[Federal Register Volume 78, Number 172 (Thursday, September 5, 2013)]
[Notices]
[Pages 54691-54694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-21562]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-30681; File No. 812-13973]
American General Life Insurance Company, et al.
August 29, 2013,
AGENCY: The Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under Section 6(c) of the
Investment Company Act of 1940, as amended (the ``Act'') granting
exemptions from the provisions of Sections 2(a)(32), 22(c) and
27(i)(2)(A) of the Act and Rule 22c-1 thereunder.
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Applicants: American General Life Insurance Company (``American
General''), The United States Life Insurance Company in the City of New
York (``US Life'') (each, an ``Insurance Company'' and together, the
``Insurance Companies''), SunAmerica Capital Services, Inc. (the
``Distributor''), Variable Separate Account (``VSA'') and FS Variable
Separate Account (``FS VSA'') (together, the ``Separate Accounts'').
The Insurance Companies, the Distributor, and the Separate Accounts are
collectively referred herein as the ``Applicants.''
Summary of Application: The Applicants seek an order under Section
6(c) of the Act, exempting them from Sections 2(a)(32), 22(c), and
27(i)(2)(A)
[[Page 54692]]
of the Act and Rule 22c-1 thereunder, to permit the recapture, under
specified circumstances, of payment enhancements previously applied to
purchase payments under certain variable flexible premium deferred
annuity contracts issued by the Insurance Companies.
Filing Date: The application was filed on November 14, 2011, and
amended and restated applications were filed on February 14, 2012,
February 16, 2012, June 13, 2012, and July 29, 2013.
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 Secretary of
the Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on September 23, 2013, 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 requestor's interest, the reason for the
request, and the issues contested. Persons who wish to be notified of a
hearing may request notification by writing to the Secretary of the
Commission.
ADDRESSES: Secretary, SEC, 100 F Street, NE., Washington, DC 20549-
1090. Applicants: American General Life Insurance Company and Variable
Separate Account, 1 SunAmerica Center, Los Angeles, CA 90067-6121; The
United States Life Insurance Company in the City of New York and FS
Variable Separate Account, One World Financial Center, 200 Liberty
Street, New York, NY 10281; SunAmerica Capital Services, Inc.,
Harborside Financial Center, 3200 Plaza 5, Jersey City, NJ 07311.
FOR FURTHER INFORMATION CONTACT: Jeffrey A. Foor, Senior Counsel or
Joyce M. Pickholz, Branch Chief, Insured Investments Office, Division
of Investment Management, at (202) 551-6795.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an Applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. In this application, Applicants seek the exemptions needed to
recapture payment enhancements offered under the Polaris Advantage II
variable annuity (the ``Contracts'') to be issued by each of American
General and US Life, in the circumstances set forth below. The
Contracts offer a payment enhancement or ``bonus'' and are registered
on Form N-4 in registration statements, file nos. 333-185780 and 333-
178848. Applicants also ask that the exemptions requested extend to
variable annuity contracts that are substantially similar in all
material respects to the Contracts (the ``Future Contracts'') issued
through the Separate Accounts or any other separate account of the
Insurance Companies established in the future (``Future Separate
Accounts'') to support Future Contracts. Applicants request that the
order sought herein extend to any future insurance company that will be
the successor in interest to American General or US Life as a result of
a reorganization into another jurisdiction or a change in the type of
business organization. Applicants also request that the order extend to
any FINRA member broker-dealer controlling, controlled by, or under
common control with Applicants, whether existing or created in the
future, that serves as a distributor or principal underwriter of the
Contracts offered through the Separate Accounts or any Future Separate
Account (``Broker-Dealers''). Applicants also request that the order
extend to broker-dealers that are FINRA-registered and not affiliated
with Applicants or the Broker-Dealers (the ``Unaffiliated Broker-
Dealers''). Each Unaffiliated Broker-Dealer will have entered into a
dealer agreement with the Distributor or an affiliate of the
Distributor prior to offering the Contracts.
2. American General is a stock life insurance company organized
under the laws of the state of Texas. American General is an indirect,
wholly owned subsidiary of American International Group, Inc.
