[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