[Federal Register Volume 60, Number 127 (Monday, July 3, 1995)]
[Notices]
[Pages 34566-34568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16210]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21165; No. 812-9392]
Anchor National Life Insurance Company, et al.
June 26, 1995.
agency: Securities and Exchange Commission (``Commission'').
action: Notice of application for an order pursuant to the Investment
Company Act of 1940 (the ``1940 Act'').
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applicants: Anchor National Life Insurance Company (``Anchor
National''), Variable Annuity Account Four (the ``Variable Account''),
and SunAmerica Capital Services, Inc. (``SunAmerica'').
relevant 1940 act sections: Order requested pursuant to Section 6(c) of
the 1940 Act for exemptions from the provisions of Sections 26(a)(2)(C)
and 27(c)(2) thereof.
summary of application: Applicants seek an order permitting the
deduction of mortality and expense risk and distribution expense risk
charges from: the assets of the Variable Account in connection with the
offer and sale of certain flexible payment deferred annuity contracts
(``Existing Contracts'') and any annuity contracts substantially
similar in all material respects to the Existing Contracts (``Future
Contracts,'' together with Existing Contracts, the ``Contracts'') which
may be sold in the future by the Variable Account; or the assets of any
other separate account (``Future Accounts,'' together with the Variable
Account, the ``Accounts'') established in the future by Anchor National
in connection with the issuance of Future Contracts.
filing date: The application was filed on December 21, 1994, and
amended on June 16, 1995.
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 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 July 21, 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 may request notification of a hearing by
writing to the Secretary of the Commission.
addresses: Secretary, Securities and Exchange Commission, 450 5th
Street NW., Washington, DC 20549. Applicants, Susan L. Harris, Esq.,
SunAmerica Inc., 1 SunAmerica Center, Century City, Los Angles,
California 90067-6022.
for further information contact: Kevin M. Kirchoff, Senior Counsel, or
Patrice M. Pitts, Special Counsel, 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
Public Reference Branch of the Commission.
Applicants' Representations
1. Anchor National is a stock life insurance company incorporated
under the laws of the State of California.
2. SunAmerica will serve as distributor of the Contracts.
SunAmerica is registered as a broker-dealer pursuant to the Securities
Exchange Act of 1934.
3. The Variable Account was established by Anchor National as a
separate investment account on November 8, 1994, to act as a funding
medium for variable annuity contracts. The Variable Account is
registered pursuant to the 1940 Act as a unit investment trust.
4. The Variable Account presently consists of eighteen subaccounts,
each of which will invest in the shares of one of four available
separate investment series of the Anchor Series Trust or one of
fourteen available separate investment series of the SunAmerica Series
Trust. Additional underlying funds may become available in the future.
Both the Anchor Series Trust and the SunAmerica Series Trust are
registered pursuant to the 1940 Act as diversified, open-end,
management investment companies.
5. The Variable Account and each of its subaccounts is administered
and accounted for as part of the general business of Anchor National,
but the income, gains or losses of each subaccount 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.
6. The Contracts are available for retirement plans which do not
qualify for the special federal tax advantages available pursuant to
the International Revenue Code and for retirement plans which do
qualify for the federal tax advantages available pursuant to the
Internal Revenue Code. The Contracts provide for the accumulation of
contract values and payment of annuity benefits on a fixed and variable
basis.
7. Purchase payments under the Contracts may be made to the general
account of Anchor National under one of the Contracts' fixed account
options (the ``Fixed Account''), the Variable Account, or allocated
between them. The minimum initial purchase payment for a Contract
issued on a qualified or non-qualified basis is $50,000 and additional
purchase payments may be made in amounts of at least $500.
8. If the contract owner dies during the accumulation period, a
death benefit will be payable to the beneficiary upon receipt by Anchor
National 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 Anchor National; or
(2) The total dollar amount of purchase payments, minus the sum of:
(a) The total amount of any partial withdrawals and partial
annuitizations, and
(b) Premium taxes incurred.
9. Where permitted by state law, Anchor National will provide an
enhanced death benefit. During the first seven contract years, the
enhanced death benefit is determined by recomputing the standard death
benefit by accumulating all amounts under (2) above annually at 4% (3%
if the contract owner was age 70 or order on the date of issue) to the
date of death. After the seventh contract year, the enhanced death
benefit is the greater of the amount recomputed as above, or the
following:
The contract value at the seventh contract anniversary, plus any
purchase payments made since that anniversary, minus the sum of:
(1) The total amount of partial withdrawals and partial
annuitizations since such seventh anniversary, and
[[Page 34567]]
(2) Premium taxes incurred since the seventh anniversary, all
accumulated annually at 4% (3% if the contract owner was age 70 or
older on the date of issue) to the date of death.
10. During the accumulation period, amounts allocated to the
Variable Account may be transferred among the portfolios and/or the
Fixed Account. Both prior to and after the annuity date, contract
values may be transferred from the Variable Account to the Fixed
Account. Any amounts allocated or transferred to the Fixed Account may
be transferred from the Fixed Account to the Variable Account only on
or before the annuity date. 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 ($10 in
Pennsylvania and Texas) 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 subaccount (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. Applicants represent that
the transfer fee is at cost with no anticipation of profit.
11. 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. During the first nine contribution years the
withdrawal charge percentage will be 0.75%. During the tenth and
subsequent contribution years there will be no withdrawal charge.
20. Anchor National currently intends to deduct premium taxes at
the time of surrender, upon death of the contract owner or upon
annuitization. Anchor National reserves the right, however, to deduct
premium taxes when they are incurred. Some states assess premium taxes
at the time purchase payments are made. Other states assess premium
taxes at the time of surrender or when annuity payments begin. Premium
taxes range from 0% to 3% in the jurisdictions in which Anchor National
anticipates that the Contracts will be sold.
