[Federal Register Volume 64, Number 98 (Friday, May 21, 1999)]
[Notices]
[Pages 27831-27835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12816]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23842; File No. 812-11450]
Anchor National Life Insurance Company; et al.; Notice of
Application
May 14, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of Application for an order pursuant to Section 26(b)
and Section 17(b) of the Investment Company Act of 1940 (``1940 Act'').
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[[Page 27832]]
Summary of Application: Applicants seek an order approving the
substitution of: (a) Shares of the Government and Quality Bond
Portfolio (``Government and Quality Bond Portfolio'') of the Anchor
Series Trust (the ``Trust'') for shares of the Fixed Income Portfolio
(``Fixed Income Portfolio'') of the Trust; and (b) shares of the
Strategic Multi-Asset Portfolio (``Strategic Multi-Asset Portfolio'')
of the Trust for shares of the Foreign Securities Portfolio (``Foreign
Securities Portfolio'') of the Trust, each held by Variable Annuity
Account One of Anchor National Life Insurance Company, Variable Annuity
Account One of First SunAmerica Life Insurance Company and Presidential
Variable Account One, (collectively the ``Variable Accounts'') as
underlying investment vehicles for certain variable annuity contracts
(the ``Contract'') offered by the Variable Accounts (the
``Substitutions''). Applicants also seek an order exempting them from
Section 17(a) of the 1940 Act to the extent necessary: (a) To permit
certain in-kind transactions in connection with the Substitutions; and
(b) as part of the Substitutions, to permit divisions of the Variable
Accounts holding the same securities to be combined.
Applicants: Anchor National Life Insurance Company (``Anchor
National''), First SunAmerica Life Insurance Company (``First
SunAmerica''), Presidential Life Insurance Company (``Presidential''
together with Anchor National and First SunAmerica, the ``Life
Companies''), Variable Annuity Account One of Anchor National (``AN
Account''), Variable Annuity Account One of First SunAmerica (``FS
Account''), Presidential Variable Account One (``Presidential
Account''), and Anchor Series Trust.
Filing Date: The Application was filed on January 5, 1999, and
amended on April 30, 1999.
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 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 June 8, 1999, and must 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 which to be notified of a hearing may
request notification by writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549-0609. Applicants Anchor National,
AN Account, First SunAmerica, FS Account, and Trust c/o Robert M.
Zakem, Esq., SunAmerica Asset Management Corporation, The SunAmerica
Center, 733 Third Avenue, New York, New York 10017-3204; and Applicant
Presidential and Presidential Account, c/o Charles Snyder, Presidential
Life Insurance Company, 69 Lydecker Street, Nyack, New York 10906.
Copies to Joan E. Boros, Esq., Jorden Burt Boros Cicchetti Berenson &
Johnson, 1025 Thomas Jefferson Street, N.W., East Lobby, Suite 400,
Washington, D.C. 20007.
FOR FURTHER INFORMATION CONTACT: Joyce Merrick Pickholz, Senior
Counsel, or Kevin M. Kirchoff, Branch Chief, Office of Insurance
Products, Division of Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
SEC's Public Reference Branch, 450 Fifth Street N.W., Washington, DC
20549-0102 [tel. (202) 942-8090]
Applicants' Representations
1. Anchor National is a stock life insurance company organized
under the insurance laws of the State of California in April 1965 and
redomesticated under the laws of the state of Arizona on January 1,
1996. Anchor National is an indirect wholly-owned subsidiary of
American International Group, Inc. (``AIG''). Anchor National is
authorized to sell annuities and life insurance in the District of
Columbia and all states except New York.
2. First SunAmerica is a stock life insurance company organized
under the insurance laws of the state of New York on December 5, 1978.
First SunAmerica is a wholly-owned subsidiary of AIG. First SunAmerica
is authorized to sell annuities and life insurance business in the
states of New York, New Mexico, and Nebraska.
3. Presidential is a stock life insurance company organized under
the laws of the state of New York in 1965. Presidential is a wholly-
owned subsidiary of Presidential Life Corporation, a publicly-owned
holding company. Presidential offers life insurance and annuities and
is admitted to do business in forty-eight states and the District of
Columbia.
4. The Variable Accounts are segregated investment accounts
registered under the 1940 Act as unit investment trusts. Each Variable
Account is divided into divisions that correspond to the portfolios of
the Trust. Each Variable Account is used to fund certain variable
annuity contracts issued by the corresponding Life Company.