(``AIG''), a Delaware corporation. US Life is a stock life insurance
company organized under the laws of the state of New York. US Life is
an indirect, wholly owned subsidiary of AIG. The Distributor, an
affiliate of American General and US Life, is the distributor of the
contracts and is registered with the Commission as a broker-dealer
under the Securities Exchange Act of 1934, as amended (the ``1934
Act'') and is a member of Financial Industry Regulatory Authority
(``FINRA'').
3. American General is the depositor and sponsor of Variable
Separate Account. US Life is the depositor and sponsor of FS Variable
Separate Account. American General and US Life may in the future issue
Future Contracts through the Separate Accounts, or through Future
Separate Accounts for which they would also serve as depositor.
4. Variable Separate Account is a segregated asset account of
American General and FS Variable Separate Account is a segregated asset
account of US Life (File Nos. 811-03859 and 811-08810, respectively).
Each Separate Account is registered under the Act as a unit investment
trust and meets the definition of separate account set forth in Section
2(a)(37) of the Act. The same will be true of any Future Separate
Account.
5. The Contracts are flexible premium deferred variable annuity
contracts. The minimum initial purchase payment for the Contracts is
$25,000, and any additional purchase payment must be at least $500
(except for owners who participate in certain periodic purchase payment
programs, in which case the minimum purchase payment must be at least
$100). The maximum issue age for the Contracts is 80, meaning that (i)
the owner must be 80 or younger or (ii) for Contracts that are not
owned by natural persons, the annuitant must be 80 or younger.
6. The Contracts offer variable portfolios and fixed account(s). At
present, the Contracts offer portfolios of AIM Variable Insurance Funds
(Invesco Variable Insurance Funds), Anchor Series Trust, Franklin
Templeton Variable Insurance Products Trust, Lord Abbett Series Fund,
Inc., Seasons Series Trust and SunAmerica Series Trust. Under the
Contracts, Applicants reserve the right to offer new variable
portfolios or stop offering existing variable portfolios. New variable
portfolios may be made available to existing owners and variable
portfolios may be closed to new allocations or allocations of
additional purchase payments or transfers. In addition, Applicants may
also liquidate the shares of any variable portfolio, substitute the
shares of one underlying fund held by a variable portfolio for another
and/or merge variable portfolios or cooperate in a merger of underlying
funds (subject to Commission approval).
7. An owner may elect one of two optional living benefits: the
SunAmerica Income Plus or the SunAmerica Income Builder. An owner will
receive the standard death benefit or may elect the optional Maximum
Anniversary Value death benefit for an additional fee. Applicants may
add other optional living and death benefits to the Contracts in the
future. The Contracts also offer optional features at no additional
cost such as automatic asset rebalancing, systematic withdrawals,
dollar cost averaging, nursing home
[[Page 54693]]
waiver, and spousal continuation with death benefit step-up. A
discussion of the features of the Contracts, including the optional
living benefits and death benefits, is included in the application.
8. An owner can annuitize the Contracts using available fixed and/
or variable annuity income payment options. Those annuity payment
options include life income; life income with 10 or 20 year period
certain; or income for only a period certain (5-30 years); joint and
survivor life income; joint and survivor life income with 10 or 20 year
period certain. Generally, the latest annuitization date is the first
business day of the month following the annuitant's 95th birthday.
9. The annualized Separate Account expense is 1.90% of the average
daily ending net asset value allocated to the variable portfolios for
contract years 1-9, reducing to 1.30% after the 9th contract
anniversary. There is a maintenance fee equal to $50 which is assessed
annually on the Contract's anniversary date, and is currently waived
for Contracts of $75,000 or more. There is no fee with respect to the
first 15 transfers in a contract year, but after the 15th such
transfer, a fee of $25 per transfer is currently imposed ($25 maximum).
10. There is a contingent deferred sales charge (``Withdrawal
Charge'') under the Contracts, the amount of which is based on the
number of years that have elapsed since the receipt date of each
purchase payment. The Withdrawal Charge is equal to 9%, 9%, 8%, 8%, 7%,
6%, 5%, 4%, 3%, 0% beginning in year 1, and ending with no Withdrawal
Charge in year 10 and later for each purchase payment. No Withdrawal
Charge is imposed on the portion of a withdrawal that can be taken as
part of the free withdrawal feature of the Contracts. The maximum free
withdrawal amount available in each year is equal to the greater of 10%
of all purchase payments that are subject to a Withdrawal Charge and
not yet withdrawn or a maximum annual withdrawal amount available if a
living benefit feature has been elected. No Withdrawal Charge is
imposed in any situation in which Applicants intend to recapture a
payment enhancement.
