[Federal Register Volume 60, Number 16 (Wednesday, January 25, 1995)]
[Notices]
[Pages 4938-4941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1841]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20846; File No. 812-9140]


Anchor National Life Insurance Company, et al.

January 19, 1995.
AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1940 (the ``1940 Act'').

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APPLICANTS: Anchor National Life Insurance company (``Anchor 
National''), Variable Annuity Account Two (``Separate Account'') and 
Vista Broker-Dealer Services, Inc. (``Vista'').

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

SUMMARY OF APPLICATION: Applicants seek an order to the extent 
necessary to permit the deduction of mortality and expense risk charges 
and a distribution expense charge from the assets of the Separate 
Account under certain individual and group variable annuity contracts 
(the ``Contracts'') funded through the Separate Account and under 
materially similar contracts which may be funded in the future by the 
Separate Account (the ``future contracts''), and from the assets of any 
other separate account established in the future by Anchor National 
(the ``future separate accounts'') in connection with the issuance of 
contracts that are materially similar to the Contracts.\1\

    \1\Applicants have agreed to amend this application during the 
notice period to reflect that the future contracts and the contracts 
issued by future separate accounts relying on the exemptive relief 
requested here shall be materially similar to the Contracts.

FILING DATE: The application was filed on August 3, 1994, and amended 
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on November 22, 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 on the application by writing to the 
Secretary of the Commission and serving the 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 February 13, 1995, 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 Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549. 
Applicants, c/o Mark J. Mackey, Esq., Routier, Mackey and Johnson, 
P.C., 1700 K Street NW., Suite 1003, Washington, DC 20006.

FOR FURTHER INFORMATION CONTACT:
Patrice M. Pitts, Attorney, or Wendy Finck Friedlander, Deputy Chief, 
Office of Insurance Products, Division of Investment Management, at 
(202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application is available for a fee from the Public 
Reference Branch of the Commission. [[Page 4939]] 

