0000950123-11-063752.txt : 20110701
0000950123-11-063752.hdr.sgml : 20110701
20110701171131
ACCESSION NUMBER: 0000950123-11-063752
CONFORMED SUBMISSION TYPE: 40-APP
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20110701
DATE AS OF CHANGE: 20110701
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SUNAMERICA ANNUITY & LIFE ASSURANCE CO
CENTRAL INDEX KEY: 0000006342
IRS NUMBER: 860198983
STATE OF INCORPORATION: AZ
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 40-APP
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13918
FILM NUMBER: 11947104
BUSINESS ADDRESS:
STREET 1: 1 SUNAMERICA CENTER
CITY: LOS ANGELES
STATE: CA
ZIP: 90067-6022
BUSINESS PHONE: 3107726000
MAIL ADDRESS:
STREET 1: 1 SUNAMERICA CENTER
CITY: LOS ANGELES
STATE: CA
ZIP: 90067-6022
FORMER COMPANY:
FORMER CONFORMED NAME: AIG SUNAMERICA LIFE ASSURANCE CO
DATE OF NAME CHANGE: 20020401
FORMER COMPANY:
FORMER CONFORMED NAME: ANCHOR NATIONAL LIFE INSURANCE CO
DATE OF NAME CHANGE: 19920929
FORMER COMPANY:
FORMER CONFORMED NAME: ANCHOR LIFE INSURANCE CO
DATE OF NAME CHANGE: 19600201
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST SUNAMERICA LIFE INSURANCE CO
CENTRAL INDEX KEY: 0000926897
STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311]
IRS NUMBER: 060992729
STATE OF INCORPORATION: NY
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 40-APP
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13918-01
FILM NUMBER: 11947105
BUSINESS ADDRESS:
STREET 1: ONE WORLD FINANCIAL CENTER
STREET 2: 200 LIBERTY STREET
CITY: NEW YORK
STATE: NY
ZIP: 10281
BUSINESS PHONE: 2125515440
MAIL ADDRESS:
STREET 1: ONE WORLD FINANCIAL CENTER
STREET 2: 200 LIBERTY STREET
CITY: NEW YORK
STATE: NY
ZIP: 10281
40-APP
1
v59470ape40vapp.txt
40-APP
File No. 812-_______
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
APPLICATION FOR AN ORDER of EXEMPTION PURSUANT TO
SECTION 6(c) OF THE INVESTMENT COMPANY ACT OF 1940
EXEMPTING PROPOSED TRANSACTIONS FROM THE PROVISIONS
OF SECTIONS 2(a)(32), 22(c) AND 27(i)(2)(A) OF THE ACT, AND
RULE 22c-1 THEREUNDER
--------------------
SUNAMERICA ANNUITY AND LIFE ASSURANCE COMPANY,
VARIABLE SEPARATE ACCOUNT,
FIRST SUNAMERICA LIFE INSURANCE COMPANY,
FS VARIABLE SEPARATE ACCOUNT,
and
SUNAMERICA CAPITAL SERVICES, INC.
--------------------
Please send all Communications, Notices and Orders to:
Manda Ghaferi
Vice President and Assistant General Counsel
SunAmerica Annuity and Life Assurance Company
1 SunAmerica Center
Los Angeles, CA 90067-6022
July 1, 2011
UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
---------------------------------------------
In the Matter of
SUNAMERICA ANNUITY AND LIFE ASSURANCE COMPANY
VARIABLE SEPARATE ACCOUNT
1 SunAmerica Center
Los Angeles, CA 90067-6022
FIRST SUNAMERICA LIFE INSURANCE COMPANY APPLICATION FOR AN ORDER
FS VARIABLE SEPARATE ACCOUNT PURSUANT TO SECTION 6(c) OF THE
INVESTMENT COMPANY ACT OF 1940
One World Financial Center EXEMPTING PROPOSED TRANSACTIONS
200 Liberty Street FROM THE PROVISIONS OF SECTIONS
New York, New York 10281 2(a)(32), 22(c) AND 27(i)(2)(A)
OF THE ACT AND RULE 22C-1
and THEREUNDER
SUNAMERICA CAPITAL SERVICES, INC.
