will be funded through six subaccounts
(the ``Subaccounts'') of the Separate Account; each Subaccount will
invest in the shares of one of six available series of Mutual Fund
Variable Annuity Trust (``Trust''). Additional underlying funds may
become available in the future.
7. The six available series of the Trust are: the Growth and Income
Portfolio; the Capital Growth Portfolio; the International Equity
Portfolio; the Asset Allocation Portfolio; the U.S. Treasury Income
Portfolio; and the Money Market Portfolio. The Trust is registered
under the 1940 Act as a diversified, open-end, management investment
company.
8. If the participant dies during the accumulation period, a death
benefit will be payable to the beneficiary open receipt by Anchor
National of due proof of death. The death benefit is reduced by the
premium tax incurred by Anchor National, if any. If the participant is
younger than age 70 at the date of certificate issue, the death benefit
is equal to the greatest of: (1) The total dollar amount of purchase
payments made prior to the death of the participant, reduced by any
partial withdrawals and partial annuitizations; (ii) 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
Anchor national; or (iii) where permitted by state law, the Contract
value at that anniversary of the certificate issue date preceding the
date of death--increased by any purchase payments made and reduced by
any partial withdrawals and partial annuitizations since that
anniversary--which yields the greatest result. If the participant is at
least age 70 on the date of certificate issue, the death benefit will
equal (ii) above.
9. An annual contract administration charge of $30 is charged
against each certificate. The amount of this charge is guaranteed and
cannot be increased. This charge reimburses Anchor National for
expenses incurred in establishing and maintaining records relating to a
Contract. The contract administration charge will be assessed on each
anniversary of the certificate issue date that occurs on or prior to
the annuity date. In the event that a total surrender of Contract value
is made, the charge will be assessed as of the date of surrender,
without proration. This charge is not assessed during the annuity
period. The contract administration charge is at cost, with no margin
included for profit.
10. During the accumulation period, amounts allocated to the
Separate Account may be transferred among the Subaccounts and/or to the
Fixed Account. Both before and after the annuity date, Contract values
may be transferred from the Separate Account to the Fixed Account. The
first fifteen transfers in any Contract year are permitted without the
imposition of a transfer fee. A transfer fee of $25 ($10 in
Pennsylvania and Texas) is assessed on the sixteenth and each
subsequent transfer within a Contract year. This fee will be deducted
from Contract values that remain in the Subaccount or the Fixed
Account, as appropriate, from which the transfer was made. If the
remaining Contract value is insufficient to pay the transfer fee, the
fee will be deducted from transferred Contract values. The transfer fee
is at cost, with no anticipation of profit.
11. Although there is a free withdrawal amount that applies to the
first withdrawal during a Contract year after the first, a contingent
deferred sales charge (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. So that all withdrawals are allocated to purchase payments
to which the lowest Withdrawal Charge (if any) applies, 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.
12. Earnings in a participant's account and purchase payments no
longer subject to the Withdrawal Charge may be withdrawn at any time
free of the Withdrawal Charge. In addition, there may be a free
withdrawal amount for the first withdrawal during the second or any
subsequent Contract year. That additional free withdrawal amount is
equal to 10% of purchase payments made more than one year prior to the
date of withdrawal that remain subject to the Withdrawal Charge and
that have not previously been withdrawn, less earnings in the
participant's account.
13. Any amounts withdrawn that exceed the limits described above
may be subject to a Withdrawal Charge in accordance with the table
shown below.
[[Page 4940]]
Withdrawal Charge Table
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Applicable
withdrawal
Contribution year charge
percentage
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Zero...................................................... 6
First..................................................... 6
Second.................................................... 5
Third..................................................... 5
Fourth.................................................... 4
Fifth..................................................... 3
Sixth..................................................... 2
Seventh and later......................................... 0
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The Withdrawal Charge may be reduced or waived in certain
circumstances, as described in the prospectus for the Contracts.
14. Anchor National deducts a distribution expense charge from each
Subaccount during each valuation period that is equal, on an annual
basis, to 0.15% of the net asset value of each Subaccount. This charge
is designed to compensate Anchor National 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; it is not applied to Contract values
allocated to the Fixed Account.
15. Annuity payments will not be affected by the mortality
experience of (i) persons receiving such payments or (ii) the general
population. The annuity rates may not be changed under the Contract.
Anchor National deducts a mortality risk charge from the Separate
Account for assuming the risks that: (i) The life expectancy of an
annuitant will be greater than that assumed in the guaranteed annuity
purchase rates; (ii) the Withdrawal Charge may be waived in the event
of the death of the participant; and (iii) the death benefit must be
provided before the annuity date. The charge is deducted from each
Subaccount during each valuation period at an annual rate of 0.90% of
the net asset value of each Subaccount. If the mortality risk charge is
insufficient to cover the actual cost of assuming the mortality risks,
Anchor National will bear the loss. If the charge proves more than
sufficient, the excess will be a gain to Anchor National. To the extent
Anchor National 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.