Applicants' Representations

    1. Anchor National is a stock life insurance company organized 
under the laws of the State of California. On May 24, 1994, Anchor 
National established the Separate Account to fund variable annuity 
contracts. The Separate Account is registered under the 1940 Act as a 
unit investment trust. The Separate Account is administrated and 
accounted for as part of the general business of Anchor National, but 
the income, gains or losses of each subaccount of the Separate Account 
is/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.
    2. Vista is a broker-dealer registered under the Securities 
Exchange Act of 1934, and is the distributor for the Contracts.
    3. The Contracts are tax deferred annuities that provide for the 
accumulation of values and the payment of annuity benefits on a fixed 
basis, or a combination of both. Typically, a group Contract is issued 
to a contract holder and covers all participants in the group. Each 
participant receives a certificate that evidences his or her 
participation under the Contract. In those states where the group 
Contract is not available, an individual Contract may be available 
instead. The individual Contract is substantially similar to the group 
Contract except that the individual Contract is issued directly to the 
owner, rather than to a contract holder for the benefit of a 
participant. (For convenience, references to ``participant'' and 
``certificate'' herein shall include a Contract owner and the Contract, 
respectively, in the case of an individual Contract.)
    4. The Contracts are available for retirement plans that do not 
qualify for the special federal tax advantages available under the 
Internal Revenue code (``non-qualified plans'') as well as for 
retirement plans that do qualify for the federal tax advantages 
available under the Internal Revenue code (``qualified plans'').
    5. Purchase payments under the Contracts may be made to the 
Separate Account, to the general account of Anchor National under the 
Contract's fixed account option (``Fixed Account''), or allocated 
between the Separate Account and the Fixed Account. The minimum initial 
purchase payment for a Contract is $5,000 for non-qualified contracts, 
or $2,000 for qualified contracts. Additional purchase payments may be 
made in amounts of at least $250, or $100 in the case of an automatic 
payment plan.
    6. Initially, the Contracts will be funded through six subaccounts 
(the ``Subaccounts'') of the Separate Account; each Subaccount will 
invest in the shares of one of six available series of Mutual Fund 
Variable Annuity Trust (``Trust''). Additional underlying funds may 
become available in the future.
    7. The six available series of the Trust are: the Growth and Income 
Portfolio; the Capital Growth Portfolio; the International Equity 
Portfolio; the Asset Allocation Portfolio; the U.S. Treasury Income 
Portfolio; and the Money Market Portfolio. The Trust is registered 
under the 1940 Act as a diversified, open-end, management investment 
company.
    8. If the participant dies during the accumulation period, a death 
benefit will be payable to the beneficiary open receipt by Anchor 
National of due proof of death. The death benefit is reduced by the 
premium tax incurred by Anchor National, if any. If the participant is 
younger than age 70 at the date of certificate issue, the death benefit 
is equal to the greatest of: (1) The total dollar amount of purchase 
payments made prior to the death of the participant, reduced by any 
partial withdrawals and partial annuitizations; (ii) 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 (iii) where permitted by state law, the Contract 
value at that anniversary of the certificate issue date preceding the 
date of death--increased by any purchase payments made and reduced by 
any partial withdrawals and partial annuitizations since that 
anniversary--which yields the greatest result. If the participant is at 
least age 70 on the date of certificate issue, the death benefit will 
equal (ii) above.
    9. An annual contract administration charge of $30 is charged 
against each certificate. 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 certificate issue 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.
    10. During the accumulation period, amounts allocated to the 
Separate Account may be transferred among the Subaccounts and/or to the 
Fixed Account. Both before and after the annuity date, Contract values 
may be transferred from the Separate Account to the Fixed Account. The 
first fifteen 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 a Contract year. This fee will be deducted 
from Contract values that remain in the Subaccount or the Fixed 
Account, as appropriate, from which the transfer was made. If the 
remaining Contract value is insufficient to pay the transfer fee, the 
fee will be deducted from transferred Contract values. The transfer fee 
is at cost, with no anticipation of profit.
    11. Although there is a free withdrawal amount that applies to the 
first withdrawal during a Contract year after the first, a contingent 
deferred sales charge (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. So that all withdrawals are allocated to purchase payments 
to which the lowest Withdrawal Charge (if any) applies, 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.
    12. Earnings in a participant's account and purchase payments no 
longer subject to the Withdrawal Charge 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 the second or any 
subsequent Contract year. That 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 in the 
participant's account.
    13. Any amounts withdrawn that exceed the limits described above 
may be subject to a Withdrawal Charge in accordance with the table 
shown below.

                                                                        
[[Page 4940]]                                                           
                         Withdrawal Charge Table                        
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                                                             Applicable 
                                                             withdrawal 
                     Contribution year                         charge   
                                                             percentage 
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Zero......................................................            6 
First.....................................................            6 
Second....................................................            5 
Third.....................................................            5 
Fourth....................................................            4 
Fifth.....................................................            3 
Sixth.....................................................            2 
Seventh and later.........................................            0 
------------------------------------------------------------------------

    The Withdrawal Charge may be reduced or waived in certain 
circumstances, as described in the prospectus for the Contracts.
    14. Anchor National deducts a distribution expense charge from each 
Subaccount during each valuation period that is equal, on an annual 
basis, to 0.15% of the net asset value of each Subaccount. 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 charge is assessed during both the accumulation 
period and the annuity period; it is not applied to Contract values 
allocated to the Fixed Account.
    15. Annuity payments will not be affected by the mortality 
experience of (i) persons receiving such payments or (ii) the general 
population. The annuity rates may not be changed under the Contract. 
Anchor National deducts a mortality risk charge from the Separate 
Account for assuming the risks that: (i) The life expectancy of an 
annuitant will be greater than that assumed in the guaranteed annuity 
purchase rates; (ii) the Withdrawal Charge may be waived in the event 
of the death of the participant; and (iii) the death benefit must be 
provided before the annuity date. The charge is deducted from each 
Subaccount during each valuation period at an annual rate of 0.90% of 
the net asset value of each Subaccount. If the mortality risk charge is 
insufficient to cover the actual cost of assuming the mortality risks, 
Anchor National will bear the loss. 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.
    16. Anchor National bears the risk that the Contract administration 
charge will be insufficient to cover the cost of administering the 
Contracts. For assuming this risk, Anchor National deducts an expense 
risk charge from 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. 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.
    17. 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 participant's account for the 
purpose of ensuring that this limitation is not exceeded. Applicants 
undertaken to include in the prospectus forming part of the 
registration statement for the Contracts statements describing the 
purpose of the distribution expense charge and statements that the 
staff of the Commission deems such charge to constitute a deferred 
sales charge. Applicants undertake to abide by the representations and 
undertakings set forth in this paragraph relating to the distribution 
expense charge in connection with future contracts, as well as 
materially similar contracts funded through future separate accounts, 
relying on the requested order.

