[Federal Register Volume 59, Number 233 (Tuesday, December 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29903]


[[Page Unknown]]

[Federal Register: December 6, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20740; File No. 812-9212]

 

Anchor National Life Insurance Company, et al.

November 29, 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 ``Act'').

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APPLICANTS: Anchor National Life Insurance Company (``Anchor 
National''), Variable Annuity Account Three (the ``Separate Account'') 
and SunAmerica Capital Services, Inc. (``SCS'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for 
exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the Act.

SUMMARY OF APPLICATION: Applicants seek an order to permit the 
deduction from the assets of the Separate Account of mortality and 
expense risk charges and a distribution expense charge imposed under 
certain individual flexible premium deferred variable annuity contracts 
(``Contract'').

FILING DATE: The Application was filed on August 31, 1994 and will be 
amended during the notice period to specify that the relief requested 
is from the provisions of subsection (2)(C) of Section 26(a) of the 
Act.

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 December 
27, 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 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants, c/o Susan L. Harris, 
Esq., Vice President, Associate General Counsel and Secretary, Sun 
America Inc., 1 Sun America Center, Century City, Los Angeles, 
California 90067-6022.

FOR FURTHER INFORMATION CONTACT:
Joyce M. Pickholz, Senior Counsel, on (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. Anchor National is a stock life insurance company organized 
under the laws of the State of California. The Separate Account was 
established by Anchor National on May 24, 1994, to fund variable 
annuity contracts. SCS, a broker-dealer registered under the Exchange 
Act of 1934, is the distributor for the Contracts.
    2. The Contracts provide for accumulation of contract values and 
payment of annuity benefits on a fixed and variable basis. They will be 
initially funded through five portfolios of the Separate Account. Each 
portfolio invests its assets in the shares of one of five available 
series of Westcore Variable Trust (``Trust'').
    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 Anchor National under the Contracts' fixed account option 
(``Fixed Account''), the Separate Account or allocated between them. 
The minimum initial purchase payment for a Contract is $5,000 for non-
qualified contracts ($2,000 for qualified contracts). Additional 
purchase payments may be made in amounts of at least $250 ($100 if made 
in connection with an automatic payment plan).
    4. 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 death benefit is reduced by premium 
tax incurred by Anchor National, if any. The death benefit is equal to 
the greatest of: (1) The total dollar amount of purchase payments made 
prior to the death of the Contract owners, reduced by any partial 
withdrawals and partial annuitizations; or (2) 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, where permitted by state law, (3) in the case of a 
Contract owner who was less then age 70 at the date of Contract issue 
and after the seventh Contract anniversary, the contract value at the 
seventh Contract anniversary, increased by any purchase payments made 
and reduced by any partial withdrawals and partial annuitizations since 
that anniversary.
    5. An annual contract administration charge of $30 is charged 
against each Contract. 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 Contract 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.
    6. During the accumulation period, amounts allocated to the 
Separate Account may be transferred among the portfolios and/or the 
Fixed Account. After the annuity date, transfers may be made from the 
Separate Account to the Fixed Account but not from the Fixed Account to 
the Separate Account. 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 portfolio (or, where applicable, 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. The transfer fee is at cost with no 
anticipation of profit.
    7. A contingent deferred sales charge (``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. The withdrawal charge begins at 7% and declines 
1% per year to 0% after seven years. The withdrawal charge is deducted 
from remaining contract value 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 may generally 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.
    8. Purchase payments no longer subject to the withdrawal charge and 
earnings under a Contract 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 a contract year after the first 
contract year. The 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 under the Contract.
    9. Anchor National deducts a distribution expense charge from each 
portfolio of the Separate 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 revenuers 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, however, it is not 
applied to contract values allocated to the Fixed Account.
    10. Annuity payments will not be affected by the mortality 
experience of persons receiving such payments or the general population 
The annuity rates may not be changed under the Contract. For assuming 
the risks (1) that the life expectancy of an annuitant will be greater 
than that assumed in the guaranteed annuity purchase rates, (2) for 
waiving the withdrawal charge in the event of the death of the Contract 
owners, and (3) for providing the death benefit prior to the annuity 
date, Anchor National deducts a mortality risk charge from the Separate 
Account. The charge is deducted from each portfolio of the Separate 
Account during each valuation period at an annual rate of 0.90% of the 
net asset value of each portfolio. If the mortality risk charge is 
insufficient to cover the actual costs of assuming the mortality risks, 
Anchor National will bear the loss; however, 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.
    11. Anchor National bears the risk that the contract administration 
charge will be insufficient to cover the cost of administering the 
Contracts. For assuming this expense risk, Anchor National deducts an 
expense risk charge from the Separate Account. The charge is deducted 
from each portfolio of 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; however, 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.

Applicants' Legal Analysis

    1. 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 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 Act.
    2. Section 27(c)(2) of the Act prohibits the issuer of a periodic 
payment plan certificate, and any depositor or underwriter for such 
issuer, from selling such periodic payment plan certificates 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 
Contract; the annuity rates cannot be changed after issuance of the 
Contract. Applicants also represent that the contract administration 
charge will not increase regardless of the actual costs incurred. If 
the mortality or expense risk charges or the distribution expense 
charges are insufficient to cover the actual costs, Anchor National 
will bear the loss. To the extent that the 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.
    4. Applicants assert that the mortality and expense risk charge of 
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 practice, and by taking 
into consideration-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.
    5. Anchor 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. Anchor 
National represents that it will maintain and make available to the 
Commission upon request a memorandum setting forth the basis of such 
conclusion. Anchor 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 Act.
    6. With respect to the distribution expense charge, 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 Contract owner's account for the purpose of ensuring that 
this limitation is not exceeded Applicants undertake to include, in the 
prospectus forming part of the registration statement for the 
Contracts, statements (1) describing the purpose of the distribution 
expense charge, and (2) that the staff of the Commission deems such 
charge to constitute a deferred sales charge.

Conclusion

    Applicants submit that the exemptive relief requested in the 
application is 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 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-29903 Filed 12-5-94; 8:45 am]
BILLING CODE 8010-01-M