[Federal Register Volume 59, Number 126 (Friday, July 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16008]
[[Page Unknown]]
[Federal Register: July 1, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20374; 812-8832]
American National Insurance Company, et al.
June 24, 1994.
Agency: Securities and Exchange Commission (the ``Commission'' or the
``SEC'').
Action: Notice of application for exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
-----------------------------------------------------------------------
Applicants: American National Insurance Company (``American
National''), American National Variable Annuity Separate Account (the
``Separate Account'') and Securities Management and Research, Inc.
(``SM&R'').
Relevant 1940 Act Sections: Order requested under Section 6(c) for
exemptions from Sections 26(a)(2) and 27(c)(2) of the 1940 Act.
Summary of Application: Applicants seek an order amending a prior order
to the extent necessary to permit the deduction from the assets of the
Separate Account of mortality and expense risk charges imposed under
certain individual and group deferred variable annuity contracts and
individual single premium immediate annuity contracts and the
distribution expense charge imposed under the individual deferred
annuity contracts.
Filing Date: The application was filed on February 10, 1994 and amended
on March 22, 1994 and May 4, 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 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 July 19,
1994, 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 SEC's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th
Street N.W., Washington, D.C. 20549. Applicants, c/o Gregory S.
Garrison, Esq., Greer, Herz and Adams, L.L.P., One Moody Plaza, 18th
Floor, Galveston, Texas 77550.
For Further Information Contact:
Joyce M. Pickholz, Senior Counsel, or Michael V. Wible, Special
Counsel, at (202) 942-0670, Office of Insurance Products, Division of
Investment Management.
Supplementary Information: 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. American National is a stock life insurance company organized
under the laws of the State of Texas. SM&R is a broker-dealer
registered under the Securities Exchange Act of 1934 and is the
principal underwriter for the Contracts.
2. American National established the Separate Account on July 30,
1991 pursuant to the insurance laws of the State of Texas. The
Contracts provide for accumulation of contract values except for
immediate annuity contracts) and payment of annuity benefits on a fixed
and/or variable basis. The variable portion of the Contracts will be
funded initially through twelve subaccounts of the Separate Account.
Each Subaccount invests its assets in the shares of one of twelve
currently available portfolios of certain open-end, management
investment companies.
3. The Contracts are available for retirement plans which do not
qualify for the special federal tax advantages available under the
Internal Revenue Code and for retirement plans which do qualify for the
federal tax advantages available under the Internal Revenue Code.
Purchase payments under the Contracts may be made to the general
account of American National, the Separate Account or allocated between
them. The Minimum initial purchase payment is $2,000 and the minimum
subsequent payment is $100 for an unallocated group contract. The
minimum initial and subsequent purchase payment for qualified and non-
qualified individual deferred annuity contracts is $100. The minimum
payment for an immediate annuity contract is $2,000.
4. During the accumulation period of the deferred annuity
contracts, amounts allocated to the Separate Account may be transferred
among the subaccounts and/or to the general account. A transfer fee of
$10 is assessed on the fifth and each subsequent transfer (other than
transfers resulting from policy loans) within the contract year. The
transfer fee is imposed to compensate American National for the cost of
effecting the transfer. American National does not expect to profit
from such charge.
5. American National assesses an annual contract fee against each
deferred annuity contract. For non-qualified individual deferred
annuity contracts the fee is $25. For qualified individual deferred
contracts the fee is $30. American National assesses a $300 annual fee
against unallocated group deferred annuity contracts. American National
assesses a one-time contract fee of $100 against immediate annuity
contracts. The annual contract fee is charged at the end of each
contract year to cover American National's fixed cost of administering
the Contracts. In addition, an administrative asset fee is charged
daily to each subaccount to cover the varying costs of administering
the Contracts. The fee is 0.10% annually for qualified and non-
qualified individual deferred annuity contracts and 0.20% annually for
unallocated group deferred annuity contracts. These charges are
designed only to reimburse American National for the cost of
administration and are not intended to produce a profit.
6. American National assesses a contingent deferred sales charge on
withdrawals of that portion of a Contract's accumulation value
representing purchase payments. The surrender charge, which is based
upon the number of contract years since the contract year in which a
purchase payment was made, declines at a rate of 1% per year from 8% in
the first year to 0% of the amount withdrawn after eight contract
years.