5. The Trust is a series type open-end management investment
company, organized as a Massachusetts business trust on August 26,
1983. The Trust consists of eleven series (``Portfolios''). Shares of
the Portfolios are currently available to the public only through the
purchase of certain variable annuity contracts issued by the Life
Companies. SunAmerica Asset Management Company (``SAAMCo'') acts as the
Trust's investment adviser. Wellington Management Company, LLP serves
as sub-adviser for all the Portfolios of the Trust. SAAMCo is under
common control with and therefore affiliated with Anchor National and
First SunAmerica. SAAMCo is not affiliated with Presidential.
6. The Life Companies have decided to discontinue offering
divisions investing in the Fixed Income Portfolio and the Foreign
Securities Portfolio (the ``Replaced Portfolios'') as investment
options under the Contracts and substitute shares of the Government and
Quality Bond Portfolio and the Strategic Multi-Asset Portfolio (the
``Substituted Portfolios'') because the Replaced Portfolio have not
retained sufficient Contract owner interest and are dwindling in size.
Moreover, the small size of the Replaced Portfolio makes it difficult
to manage the assets so as to maximize performance.
7. The investment objective of the Fixed Income Portfolio is to
obtain a high level of current income consistent with preservation of
capital. The Government and Quality Bond Portfolio seeks relatively
high current income, liquidity and security of principal. Both
Portfolios invest primarily in fixed income securities. The primary
differences are that the Government and Quality Bond Portfolio invests
a higher percentage of its assets in government securities as compared
to the Fixed Income Portfolio; the Government and Quality Bond
Portfolio has higher credit rating requirements for its non-government
fixed income portfolio securities, and the Fixed Income Portfolio may
(but is not required to) invest up to 20% of its assets in convertible
debt securities, warrants, non-investment grade debt securities and
dividend paying marketable common stock. The Life Companies do not
believe that any of these differences
[[Page 27833]]
are significant, partly because notwithstanding its somewhat more
restrictive investment practices and guidelines, the Government and
Quality Bond Portfolio generally has outperformed the Fixed income
portfolio.
8. The Foreign Securities Portfolio has as its investment objective
long-term capital appreciation through investment in a diversified
portfolio of primarily equity securities issued by foreign companies
and primarily denominated in foreign currencies. The investment
objective of the Strategic Multi-Asset Portfolio is to achieve high
long-term total investment return by actively allocating its assets
among sub-portfolios consisting of a Global Core Equity Sub-Portfolio,
a Global Core Bond Sub-Portfolio, a Capital Appreciation Sub-Portfolio
and a Money Market Sub-Portfolio. Although the Strategic Multi-Asset
Portfolio can invest in a wider range of asset classes than can the
Foreign Securities Portfolio, the investment objectives of the two
Portfolios are similar, and the Life Companies believe that the
Strategic Multi Asset Portfolio is an appropriate replacement for the
Foreign Securities Portfolio.
9. The Government and Quality Bond Portfolio has a lower expense
ratio (.7%) than the Fixed Income Portfolio (1.0%). While the Foreign
Securities Portfolio and the Strategic Multi-Asset Portfolio currently
have equivalent expense ratios of 1.4%, the Life Companies believe the
addition of assets resulting from the substitutions may reduce the
expense ratio of the Strategic Multi-Asset Portfolio whereas the
expense ratio of the Foreign Securities Portfolio has risen from 1.2%
to 1.5% of average net assets since 1994.
10. As of June 30, 1998, total net assets of the Government and
Quality Bond Portfolio were $272.1 million; $17.5 million for the Fixed
Income Portfolios; $53.9 million for the Strategic Multi-Asset
Portfolio and $35.5 million for the Foreign Securities Portfolio.