Harborside Financial Center
3200 Plaza 5
Jersey City, New Jersey 07311
Investment Company Act of 1940
File No. 812-______
---------------------------------------------
SunAmerica Annuity and Life Assurance Company ("SunAmerica Annuity"), First
SunAmerica Life Insurance Company ("First SunAmerica"), and SunAmerica Capital
Services, Inc., ("Distributor"), and Variable Separate Account ("VSA"), FS
Variable Separate Account ("FS VSA") (collectively, "Separate Accounts"), and
any other separate account of SunAmerica Annuity and First SunAmerica currently
existing that will support Future Contracts (as defined below) or any other
separate account established in the future by SunAmerica Annuity or First
SunAmerica ("Future Separate Accounts") to support Future Contracts,
(collectively, "Applicants") hereby apply for an order of the Securities and
Exchange Commission (the
2
"Commission") pursuant to Section 6(c) of the Investment Company Act of 1940, as
amended (the "Act"), exempting certain proposed transactions from the provisions
of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act, and Rule 22c-1
thereunder, to the extent set out below.
STATEMENT OF FACTS
On May 31, 2011, two initial registration statements on Form N-4 were filed by
the Applicants with the Commission in order to register a variable annuity
called Polaris Advantage II (the "Contract"). As detailed below, the Contract
offers a payment enhancement or "bonus" of up to 7.5% of purchase payments.
Applicants have other in--force annuities offering payment enhancements.
However, the payment enhancement feature under the Contract is sufficiently
different from that offered under the Applicants' other annuities that
Applicants are now seeking exemptions with respect to the particular payment
enhancement feature under the Contract (the "Payment Enhancements"). In this
application, Applicants seek a Commission order allowing them to recapture the
Payment Enhancements under the following circumstances: (a) if the Contract is
returned during the free look period, Applicants will deduct such Payment
Enhancement(s) from the contract value; (b) if the owner's date of death is
within 12 months of any Payment Enhancement(s) being credited to the Contract,
Applicants will deduct such Payment Enhancement(s) 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 Enhancement(s) being
credited to the Contract, Applicants will deduct such Payment Enhancement(s)
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.
3
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 an order under this application.
Applicants seek an order pursuant to Section 6(c) of the Act exempting them from
Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act, and Rule 22c-1 thereunder,
to the extent necessary to permit Applicants to recapture the Payment
Enhancements under the scenarios described above. Applicants request that the
order sought herein apply to any Future Separate Account that supports variable
annuity contracts offered by Applicants that are substantially similar in all
material respects to the Contract (the "Future Contracts"). Applicants request
that the order sought herein extend to any future insurance company that will
replace SunAmerica Annuity or First SunAmerica in the event of a merger,
acquisition by another company, or a name change. 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 Contract
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 Contract.
4
DESCRIPTION OF THE CONTRACT
The Contracts are flexible premium deferred variable annuity contracts that are
pending registration on Form N-4 (file nos. 333-174625 and 333-174626).
Applicants incorporate both Form N-4 registration statements by reference into
this application.
Under the Contracts, Applicants will credit a Payment Enhancement to the
contract value corresponding to each purchase payment made to the Contract in
the first two Contract years. Purchase payments made after the second Contract
year will not have a corresponding Payment Enhancement. The Payment Enhancement
is calculated as a percentage of each purchase payment received, and is credited
upon receipt of the purchase payment. The Payment Enhancement Rate that is
credited is the rate in effect for the applicable Payment Enhancement Level at
the time of receipt of each purchase payment. 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 day the
purchase payment is received. Currently, purchase payments are credited with the
Payment Enhancement Rate of up to 7.5%.
SunAmerica Annuity and First SunAmerica will fund Payment Enhancements from
their 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. The Payment
Enhancement Rate currently being offered may increase or decrease by the
Applicants at any time for prospectively issued contracts.
The minimum initial purchase payment for the Contract 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
5
maximum issue age for the Contract is 80, meaning that (i) the owner must be 80
or younger or (ii) for a Contract that is non-natural owned, the annuitant must
be 80 or younger.
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). There is
a contingent deferred sales charge ("Withdrawal Charge") under the Contract, 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 Contract. 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 intends to
recapture a Payment Enhancement.