7. If an annuitant under a deferred annuity contract (other than an
unallocated group contract) dies during the accumulation period, a
death benefit will be payable to the beneficiary. The death benefit is
equal to the greater of: (1) The accumulation value (less any policy
debt) at the end of the valuation period during which due proof of
death is received by American National; or (2) the total dollar amount
of purchase payments, minus the sum of: (a) The total amount of any
partial withdrawals; and (b) any policy debt. The death benefit under a
group unallocated contract will be determined by the applicable plan.
8. Annuity payments will not be affected by the mortality
experience of persons receiving such payments or of the general
population. The annuity rates cannot be changed under the Contracts.
For (1) assuming the risk that the life of annuitant will be greater
than that assumed in the guaranteed annuity purchase rates, and (2)
providing the death benefits prior to the annuity date, American
National deducts a mortality risk charge from the Separate Account. The
charge is deducted from each subaccount during each valuation period at
an annual rate of 0.80% of the net asset value of each subaccount.
9. American National also bears the risk that the administration
charges will be insufficient to cover the costs of administering the
Contracts. For assuming this expense risk, American National deducts an
expense risk charge from the Separate Account. The charge is deducted
from each Subaccount during each valuation period at an annual rate of
0.45% of the net asset value of the Subaccount.
10. American National also bears the risk that the surrender
charges will be insufficient to cover the costs of distributing the
Contracts. For assuming this risk, American National deducts a
distribution expense charge from the Separate Account. The charge is
deducted from each subaccount during each valuation period at an annual
rate of 0.25% of the net asset value of the subaccount.
11. A Commission Order was issued on December 29, 1993 (Investment
Company Act Release No. 19985, the ``Prior Order''), granting
exemptions from the provisions of Sections 26(a)(2) and 27(c)(2) of the
Act to the extent necessary to permit the deduction from the assets of
the Separate Account of the mortality and expense risk charges imposed
under the Contracts. The contingent deferred sales charge described in
the notice of application for the Prior Order began at 8.5% for certain
of the Contracts and declined over twelve contract years. Applicants
now seek an order amending the Prior Order to include relief for the
distribution expense charge and recognizing certain changes made to the
contingent deferred sales charge.
Applicants' Legal Analysis
1. Section 6(c) of the 1940 Act provides, in pertinent part, that
the Commission, by order upon application, may conditionally or
unconditionally exempt any persons, securities, or transactions from
any provision of the 1940 Act 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.
2. Section 27(c)(2) of the 1940 Act prohibits the issuer of a
periodic payment plan certificate, and any depositor or underwriter for
such issuer, from selling such periodic payment plan certificate unless
proceeds of payments on such certificates (other than sales loads) are
held under an indenture or agreement containing specified provisions.
Section 26(a)(2) and the Rules thereunder do not permit a deduction
from the assets of a separate account for mortality and expense risk
charges or distribution expense charges.
3. Applicants represent that the mortality risk is assumed by
virtue of the annuity rates and the death benefit guaranteed in the
Contracts. Applicants also represent that the Contract administration
charges will not increase regardless of the actual costs incurred.
According to the Applicants, if the mortality or expense risk charges
or the distribution expense charges are insufficient to cover the
actual costs, American National will bear the loss. To the extent that
the charges are in excess of actual costs, American National may use
the excess at its discretion to offset losses when the charges are not
sufficient to cover expenses or to pay other expenses, including
distribution expenses.
4. Applicants assert that the mortality and expense risk charge of
1.25% is reasonable in relation to the risks assumed by American
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, and
by taking into consideration such factors as current charge levels and
benefits provided, the existence of expense charge guarantees and
guaranteed annuity rates. American National 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 represent that the amount of any surrender charge
imposed, when added to any distribution expense charge previously paid,
will not exceed 9% of purchase payments and that American National will
monitor each Contract owner's account for the purpose of ensuring that
this limitation is not exceeded. Applicants also undertake to include a
statement in the Contracts' prospectus describing the purpose of the
distribution expense charge and stating that the staff of the
Securities and Exchange Commission deems such distribution expense
charge to constitute a deferred sales charge.
6. Applicants represent that American National has concluded that
there is a reasonable likelihood that the Separate Account's
distribution financing arrangement will benefit the Separate Account
and its investors. American National represents that it will maintain
and make available to the Commission upon request a memorandum setting
forth the basis of such conclusion. American National 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 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 the exemptive relief requested in the
application 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,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 94-16008 Filed 6-30-94; 8:45 am]
BILLING CODE 8010-01-M