11. Total Returns for the Portfolios were as follows:
[In percent]
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1994 1995 1996 1997 1998
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Fixed Income Portfolio......................... (3.2) 19.2 2.4 9.4 8.0
Government and Quality Bond Portfolio.......... (3.1) 19.4 2.9 9.5 9.2
Foreign Securities Portfolio................... (3.2) 12.6 11.5 (1.0) 10.7
Strategic Multi-Asset Portfolio................ (2.6) 22.8 14.8 14.3 15.2
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12. The Life Companies have determined that the Substituted
Portfolios are appropriate replacements for the Replaced Portfolios,
because: (a) the Government and Quality Bond Portfolio has a similar
investment objective to the Fixed Income Portfolio, invests in the same
types of securities, i.e., fixed income securities, and has generally
better performance and lower expenses; and (b) the Strategic Multi-
Asset Portfolio has a similar investment objective to the Foreign
Securities Portfolio, generally invests a significant portion of its
assets in foreign securities, has generally better performance, and has
a similar expense ratio, which may decline as a result of the
additional assets resulting from the Substitutions Accordingly, each
Life Company proposes substituting (a) shares of the Government and
Quality Bond Portfolio for shares of the Fixed Income Portfolio; and
(b) shares of the Strategic Multi-Asset Portfolio for shares of the
Foreign Securities Portfolio.
13. Each of the Life Companies will redeem for cash or in kind all
of the shares of each Replaced Fund that it currently holds on behalf
of its applicable Variable Account at the close of business on the date
selected for the Substitutions. It is anticipated that the redemptions
will be partly or wholly in-kind, and thus purchases of the applicable
Substitute Portfolios will be paid for partly or wholly with portfolio
securities.
14. Each Life Company, on behalf of its Variable Account, will
simultaneously place a redemption request with each Replaced Portfolio
and a purchase order with the corresponding Substituted Portfolio so
that each purchase will be for the exact amount of the redemption
proceeds. As a result, at all times, monies attributable to Contract
owners (``Owners'') then invested in the Replaced Funds will remain
fully invested and will result in no change in the amount of any
Owner's contract value or investment in the applicable Variable
Account.
15. The Trust will effect the redemptions-in-kind and the transfers
of portfolio securities in a manner that is consistent with the
investment objectives, policies and restrictions, and federal tax law
and 1940 Act diversification requirements applicable to the Substituted
Portfolio. The Life Companies each will take appropriate steps to
assure that the portfolio securities selected for redemptions-in-kind
are suitable investments for the Substituted Portfolios. In effecting
the redemptions-in-kind and transfers, the Trust will comply with the
requirements of Rule 17a-7 under the 1940 Act to the extent possible
and the procedures established thereunder by the Board of Trustees of
the Trust.
16. The full net asset value of the redeemed shares held by the
Variable Accounts will be reflected in the Owners' accumulation unit or
annuity unit values following the Substitution. The Life Companies will
assume all transaction costs and expenses relating to the
Substitutiuon, including any direct or indirect costs of liquidating
the assets of the Replaced Portfolios, so that the full net asset value
of redeemed shares of the Replaced Portfolios held by the Variable
Accounts will be reflected in the Owners' accumulation unit or annuity
unit values following the Substitution.
17. The Trust's investment adviser and subadviser have been fully
advised of the terms of the Substitutions. Applicants anticipate that
the investment adviser and subadviser, to the extent appropriate, will
conduct the trading of portfolio securities in a manner that provides
for the anticipated redemptions of shares held by the Variable
Accounts.
18. As part of the Substitutions, each Life Company will combine
the divisions invested in the Replaced Portfolios with the divisions
that currently invest in the corresponding Substituted Portfolios.
19. Each Life Company will supplement the prospectus for its
applicable Variable Account to reflect the proposed Substitutions.
Within five days after the Substitutions, the Life Companies will send
to their respective Owners written notice of the Substitutions (the
``Notice'') identifying the shares of the shares of the Replaced
Portfolios which have been eliminated and the shares of the Substituted
Portfolios which have been substituted.
[[Page 27834]]
Owners will already have received a copy of the Trust's current
prospectus, which includes a description of the Substituted Portfolios.
20. Owners will be advised in the Notice that, for a period of
thirty-one days from the mailing of the Notice, Owners may transfer all
assets, as substituted, to any other available division without
limitation or charge and without any such transfer counting as one of
the limited number of transfers permitted in a contract year free of
charge (the ``Free Transfer Period'').