11. Under the Contracts, Applicants will credit a payment
enhancement for each purchase payment made to the Contracts during the
first two Contract years. Applicants calculate the payment enhancement
as a percentage of each purchase payment received, and credit it at the
time Applicants receive the purchase payment (hereinafter, a ``Payment
Enhancement''). The Payment Enhancement rate credited is the rate in
effect for the applicable enhancement level at the time Applicants
receive each purchase payment (hereinafter, ``Payment Enhancement
Rate''). The initial Payment Enhancement level is determined by the
amount of the initial purchase payment. The Payment Enhancement level
for subsequent purchase payments is determined by adding the amount of
the subsequent purchase payment to the contract value on the date
Applicants receive the purchase payment. If a higher Payment
Enhancement level is achieved by the sum of the contract value and the
subsequent purchase payment, the Payment Enhancement Rate for that
higher level is applicable to the entire subsequent purchase payment.
12. The Payment Enhancement Rates credited are the same for all
owners; however, the Payment Enhancement levels may differ by broker-
dealer. For the currently offered Polaris Advantage II Contracts, the
Payment Enhancement Rate is 4% for a Payment Enhancement level of less
than $250,000 (or less than $100,000 for certain broker-dealers) and
the Payment Enhancement Rate is 6% for a Payment Enhancement level of
$250,000 and greater (or $100,000 or greater for certain broker-
dealers). The Payment Enhancement Rate currently being offered may be
increased or decreased by the Applicants at any time for prospectively
issued Contracts and Future Contracts. Currently, purchase payments are
credited with the Payment Enhancement Rate of up to 6.0%; however,
purchase payments may be credited with a Payment Enhancement Rate of up
to 7.5% for prospectively issued Contracts and Future Contracts.
13. Each Insurance Company will fund Payment Enhancements from its
general account assets. Each Payment Enhancement will be allocated to
the variable portfolios and available fixed account(s) in the same
proportion that the corresponding purchase payment is allocated to such
options.
14. Applicants seek to recapture the Payment Enhancements under the
following circumstances: (a) If the Contracts are returned during the
free look period, Applicants will deduct such Payment Enhancements from
the contract value; (b) if the owner's date of death is within 12
months of any Payment Enhancements being credited to the Contracts,
Applicants will deduct such Payment Enhancements credited within 12
months of the owner's death from the contract value or maximum
anniversary value, if applicable, when calculating the death benefit;
and/or (c) if the continuing spouse's date of death is within 12 months
of any Payment Enhancements being credited to the Contracts, Applicants
will deduct such Payment Enhancements credited within 12 months of the
continuing spouse's death from the contract value or maximum
anniversary value, if applicable, when calculating the death benefit
payable to the continuing spouse's beneficiary.
15. The amount recaptured will equal the entire Payment Enhancement
amount without adjustment up or down for investment performance.
Therefore, the owner will receive any gain on the Payment Enhancement
amount that is recaptured and will bear any loss since the amount that
is recaptured will equal the amount of the Payment Enhancement.
Applicants will recapture the Payment Enhancements in the manner
contemplated by the application only with respect to Contracts issued
on or after the date that the Commission grants the order requested by
this application.
Applicants' Legal Analysis
1. Section 6(c) of the Act authorizes the Commission to exempt any
person, security or transaction, or any class or classes of persons,
securities or transactions, from the provisions of the Act and the
rules promulgated 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. Applicants request that the Commission, pursuant to Section 6(c)
of the Act, issue an order to the extent necessary to permit the
recapture of Payment Enhancements under the circumstances described
above. Applicants believe that the requested exemptions are
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.
3. Applicants submit that the recapture of the Payment Enhancements
will not raise concerns under Sections 2(a)(32), 22(c) and 27(i)(2)(A)
of the Act, and Rule 22c-1 thereunder. Applicants represent that the
Payment Enhancements will be recaptured only under the circumstances
described above.
