[Federal Register Volume 64, Number 133 (Tuesday, July 13, 1999)]
[Notices]
[Pages 37822-37824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17753]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23891; File No. 812-11678]


Anchor National Life Insurance Company, et al.

July 7, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order pursuant to Section 26(b) 
and Section 17(b) of the Investment Company Act of 1940 (``1940 Act'').

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SUMMARY OF APPLICATION: Applicants seek an order of the Commission 
amending a prior order granted June 9, 1999 (Release No. IC-23868, File 
No. 812-11450) (the ``June 9 Order''), to add Phoenix Home Life Mutual 
Insurance Company (``Phoenix'') and the Phoenix Home Life Variable 
Universal Life Account (``Phoenix VUL Account'', together with Phoenix, 
the ``New Applicants'') to the relief granted by the June 9 Order, with 
respect to certain variable universal life insurance contracts issued 
by Phoenix through the Phoenix VUL Account. The June 9 Order approved 
the substitution of: (a) Shares of the Government and Quality Bond 
Portfolio of the Anchor Series Trust (the ``Trust'') for shares of the 
Fixed Income Portfolio of the Trust; and (b) shares of the Strategic 
Multi-Asset Portfolio of the Trust for shares of the Foreign Securities 
Portfolio of the Trust, each in connection with the variable annuity 
contracts offered by the original Variable Account Applicants, as 
defined below. Together, the Fixed Income Portfolio of the Trust and 
the Foreign Securities Portfolio of the Trust are referred to as the 
``Replaced Portfolios''; together, the Government and Quality Bond 
Portfolio of the Trust and the Strategic Multi-Asset Portfolio of the 
Trust are referred to as the ``Substituted Portfolios''.

APPLICANTS: Anchor National Life Insurance Company (``Anchor 
National''), Variable Annuity Account One of Anchor National (``AN 
Account''), First SunAmerica Life Insurance Company (``First 
SunAmerica''), Variable Annuity Account One of First SunAmerica (``FS 
Account''), Presidential Life Insurance Company (``Presidential''), 
Presidential Variable Account One (``Presidential Account''), Phoenix, 
Phoenix VUL Account, and the Trust (applying for relief from Section 
17(a) of the 1940 Act only). Together, Anchor National, First 
SunAmerica, Presidential, and Phoenix are referred to as ``Life Company 
Applicants''; together, AN Account, FS Account, Presidential Account, 
and Phoenix VUL Account are referred to as ``Variable Account 
Applicants''.

FILING DATE: The application was filed on July 1, 1999.

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 this application by writing to the 
Commission's Secretary 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 28, 1999, 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 Fifth 
Street, NW, Washington, DC 20549-0609. Applicants: Anchor National, AN 
Account, First SunAmerica, FS Account, and Trust c/o Robert M. Zakem, 
Esq., SunAmerica Asset

[[Page 37823]]

Management Corporation, The SunAmerica Center, 733 Third Avenue, New 
York, New York 10017-3204; Applicant Presidential and Presidential 
Account, c/o Charles Snyder, Presidential Life Insurance Company, 69 
Lydecker Street, Nyack, New York 10960; and Applicants Phoenix and 
Phoenix VUL Account, c/o Edwin Kerr, Esq., Phoenix Home Life Mutual 
Insurance Company, 1 American Row, 11th Floor, Hartford, Connecticut 
06102.

FOR FURTHER INFORMATION CONTACT: Keith E. Carpenter, Senior Counsel, or 
Kevin M. Kirchoff, Branch 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 Commission's 
Public Reference Branch, 450 Fifth Street, NW, Washington, DC 20549-
0102 [tel. (202) 942-8090].

