[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]


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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'').

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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