Applicants' Legal Analysis

    1. Applicants hereby request that the Commission, under Section 
6(c) of the 1940 Act, grant exemptions from Sections 26(a)(2) and 
27(c)(2) thereof to the extent necessary to permit the deduction of 
mortality and expense risk charges and a distribution expense charge: 
(i) from the Separate Account under the Contracts and under any future 
contracts; and (ii) from the assets of any future separate accounts 
which offer contracts materially similar to the contracts.
    2. 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 
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) and 27(c)(2) of the 1940 Act require, among 
other things, that all payments received under a periodic payment plan 
certificate sold by a registered unit investment trust, any depositor 
thereof or underwriter therefor, be held by a qualified bank as trustee 
or custodian, under arrangements which prohibit any payment to the 
depositor or principal underwriter except for the payment of a fee, not 
exceeding such reasonable amount as the Commission may prescribe, for 
bookkeeping and other administrative services.
    4. Applicants believe that extending the requested relief to the 
future contracts, as well as to materially similar contracts funded 
through future separate accounts, is 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. Applicants 
submit that such an order would promote competitiveness in the variable 
annuity contract market by eliminating the need for Anchor National to 
file redundant exemptive applications, thereby reducing Anchor 
National's administrative expenses and maximizing the efficient use of 
Anchor National's resources. The delay and expense involved in having 
to seek exemptive relief repeatedly would impair Anchor National's 
ability effectively to take advantage of business opportunities as they 
arise. Applicants further submit that the requested relief is 
consistent with the purposes of the 1940 Act an the protection of 
investors for the same reasons. Applicants submit that if Anchor 
National 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 thereby.
    5. Applicants assert that the aggregate of the mortality and 
expense risk charges, 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 
practices, taking into consideration such factors as current charge 
levels and benefits provided, the existence of expense charge 
guarantees and [[Page 4941]] guaranteed annuity rates. Anchor National 
undertakes to maintain at its home office, and make available to the 
Commission upon request, a memorandum detailing the methodology used in 
making these determinations.
    7. Applicants represent that if the mortality, expense risk, or 
distribution expense charges are insufficient to cover actual costs, 
Anchor National will bear the loss. To the extent that the mortality 
and expense risk 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.
    8. Anchor National submits 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 for the basis of such conclusion. 
Similarly, before relying on any exemptive relief granted herein with 
respect to any future contracts or to any materially similar contracts 
issued by future separate accounts, Applicants will determine that 
there is a reasonable likelihood that the distribution financing 
arrangement will benefit the Separate Account (or future separate 
accounts) and its (or their) investors. Anchor National will maintain 
and make available to the Commission upon request a memorandum setting 
forth the basis for such determination.
    9. Anchor National further represents that the assets of the 
Separate Account and any future separate accounts that rely on the 
requested order will be invested only in management investment 
companies that 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.

Conclusion

    Applicants submit that for the reasons and upon the facts set forth 
above, the exemptions from Sections 26(a)(2) and 27(c)(2) of the 1940 
Act to permit the deduction of mortality, expense risk, and 
distribution expense charges from the assets of the Separate Account 
under the Contracts and under any future contracts, and from the assets 
of any future separate accounts offering contracts which are materially 
similar to the contracts, meet the statutory standards of Section 6(c) 
of the 1940 Act. Accordingly, the Applicants assert that the requested 
exemptions are 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, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-1841 Filed 1-24-95; 8:45 am]
BILLING CODE 8010-01-M