4. Applicants state that the amounts recaptured equal the Payment
Enhancements provided by an Insurance Company from its own general
account assets. Applicants argue that when the Insurance Company
recaptures the Payment Enhancement, it is merely retrieving its own
assets, and the owner has not been deprived of a proportionate share of
the Separate
[[Page 54694]]
Accounts' assets, because his or her interest in the Payment
Enhancement amount has not vested. With respect to a Payment
Enhancement recaptured upon the exercise of the free look privilege of
the Contracts, Applicants submit it would be unfair to allow an owner
exercising that privilege to retain the Payment Enhancement under
Contracts that have been returned for a refund after a period of only a
few days. If the Applicants could not deduct the Payment Enhancement
from the amount returned to an individual during the free look period,
Applicants would bear the loss on the value of the Payment Enhancement
if the contract value dropped during the free look period. If the
Contracts are returned during the free look period, Applicants also
note that a Contract owner is entitled to retain any investment gain
attributable to the Payment Enhancement, even if the Payment
Enhancement is deducted. Furthermore, the recapture of the Payment
Enhancement if the owner's death occurs within 12 months after receipt
of a Payment Enhancement, is designed to provide the Insurance
Companies with a measure of protection against ``anti-selection.'' The
risk is that an owner, with full knowledge of impending death or
serious illness, will make very large payments to the Contracts which,
according to the Applicants, could result in significant financial
exposure to the Applicants.
5. The recapture of a Payment Enhancement could be viewed as
involving the redemption of redeemable securities for a price other
than one based on the current net asset value of a Separate Account.
The recapture of the Payment Enhancement does not involve either of the
harms that Rule 22c-1 was intended to address, namely: (i) the dilution
of the value of outstanding redeemable securities of registered
investment companies through their sale at a price below net asset
value or redemption or repurchase at a price above it, and (ii) other
unfair results, including speculative trading practices.
6. Applicants assert that the proposed recapture of the Payment
Enhancement does not pose a threat of dilution. To effect a recapture
of a Payment Enhancement, interests in an owner's contract will be
redeemed at a price determined on the basis of the current net asset
value. The amount recaptured will equal the amount of the Payment
Enhancement that the Insurance Company paid out of its general account
assets. Although the owner will be entitled to retain any investment
gain attributable to a Payment Enhancement, the amount of that gain
will be determined on the basis of current net asset value. Similarly,
the owner will bear any loss if investment performance declines since
the amount that is recaptured will equal the amount of the Payment
Enhancement. Therefore, no dilution will occur upon the recapture of a
Payment Enhancement.
7. Applicants also submit that the second harm that Rule 22c-1 was
designed to address, namely speculative trading practices calculated to
take advantage of backward pricing, will not occur as a result of the
recapture of a Payment Enhancement because the pricing of the bonus
recapture will occur on the basis of the net asset value calculated in
accordance with Rule 22c-1 on the date of the recapture.
8. Applicants submit that their request for an order that applies
to any Separate Account or any Future Separate Account established by
American General and US Life in connection with the issuance of
Contracts and Future Contracts, and underwritten or distributed by the
Distributor or other broker-dealers, is appropriate in the public
interest. Applicants request that the order sought herein extend to any
future insurance company that will be the successor in interest to
American General or US Life. Such an order would promote
competitiveness in the variable annuity market by eliminating the need
to file redundant exemptive applications, thereby reducing
administrative expenses and maximizing the efficient use of Applicants'
resources. Investors would not receive any benefit or additional
protection by requiring Applicants to repeatedly seek exemptive relief
that would present no issue under the Act that has not already been
addressed in this application. Having Applicants file additional
applications would impair Applicants' ability effectively to take
advantage of business opportunities as they arise.
9. Applicants undertake that Future Contracts funded by Separate
Accounts or by Future Separate Accounts that seek to rely on the order
issue pursuant to the application will be substantially similar to the
Contracts in all material respects.
Conclusion
For the reasons set forth in the application, the Applicants assert
that the requested order meets the standards set out in Section 6(c) of
the Act and that an order should, therefore, be granted.
For the Commission, by the Division of Investment Management
under delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-21562 Filed 9-4-13; 8:45 am]
BILLING CODE 8011-01-P