13. 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 withdrawals are
allocated to purchase payments to which the lowest (if any) withdrawal
charge applies.
14. Anchor National deducts a distribution expense risk charge from
each portfolio of the Variable 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 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 risk charge is assessed
during both the accumulation period and the annuity period, but it is
not applied to contract values allocated to the Fixed Account.
15. The annuity rates may not be changed under the Contracts. For
(1) assuming the risk that the life expectancy of an annuitant will be
greater than that assumed in the guaranteed annuity purchase rates, (2)
waiving the withdrawal charge in the event of the death of the contract
owner, and (3) providing both a standard and enhanced death benefit
prior to the annuity date, Anchor National deducts a mortality risk
charge from the Variable Account. The charge is deducted from each
subaccount of the Variable Account during each valuation period at an
annual rate of 1.02% of the net asset value of each subaccount. The
portion of the total mortality risk charge attributable to Anchor
National's assuming (1) and (2) above and providing a standard death
benefit is 0.90%, the balance of 0.12% is assessed for providing the
enhanced death benefit.
16. If the mortality risk charge is insufficient to cover the
actual costs of assuming the mortality risks, Anchor National will bear
the loss. If the charge proves more than sufficient, the excess will be
a profit for Anchor National. To the extent Anchor National realizes
any such profit, it may be used at its discretion, including for
offsetting losses experienced when the mortality risk charge is
insufficient. The mortality risk charge may not be increased under the
Contracts.
17. There is no annual contract charge imposed by Anchor National
to help defray the costs of administering the Contracts. However,
Anchor National deducts an expense risk charge from the Variable
Account to cover such administrative costs. The charge is deducted from
each subaccount of the Variable 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;
however, if the charge is more than sufficient, the excess will be a
profit for Anchor National. To the extent that Anchor National realizes
any such profit, it may be used at its discretion, including for
offsetting losses when the expense risk charge is insufficient. The
expense risk charge may not be increased under the Contract.
Applicants' Legal Analysis and Conditions
1. Applicants request an order pursuant to Section 6(c) of the 1940
Act exempting them from Sections 26(a)(2)(C) and 27(c)(2) thereof to
the extent necessary to permit the deduction of mortality and expense
risk and distribution expense risk charges from the assets of the
Accounts in connection with the issue and sale of the Contracts.
2. Pursuant to Section 6(c) of the 1940 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)(C) and 27(c)(2) of the 1940 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
are 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.
4. Applicants submit that their request for exemptive relief for
deduction of the mortality and expense risk and distribution expense
risk charges from the assets of the Accounts in connection with the
issue and sale of the Contracts would promote competitiveness in the
variable annuity
[[Page 34568]]
contract market by eliminating the need for redundant exemptive
applications, thereby reducing Applicants' administrative expenses and
maximizing the efficient use of their resources. Applicants further
submit that the delay and expense involved in having repeatedly to seek
exemptive relief would impair their ability effectively to take
advantage of business opportunities as they arise. Further, if
Applicants 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. Thus,
Applicants believe that the requested exemptions are appropriate in the
public interest and consistent with the protection of investors and
purposes fairly intended by the policy and provisions of the 1940 Act.
5. Applicants assert that the mortality and expense risk charge of
1.25% (which includes all risk charges imposed under the Existing
Contracts with the exception of the 0.12% risk charge for the enhanced
death benefit) is reasonable in relation to the risks assumed by Anchor
National under the Existing 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 on consideration of such factors as current charge
levels and benefits provided, the existence of expense charge
guarantees and guaranteed annuity rates. Anchor 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.
6. Applicants assert that the mortality risk charge of 0.12% for
the enhanced death benefit is reasonable in relation to the risks
assumed by Anchor National under the Existing Contracts for the
enhanced death benefit. Anchor 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 this
determination.
7. Applicants represent that, prior to relying on exemptive relief
resulting from this application in connection with Future Contracts
funded through the Accounts, Applicants will determine that any
mortality and expense risk charges under such contracts are reasonable
in amount as determined by industry practice with respect to comparable
annuity products and/or reasonable in relation to the risks assumed by
Anchor National. Applicants represent that Anchor National will
maintain and make available to the Commission upon request a memorandum
setting forth the basis of such conclusion.
8. Anchor National has concluded that there is a reasonable
likelihood that the Variable Account's distribution financing
arrangement will benefit the Variable Account and its investors. Anchor
National represents that it will maintain and make available to the
Commission upon request a memorandum setting forth the basis of such
conclusion.
9. Applicants represent that, prior to relying on exemptive relief
resulting from this application in connection with Future Contracts
funded through the Accounts, Applicants will determine that there is a
reasonable likelihood that the distribution financing arrangement will
benefit the Variable Account and its investors or Future Accounts and
their investors. Anchor National represents that it will maintain and
make available to the Commission upon request a memorandum setting
forth the basis of such conclusion.
10. Anchor National represents that the assets of the Variable
Account and any Future Accounts 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.
11. Applicants represent that the amount of any withdrawal charge
imposed under the Contracts, when added to any distribution expense
risk charge previously paid thereunder, will not exceed 9% of purchase
payments, and that Anchor National will monitor the account of each
Contract owner to ensure that this limitation is not exceeded.
Conclusion
For the reasons summarized above, Applicants represent that the
exemptions requested are necessary and 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. 95-16210 Filed 6-30-95; 8:45 am]
BILLING CODE 8010-01-M
