American General Life Insurance Company, et al., 54691-54694 [2013-21562]
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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
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SUPPLEMENTARY INFORMATION:
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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
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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)
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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 https://
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
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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
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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
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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
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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
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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
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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
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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.
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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 https://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