An owner may elect one of two optional living benefits: the SunAmerica Income
Plus, which offers a stream of guaranteed lifetime income based on an income
base which locks in the greater of either a higher anniversary value, or an
annual 6% Income Credit during the first 12 years; or the SunAmerica Income
Builder which offers a stream of guaranteed lifetime income based on an income
base which locks in the greater of a highest anniversary value, or an annual 8%
Income Credit during the first 12 years. The initial annual fee for SunAmerica
Income Plus and
6
SunAmerica Income Builder for one covered person is 1.10% and for two covered
persons is 1.35%. An owner will receive the standard death benefit for no
additional fee or may elect the optional Maximum Anniversary Value death benefit
for a fee of 0.25% of the average daily net asset value allocated to the
portfolios. Applicants may add other optional living and death benefits to the
Contract in the future.
In addition to the optional living benefits and death benefit, the Contract
offers several optional administrative features at no additional cost such as
automatic asset rebalancing, systematic withdrawals, dollar cost averaging,
nursing home waiver, and spousal continuation with death benefit step-up.
The Contract offers variable portfolios and fixed account(s). At present, the
Contract offers 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 Contract, 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 or subsequent purchase payments, transfers or
allocations. 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).
An owner can annuitize the Contract 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
7
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.
With respect to Contracts issued on or after the date of the Commission order
under this application, Applicants wish to recapture the full amount of any
Payment Enhancement(s) as described above.
APPLICANT'S LEGAL ANALYSIS
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. 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.
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. The Payment Enhancements will be recaptured only under the
circumstances described above. The amounts recaptured equal the Payment
Enhancements provided by SunAmerica Annuity and First SunAmerica from its own
general account assets. When SunAmerica Annuity and First SunAmerica recapture
the Payment Enhancement, it is merely retrieving SunAmerica Annuity's and First
SunAmerica's own assets, and the owner has not been deprived of a proportionate
share of the Separate Accounts' assets, because his or her interest in the
Payment Enhancement amount
8
has not vested. With respect to a Payment Enhancement recaptured upon the
exercise of the free look of the Contract, it would be unfair to allow an owner
exercising that privilege to retain the Payment Enhancement under a Contract
that has been returned for a refund after a period of only a few days. If
Applicants could not deduct the Payment Enhancement from the amount returned to
an individual during the free look period, an individual could purchase a
Contract with no intention of retaining it, and simply return it for a quick
profit. If the Contract is returned during the free look period, Applicants also
note that the individual 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 Applicants 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 Contract which could result in
significant financial exposure to the Applicants.
Applicants submit that the provisions for recapture of the Payment Enhancement
do not, and any such Future Contract provisions will not, violate Sections
2(a)(32) and 27(i)(2)(A) of the Act, and Rule 22c-1 thereunder, and that the
relief requested is consistent with the exemptive relief provided under
Commission precedent. See, e.g., Prudential Annuities Life Assurance Corporation
et al., Investment Company Act Release Nos. 28354 (August 8, 2008) and 28373
(September 3, 2008) (order granting recapture of credits applied to purchase
payments); Minnesota Life Insurance Company et al., Investment Company Act
Release Nos. 27960 (August 30, 2007) and 27979 (September 25, 2007) (order
granting recapture of certain credit enhancements); and Merrill Lynch Life
Insurance Group, Investment Company Act Release Nos. 26712 (December 21, 2004)
and 26726 (January 21, 2005) (order).
9
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 harmful issues 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.
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 Applicants 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.
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.
Applicants submit that their request for an order that applies to any Separate
Account or any Future Separate Account established by SunAmerica Annuity and
First SunAmerica in
10
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 replace SunAmerica Annuity or First
SunAmerica in the event of a merger, acquisition by another company, or a name
change. 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.
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.
All requirements of the articles and by-laws of SunAmerica Annuity and First
SunAmerica have been complied with in connection with the execution and filing
of this application. SunAmerica Annuity and First SunAmerica have authorized its
proper officers to sign and file an application, including any amendment
thereto, for an order under Section 6(c) permitting the recapture of the Payment
Enhancement under the circumstances described herein. Similarly, with respect to
the Distributor, resolutions adopting the by-laws authorize any and all actions
that proper officers may deem necessary, as well as the making, executing and
delivering of all instruments in the name of and on behalf of the Distributor.
11
CONCLUSION
Applicants submit that their request for an order meets the standards set out in
Section 6(c) of the Act and that an order should, therefore, be granted.