Applicants' Representations

    1. Anchor National is a stock life insurance company organized 
under the insurance laws of the state of California in April 1965. 
Anchor National redomesticated under the laws of the state of Arizona 
on January 1, 1996. Anchor National is an indirect wholly-owned 
subsidiary of American International Group, Inc. (``AIG''). Anchor 
National is authorized to write annuities and life insurance in the 
District of Columbia and all states except New York.
    2. First SunAmerica is a stock life insurance company organized 
under the insurance laws of the state of New York on December 5, 1978. 
First SunAmerica is a wholly-owned subsidiary of AIG. First SunAmerica 
is authorized to write annuities and life insurance business in the 
states of New York, New Mexico, and Nebraska.
    3. Presidential is a stock life insurance company organized under 
the laws of the state of New York in 1965. Presidential is a wholly-
owned subsidiary of Presidential Life Corporation, a publicly-owned 
holding company. Presidential offers life insurance and annuities and 
is admitted to do business in forty-eight states and the District of 
Columbia.
    4. Phoenix is a mutual life insurance company originally chartered 
in Connecticut in 1851 and redomiciled to New York in 1992. Phoenix is 
authorized under state law to sell annuities and life insurance.
    5. The Variable Account Applicants are segregated investment 
accounts registered under the 1940 Act as unit investment trusts. Each 
Variable Account Applicant is further divided into divisions that 
correspond to the portfolios of the Trust. The AN Account, FS Account, 
and Presidential Account are used to fund certain variable annuity 
contracts issued by the corresponding Life Company Applicant. The 
Phoenix VUL Account is used to fund certain variable universal life 
insurance policies issued by Phoenix.
    6. The Trust is a series type investment company, organized as a 
Massachusetts business trust on August 26, 1983 (each series of which 
is referred to individually as a ``Portfolio'' and collectively as the 
``Portfolios''). The Trust consists of eleven Portfolios, each of which 
operates as a separate investment fund, that have differing investment 
objectives, policies, and sub-advisers. Shares of the Portfolios are 
currently available to the public only through the purchase of certain 
variable annuity contracts and variable life insurance policies issued 
by the Life Company Applicants. Sun America Asset Management Company 
(``SAAMCo'') acts as the Trust's investment adviser. SAAMCo is under 
common control with and therefore affiliated with Anchor National and 
First SunAmerica. SAAMCo is unaffiliated with Presidential and Phoenix. 
SAAMCo has retained an unaffiliated investment adviser to act as sub-
adviser for all Portfolios of the Trust.
    7. The Life Companies have decided to discontinue offering sub-
accounts investing in the Replaced Portfolios as investment options 
under the Contracts and substitute shares of the Substituted 
Portfolios, because the Replaced Portfolios have not retained 
sufficient Contract owner interest. As a result, the Replaced 
Portfolios are dwindling in size. The Life Company Applicants believe 
that it no longer is economic to continue to offer the corresponding 
investment options under the Contracts. Moreover, the small size of the 
Replaced Portfolios makes it difficult to manage the assets to maximize 
performance.
    8. The Life Companies have determined that the Substitute 
Portfolios are appropriate replacements for the Replaced Portfolios, 
because (a) The Government and Quality Bond Portfolio (Substituted 
Portfolio) has a similar investment objective to the Fixed Income 
Portfolio (Replaced Portfolio), invests in the same types of 
securities, i.e., fixed income securities, and has generally better 
performance and lower expenses; and (b) the Strategic Multi-Asset 
Portfolio (Substituted Portfolio) has a similar investment objective to 
the Foreign Securities Portfolio (Replaced Portfolio), generally 
invests a significant portion of its assets in foreign securities, has 
generally better performance, and has a similar expense ratio, which 
may decline as a result of the additional assets resulting from the 
Substitutions.
    9. On June 9, 1999, the Commission issued the June 9 Order, 
authorizing Anchor National, First SunAmerica, Presidential, and their 
respective relevant separate accounts (together with the Trust, the 
``Original Applicants''), pursuant to Section 26(b) of the 1940 Act, to 
substitute (a) shares of the Government and Quality Bond Portfolio of 
the Trust for shares of the Fixed Income Portfolio of the Trust; and 
(b) shares of the Strategic Multi-Asset Portfolio of the Trust for the 
shares of the Foreign Securities Portfolio of the Trust. The Order also 
granted relief from Section 17(a) of the 1940 Act to the extent 
necessary to permit certain in-kind transactions in connection with the 
substitutions and to permit divisions of the separate accounts of 
Original Applicants holding the same securities to be combined.
    10. Until recently, the Original Applicants mistakenly believed 
that the June 9 Order covered all of the separate accounts invested in 
the Replaced Portfolios, and all affected contract holders. In 
preparing to effect the Substitution, however, the Trust discovered 
that an additional separate account, the Phoenix VUL Account, owned 
shares of the Replaced Portfolios. Approximately 75 of Phoenix's 
contract owners have invested a portion of their contract value in the 
Replaced Portfolios.
    11. The New Applicants would like the relief granted by the June 9 
Order to cover Phoenix and the Phoenix VUL Account, so that Phoenix's 
affected contact holders will have the benefit of the relief granted by 
the June 9 Order. The New Applicants represent that the Substitution 
involving the Phoenix VUL Account will be effected on the same basis as 
the Substitution involving the other Variable Account Applicants and 
that in effectuating the Substitution Phoenix will follow the 
procedures described in the original notice of application, dated May 
14, 1999 (Release No. IC-23842) except that: (a) Phoenix initially will 
provide its affected contract holders with notice of the Substitution 
in a cover letter substantially in the form attached to the 
application, accompanied by a copy of the current prospectus for the 
Trust, which contains a description of the Substitution; and (b) 
Phoenix will not limit the free transfer period after the Substitution 
to 31 days, because under

[[Page 37824]]

the affected Phoenix variable life contracts the affected contract 
holders generally may transfer all assets, as substituted, to any other 
division of the Phoenix VUL Account available under their contracts 
without limitation or charge.
    12. The New Applicants have considered the Substitution, and they 
believe that the Substitution is in the best interests of Phoenix's 
contract holders and that the Substituted Portfolios are appropriate 
replacements for the Replaced Portfolios.