Applicants' Legal Analysis
1. Section 26(b) of the 1940 Act provides, in pertinent part, that
it shall be unlawful for any depositor or trustee of a registered unit
investment trust holding the security of a single issuer to substitute
another security for such security unless the Commission shall have
approved such substitution. The purpose of Section 26(b) is both to
protect the expectation of investors in a unit investment trust that
the unit investment trust will accumulate the shares of a particular
issuer and to prevent unscrutinized substitutions which might, in
effect, force shareholders dissatisfied with a substituted security to
redeem their shares, thereby incurring either a loss of the sales load
deducted from initial purchase payments, an additional sales load upon
reinvestment of the redemption proceeds, or both. Section 26(b) affords
this protection to investors by preventing a depositor or trustee of a
unit investment trust holding the shares of one issuer from
substituting for those shares the shares of another issuer, unless the
Commission approves that substitution.
2. Applicants represent that the purposes, terms and conditions of
the Substitutions are consistent with the principles and purposes of
Section 26(b) and do not entail any of the abuses it is designed to
prevent. Applicants submit that the Substitutions are an appropriate
solution to the insufficient size of the Replaced Portfolios, which
makes it difficult to achieve consistent investment performance and to
reduce operating expenses. Applicants assert that the Substitutions
will solve these problems in a manner that is in the Owners' best
interests because: (a) the Government and Quality Bond has a similar
investment objective to the Fixed Income Portfolio, invests in the same
types of securities, i.e., fixed income securities, and has generally
better performance and lower expenses; and (b) the Strategic Multi-
Asset Portfolio has a similar investment objective to the Foreign
Securities Portfolio, invests a portion of its assets in foreign equity
securities, has generally better performance, and has a similar expense
ratio, which may decline as a result of the additional assets resulting
from the Substitutions.
3. Applicants represent that the Substitution will not result in
the type of costly forced redemption that Section 26(b) was intended to
guard against and is consistent with the protection of investors and
the purposes fairly intended by the 1940 Act for the following reasons:
(a) the Substitute Portfolios will continue to fulfill the
Owners' objectives and risk expectations, because the Government and
Quality Bond Portfolio has investment objectives, policies, and
restrictions substantially similar to the objectives, policies and
restrictions of the Fixed Income Portfolio and, of the Trust's
Portfolios, the Strategic Multi-Asset Portfolio has investment
objectives, policies and restrictions most similar to those of the
Foreign Securities Portfolio;
(b) during the Free Transfer Period, an Owner may request that
assets be reallocated to another division selected by the Owner, and
Applicants represent that the Free Transfer Period provides
sufficient time for Owners to consider their reinvestment options;
(c) the Substitution will, in all cases, be at the net asset
value of the respective shares, without the imposition of any
transfer or similar charge;
(d) the Life Companies have undertaken to assume the expenses,
including, but not limited to, legal and accounting fees and any
brokerage commissions, in connection with the Substitutions and are
effecting the redemption of shares in a manner that attributes all
transaction costs to the Life Companies;
(e) the Substitutions will in no way alter the contractual
obligations of the Life Companies;
(f) the Substitutions in no way will alter the tax benefits to
Owners; and
(g) the Substitutions are expected to confer certain economic
benefits on Owners by virtue of the enhanced asset size and lower
expenses, as stated above.
Applicants consent to be bound by the terms and conditions listed
immediately above in this paragraph.
4. Applicants represent that they have determined that it is in the
best interests of Owners to effect the Substitutions. Applicants have
determined that the investment objective and related investments of the
Government and Quality Bond Portfolio is substantially similar to those
of the Fixed Income Portfolio, that the investment objectives and
related investments of the Strategic Multi-Asset Portfolio, among all
the Portfolios, are most similar to those of the Foreign Securities
Portfolio, and that the proposed Substitutions are consistent with
Commission precedent.
5. Applicants state that the Government and Quality Bond Portfolio
has a lower expense ratio than the Fixed Income Portfolio. The expense
ratio of the Foreign Securities Portfolio has risen from 1.2% to 1.5%
of average net assets since 1994. While the Foreign Securities
Portfolio and the Strategic Multi-Asset Portfolio currently have
equivalent expense ratios, the Applicants believe the addition of
assets resulting from the substitutions may reduce the expense ratio of
the Strategic Multi-Asset Portfolio.
6. Applicants submit that the investment performance of the
Substituted Portfolios are generally higher than the performance of the
corresponding Replaced Portfolios. The total returns of the Government
and Quality Bond Portfolio have been slightly higher than those of the
Fixed Income Portfolio, while the total returns of the Strategic Multi-
Asset Portfolio generally have been significantly higher than the total
returns of the Foreign Securities Portfolio.