16. Anchor National bears the risk that the Contract administration
charge will be insufficient to cover the cost of administering the
Contracts. For assuming this risk, Anchor National deducts an expense
risk charge from 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, Anchor National will bear the loss. If the
charge is more than sufficient, the excess will be a gain to Anchor
National. To the extent Anchor National 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.
17. Applicants represent that the aggregate amount of any
Withdrawal Charges imposed and distribution expense charges paid will
not at any time exceed 9% of purchase payments previously made, and
that Anchor National will monitor each participant's account for the
purpose of ensuring that this limitation is not exceeded. Applicants
undertaken to include in the prospectus forming part of the
registration statement for the Contracts statements describing the
purpose of the distribution expense charge and statements that the
staff of the Commission deems such charge to constitute a deferred
sales charge. Applicants undertake to abide by the representations and
undertakings set forth in this paragraph relating to the distribution
expense charge in connection with future contracts, as well as
materially similar contracts funded through future separate accounts,
relying on the requested order.
Applicants' Legal Analysis
1. Applicants hereby request that the Commission, under Section
6(c) of the 1940 Act, grant exemptions from Sections 26(a)(2) and
27(c)(2) thereof to the extent necessary to permit the deduction of
mortality and expense risk charges and a distribution expense charge:
(i) from the Separate Account under the Contracts and under any future
contracts; and (ii) from the assets of any future separate accounts
which offer contracts materially similar to the contracts.
2. 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
1940 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 1940 Act.
3. Sections 26(a)(2) and 27(c)(2) of the 1940 Act require, among
other things, that all payments received under a periodic payment plan
certificate sold by a registered unit investment trust, any depositor
thereof or underwriter therefor, be held by a qualified bank as trustee
or custodian, 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.
4. Applicants believe that extending the requested relief to the
future contracts, as well as to materially similar contracts funded
through future separate accounts, is 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. Applicants
submit that such an order would promote competitiveness in the variable
annuity contract market by eliminating the need for Anchor National to
file redundant exemptive applications, thereby reducing Anchor
National's administrative expenses and maximizing the efficient use of
Anchor National's resources. The delay and expense involved in having
to seek exemptive relief repeatedly would impair Anchor National's
ability effectively to take advantage of business opportunities as they
arise. Applicants further submit that the requested relief is
consistent with the purposes of the 1940 Act an the protection of
investors for the same reasons. Applicants submit that if Anchor
National were required repeatedly to seek exemptive relief with respect
to the same issues addressed in this application, investors would not
receive any benefit or additional protection thereby.
5. Applicants assert that the aggregate of the mortality and
expense risk charges, 1.25%, is reasonable in relation to the risks
assumed by Anchor National 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, taking into consideration such factors as current charge
levels and benefits provided, the existence of expense charge
guarantees and [[Page 4941]] guaranteed annuity rates. Anchor National
undertakes to maintain at its home office, and make available to the
Commission upon request, a memorandum detailing the methodology used in
making these determinations.
7. Applicants represent that if the mortality, expense risk, or
distribution expense charges are insufficient to cover actual costs,
Anchor National will bear the loss. To the extent that the mortality
and expense risk charges are in excess of actual costs, Anchor
National, at its discretion, may use the excess to offset losses when
the charges are not sufficient to cover expenses.
8. Anchor National submits that there is a reasonable likelihood
that the Separate Account's distribution financing arrangement will
benefit the Separate Account and its investors. Anchor National
represents that it will maintain and make available to the Commission
upon request a memorandum setting for the basis of such conclusion.
Similarly, before relying on any exemptive relief granted herein with
respect to any future contracts or to any materially similar contracts
issued by future separate accounts, Applicants will determine that
there is a reasonable likelihood that the distribution financing
arrangement will benefit the Separate Account (or future separate
accounts) and its (or their) investors. Anchor National will maintain
and make available to the Commission upon request a memorandum setting
forth the basis for such determination.
9. Anchor National further represents that the assets of the
Separate Account and any future separate accounts that rely on the
requested order will be invested only in management investment
companies that 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.
Conclusion
Applicants submit that for the reasons and upon the facts set forth
above, the exemptions from Sections 26(a)(2) and 27(c)(2) of the 1940
Act to permit the deduction of mortality, expense risk, and
distribution expense charges from the assets of the Separate Account
under the Contracts and under any future contracts, and from the assets
of any future separate accounts offering contracts which are materially
similar to the contracts, meet the statutory standards of Section 6(c)
of the 1940 Act. Accordingly, the Applicants assert that the requested
exemptions are 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. 95-1841 Filed 1-24-95; 8:45 am]
BILLING CODE 8010-01-M
