American General Life Insurance Company, et al., 54691-54694 [2013-21562]

Download as PDF Federal Register / Vol. 78, No. 172 / Thursday, September 5, 2013 / Notices c/o Remi Pavlik-Simon, 100 F Street NE., Washington, DC 20549 or send an email to: PRA_Mailbox@sec.gov. The Securities and Exchange Commission (‘‘Commission’’) is requesting that OMB authorize emergency processing of the submission of collection of information for ‘‘Regulation D Rule 506(e) Felons and Other Bad Actors Disclosure Statement.’’ This request should also serve to notify the public that the Commission is seeking PRA approval from OMB on an emergency basis for the collection of information associated with the final rule amendments to Rule 506 of Regulation D adopted by the Commission on July 10, 2013 to implement Section 926 of the DoddFrank Wall Street Reform and Consumer Protection Act. (See citation 78 FR 44730). In addition, the Commission is also providing notice of the three-year extension under 5 CFR 1320.12. As adopted, Rule 506(e) of Regulation D (17 CFR 230.506(e)) under the Securities Act of 1933 (15 U.S.C. 77a et seq.) requires the issuer to furnish to each purchaser, a reasonable time prior to sale, a description of any matters that would have triggered disqualification under Rule 506(d)(1) of Regulation D, except that these events occurred before the effective date of the rule amendments or before September 23, 2013. The written disclosure statement required under Rule 506(e) is not filed with the Commission, but serves as an important investor protection tool to put investors on notice of an issuer’s and any of its covered persons’ involvement in past ‘‘bad actor’’ disqualifying events such as pre-existing criminal convictions, court injunctions, disciplinary proceedings, and other sanctions enumerated in Rule 506(d). Under Rule 506(d) of Regulation D, issuers are disqualified due to triggering events that occur after the effective date of September 23, 2013. Without the mandatory written statement requirement set forth in Rule 506(e), purchasers may have the impression that Rule 506 offerings occurring after the effective date of the rule amendments do not involve any ‘‘bad actors’’ or disqualifying events. The Rule 506(e) written disclosure statement requirement was not proposed by the Commission in 2011 because the Commission proposed to apply disqualification to pre-existing triggering events that occurred before the effective date of the rule amendments. At the proposing stage of the rule amendments, the Commission was therefore not required to submit a ehiers on DSK2VPTVN1PROD with NOTICES SUPPLEMENTARY INFORMATION: VerDate Mar<15>2010 14:10 Sep 04, 2013 Jkt 229001 collection of information to OMB. (See citation 76 FR 31518). The Commission adopted the Rule 506(e) written disclosure statement after providing notice that it was considering this alternative to applying the disqualification to events that took place before the effective date of the rule based on commenters’ responses to the 2011 rule proposals. Under the proposal, issuers would have been disqualified from reliance on Rule 506 for all relevant triggering events, whether they occurred before or after effectiveness of the rule amendments. In light of many commenters’ favorable reaction to this alternative, the Commission decided to include a disclosure requirement in the final rule amendments, although it had not prepared an information collection submission at the time of the proposal. This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information if the collection of information does not display a valid OMB Control Number. See 5 CFR 1320.5(a) and 1320.6. The SEC obtains OMB approval for this information collection under OMB ICR Reference Number 201308–3235–013. Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the ADDRESSES section within 15 days of publication of this notice in the Federal Register. In order to help ensure appropriate consideration, comments should reference OMB ICR Reference Number 201308–3235–013. The OMB is particularly interested in comments that: • Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; • Evaluate the accuracy of the agency’s estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; • Enhance the quality, utility, and clarity of the information to be collected; and • Minimize the burden of the collection of information on those who PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 54691 are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses. Title of Collection: Regulation D Rule 506(e) Felons and Other Bad Actors Disclosure Statement. OMB ICR Reference Number: 201308– 3235–013. Type of Review: Emergency. Requested Duration of Authorization: 6 Months. Affected Public: Private Sector. Frequency of Collection: Yearly. Total Estimated Number of Responses: 19,908. Estimated Time per Response: 1 Hour. Total Estimated Annual Burden Hours: 22,108. Total Estimated Annual Other Costs Burden: $264,000. Dated: August 30, 2013. Elizabeth M. Murphy, Secretary. [FR Doc. 2013–21580 Filed 9–4–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. IC–30681; File No. 812–13973] American General Life Insurance Company, et al. August 29, 2013, 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. AGENCY: 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) E:\FR\FM\05SEN1.SGM 05SEN1 ehiers on DSK2VPTVN1PROD with NOTICES 54692 Federal Register / Vol. 78, No. 172 / Thursday, September 5, 2013 / Notices 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 VerDate Mar<15>2010 14:10 Sep 04, 2013 Jkt 229001 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 brokerdealer 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 brokerdealers 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 PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 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 E:\FR\FM\05SEN1.SGM 05SEN1 ehiers on DSK2VPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 172 / Thursday, September 5, 2013 / Notices 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 VerDate Mar<15>2010 14:10 Sep 04, 2013 Jkt 229001 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 PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 54693 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 E:\FR\FM\05SEN1.SGM 05SEN1 ehiers on DSK2VPTVN1PROD with NOTICES 54694 Federal Register / Vol. 78, No. 172 / Thursday, September 5, 2013 / Notices 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 VerDate Mar<15>2010 14:10 Sep 04, 2013 Jkt 229001 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. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 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 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70288; File No. SR–FINRA– 2013–038] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend a TRACE Pilot Program in FINRA Rule 6730(e)(4) August 29, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 26, 2013, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as constituting a ‘‘non-controversial’’ rule change under paragraph (f)(6) of Rule 19b–4 under the Act,3 which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to extend the pilot program in FINRA Rule 6730(e)(4) to October 23, 2015. The pilot program exempts from reporting to the Trade Reporting and Compliance Engine (‘‘TRACE’’) transactions in TRACEEligible Securities that are executed on a facility of the New York Stock Exchange (‘‘NYSE’’) in accordance with NYSE Rules 1400, 1401 and 86 and reported to NYSE in accordance with NYSE’s applicable trade reporting rules and disseminated publicly by NYSE. Below is the text of the proposed rule change. Proposed new language is in italics; proposed deletions are in brackets. * * * * * 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). 2 17 E:\FR\FM\05SEN1.SGM 05SEN1

Agencies

[Federal Register Volume 78, Number 172 (Thursday, September 5, 2013)]
[Notices]
[Pages 54691-54694]
From the Federal Register Online via the Government Printing 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