7. Section 17(a)(1) of the 1940 Act prohibits any affiliated person
of a registered investment company, or an affiliated person of such
affiliated person, from selling any security or other property to such
registered investment company. Section 17(a)(2) of the 1940 Act
prohibits any of the persons described above from purchasing any
security or other property from such registered investment company.
Certain of the Substitutions will be effected partly or wholly in-kind.
Moreover, after the Substitutions the Life Companies will combine their
respective separate account divisions invested in the Replaced
Portfolios with the divisions invested in the corresponding Substituted
Portfolios. The combination may be deemed to involve the indirect
purchase of shares of the Substituted Portfolios with portfolio
securities of the corresponding Replaced Portfolios, and the indirect
sale of securities of the Replaced Portfolios for shares of the
Substituted Portfolios. Thus each Portfolio would be acting as
principal, in the purchase and sale of securities to the other
Portfolio, in contravention of Section 17(a). The Commission has taken
the interpretive position that divisions of a registered separate
account are to be treated as separate investment companies in
connection with substitution transactions. The Life Companies are
arguably transferring unit values between their separate account
divisions. The transfer of unit values may involve purchase and sale
transactions between divisions that are affiliated persons. The sale
and
[[Page 27835]]
purchase transactions between divisions may come within the scope of
Sections 17(a)(1) and 17(a)(2) of the 1940 Act, respectively.
Therefore, the combination of divisions may require an exemption from
Section 17(a) of the 1940 Act, pursuant to Section 17(b).
8. Section 17(b) of the 1940 Act provides that the Commission may
grant an order exempting transactions prohibited by Section 17(a) upon
application if evidence establishes that: (1) the terms of the proposed
transaction, including the consideration to be paid or received, are
reasonable and fair and do not involve over-reaching on the part of any
person concerned; (b) the proposed transaction is consistent with the
investment policy of each registered investment company concerned, as
recited in its registration statement and reports filed under the 1940
Act; and (c) the proposed transaction is consistent with the general
purposes of the 1940 Act. Applicants represent that the terms of the
proposed transactions, as described in the Application are: reasonable
and fair, including the consideration to be paid and received; do not
involve over-reaching; are consistent with the policies of the
Portfolios; and are consistent with the general purposes of the 1940
Act.
9. Applicants represent that, for all the reasons stated above with
regard to Section 26(b) of the 1940 Act, the Substitutions are
reasonable and fair and do not involve overreaching on the part of any
person. Applicants expect that existing and future Owners will benefit
from the consolidation of assets in the Substituted Portfolios.
Applicants state that the transactions effecting the Substitutions will
be effected in conformity with Section 22(c) of the 1940 Act and Rule
22c-1 thereunder. Moreover, Applicants state that the partial
redemptions-in-kind of portfolio securities of certain of the Replaced
Portfolios will be effected in conformity with Rule 17a-7 under the
1940 Act to the extent possible. Applicants submit that Owners'
interests after the Substitution, in practical economic terms, will not
differ in any measurable way from such interests immediately prior to
the Substitution. In each case, Applicants assert that the
consideration to be received and paid is, therefore, reasonable and
fair. Applicants each believe, based on their review of existing
federal income tax laws and regulations and advice of counsel, that the
Substitutions will not give rise to any taxable income for Owners.
10. Applicants submit that the investment objectives of each of the
Substituted Portfolios are sufficiently similar to the investment
objectives of the Replaced Portfolios that, in this regard, the
Substitutions are consistent with Commission precedent pursuant to
Section 17 of the 1940 Act. Also, the Substitutions are consistent with
the general purposes of the 1940 Act, as enunciated in the Findings and
Declaration of Policy in Section I of the 1940 Act. The proposed
transactions do not present any of the issues or abuses that the 1940
Act is designed to prevent. Moreover, the proposed transactions will be
effected in a manner consistent with the public interest and the
protection of investors. Owners will be fully informed of the terms of
the substitutions through prospectus supplements and the Notice, and
will have an opportunity to reallocate investments prior to and
following the Substitutions.
Conclusion
Applicants submit that, for the reasons summarized above, their
requests meet the standards set out in Sections 17(b) and 26(b) of the
1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-12816 Filed 5-20-99; 8:45 am]
BILLING CODE 8010-01-M