 Applicants' Legal Analysis

    1. Section 26(b) of the 1940 Act provides, in pertinent part that 
``[i]t shall be unlawful for any depositor or trustee of a registered 
unit investment trust holding the security of a single issuer to 
substitute another security for such security unless the Commission 
shall have approved such substitution.'' The purpose of Section 26(b) 
is both to protect the expectation of investors in a unit investment 
trust that the unit investment trust will accumulate the shares of a 
particular issuer and to prevent unscrutinized substitutions which 
might, in effect, force shareholders dissatisfied with a substituted 
security to redeem their shares, thereby incurring either a loss of the 
sales load deducted from initial purchase payments, an additional sales 
load upon reinvestment of the redemption proceeds, or both. Section 
26(b) affords this protection to investors by preventing a depositor or 
trustee of a unit investment trust holding the shares of one issuer 
from substituting for those shares the shares of another issuer, unless 
the Commission approves that substitution.
    2. Section 17(a)(1) of the 1940 Act prohibits any affiliated person 
of a registered investment company, or an affiliated person of such 
affiliated person, from selling any security or other property to such 
registered investment company. Section 17(a)(2) of the 1940 Act 
prohibits any of the persons described above from purchasing any 
security or other property from such registered investment company. 
Certain of the Substitutions will be effected partly or wholly in-kind. 
Moreover, after the Substitutions Phoenix will combine its divisions 
invested in the Replaced Portfolios with the divisions invested in the 
corresponding Substituted Portfolios. The combination may be deemed to 
involve the indirect purchase of shares of the Substituted Portfolios 
with portfolio securities of the corresponding Replaced Portfolios, and 
the indirect sale of securities of the Replaced Portfolios for shares 
of the Substituted Portfolios. Thus, each Portfolio would be acting as 
principal, in the purchase and sale of securities to the other 
Portfolio, in contravention of Section 17(a). The Commission has taken 
the interpretive position that divisions of a registered separate 
account are to be treated as separate investment companies in 
connection with substitution transactions. Phoenix could be said to be 
transferring unit values between their divisions. The transfer of unit 
values could be said to involve purchase and sale transactions between 
divisions that are affiliated persons. The sale and purchase 
transactions between divisions, could be said to come within the scope 
of Section 17(a)(1) and 17(a)(2) of the 1940 Act, respectively. 
Therefore, the combination of divisions may require an exemption from 
Section 17(a) of the 1940 Act, pursuant to Section 17(b) of the 1940 
Act.
    3. Section 17(b) of the 1940 Act provides that the Commission may 
grant an order exempting transactions prohibited by Section 17(a) upon 
application if evidence establishes that: (a) The terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve over-reaching on the part of any 
person concerned; (b) the proposed transaction is consistent with the 
investment policy of each registered investment company concerned, as 
recited in its registration statement and reports filed under the 1940 
Act; and (c) the proposed transaction is consistent with the general 
purposes of the 1940 Act. Applicants represent that the terms of the 
proposed transactions, as described in the application, are: reasonable 
and fair, including the consideration to be paid and received; do not 
involve over-reaching; are consistent with the policies of each 
investment company concerned; and are consistent with the general 
purposes of the 1940 Act.
    4. In granting the June 9 Order, the Commission previously found 
that the Substitution is consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
1940 Act, and that the terms of the proposed transactions are 
reasonable and fair and do not involve overreaching, the transactions 
are consistent with the policy of each investment company concerned and 
with the purposes of the 1940 Act, and the exemption requested is 
necessary or appropriate in the public interest. Applicants submit that 
the same findings apply to the Substitutions involving variable 
universal life insurance contracts issued by Phoenix through the 
Phoenix VUL Account, and that accordingly, the proposed amendment to 
the June 9 Order adding the New Applicants as parties meets the 
applicable legal requirements.

Conclusions

    Applicants submit that, for the reasons summarized above, their 
requests meet the standards set out in Sections 17(b) and 26(b) of the 
1940 Act. Accordingly, Applicants request an order, pursuant to 
Sections 17(b) and 26(b) of the 1940 Act, amending the June 9 Order to 
include Phoenix and the Phoenix VUL Account as parties and approving 
the Substitutions by them.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-17753 Filed 7-12-99; 8:45 am]
BILLING CODE 8010-01-M