12
Exhibit A-2
VERIFICATION
CITY OF LOS ANGELES :
: ss:
STATE OF CALIFORNIA :
The undersigned being duly sworn, deposes and says that she has
executed the attached Application, dated July 1, 2011, for and on behalf of
SunAmerica Annuity and Life Assurance Company and Variable Separate Account,
First SunAmerica Life Insurance Company and FS Variable Separate Account, that
she is the Senior Vice President and General Counsel of SunAmerica Annuity and
Life Assurance Company and First SunAmerica Life Insurance Company and that all
action by directors and other bodies necessary to authorize deponent to execute
and file such instrument has been taken. Deponent further says that she is
familiar with such instrument, and the contents thereof, and that the facts
therein set forth are true to the best of her knowledge, information and belief.
/s/ Mallary L. Reznik
-----------------------------------------
Mallary L. Reznik,
General Counsel and Senior Vice President
Subscribed and sworn to
(or affirmed) before me a Notary Public
on this 1st day of July, 2011 by
Mallary L. Reznik, proved to me on the basis of
satisfactory evidence to be the person who appeared before me.
/s/ Sumaiya Yusuf
-----------------------------------------
Notary Public
State of California
My Commission Expires: November 8, 2013
-------------------
13
VERIFICATION
CITY OF LOS ANGELES :
: ss:
STATE OF CALIFORNIA :
The undersigned being duly sworn, deposes and says that she has
executed the attached Application, dated July 1, 2011, for and on behalf of
SunAmerica Capital Services, Inc., that she is the Secretary of SunAmerica
Capital Services, Inc., and that all action by directors and other bodies
necessary to authorize deponent to execute and file such instrument has been
taken. Deponent further says that she is familiar with such instrument, and the
contents thereof, and that the facts therein set forth are true to the best of
her knowledge, information and belief.
/s/ Mallary L. Reznik
-----------------------------------------
Mallary L. Reznik, Secretary and
Vice President
Subscribed and sworn to
(or affirmed) before me a Notary Public
on this 1st day of July, 2011 by
Mallary L. Reznik, proved to me on the basis of
satisfactory evidence to be the person who appeared before me.
/s/ Sumaiya Yusuf
-----------------------------------------
Notary Public
State of California
My Commission Expires: November 8, 2013
-------------------
14
EXHIBIT B
PROPOSED NOTICE OF APPLICATION
U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)
[RELEASE NO. IC- ______; FILE NO. 812- _______]
SUNAMERICA ANNUITY AND LIFE ASSURANCE COMPANY, ET AL.; NOTICE OF APPLICATION
Date: ______________, 2011
ACTION: Notice of application for an order pursuant to Section 6(c) of the
Investment Company Act of 1940 (the "Act") granting exemptions from the
provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rule 22
c-1 thereunder.
APPLICANTS: SunAmerica Annuity and Life Assurance Company ("SunAmerica
Annuity"), First SunAmerica Life Insurance Company ("First SunAmerica"), and
SunAmerica Capital Services, Inc., ("Distributor"), and Variable Separate
Account ("VSA"), FS Variable Separate Account ("FS VSA") (collectively,
"Separate Accounts"), and any other separate account of SunAmerica Annuity and
First SunAmerica currently existing that will support Future Contracts (as
defined below) or any other separate account established in the future by
SunAmerica Annuity or First SunAmerica ("Future Separate Accounts") to support
Future Contracts, (collectively, "Applicants").
SUMMARY OF APPLICATION: Applicants seek an order (described below) to permit the
recapture of Payment Enhancement amounts under the circumstances specified
herein.
FILING DATE: The application was filed on _______, 2011.
HEARING OR NOTIFICATION OF HEARING: An order granting the application will be
issued unless the SEC orders a hearing. Interested persons may request a hearing
by writing to the SEC's Secretary and serving Applicants with a copy of the
request, personally or by mail. Hearing requests should be received by the SEC
by 5:30 p.m. on _________, 2011, and should be accompanied by proof of service
on Applicants, in the form of an affidavit or, for lawyers, a Certificate of
Service. Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the Secretary of
the SEC.
ADDRESSES: Secretary, SEC, 100 F Street, NE, Washington, DC 20549. Applicants,
c/o SunAmerica Annuity and Life Assurance Company, 1 SunAmerica Center, Los
Angeles, California 90067-6022, Attn: Manda Ghaferi, Esq.
FOR FURTHER INFORMATION CONTACT: Michelle Roberts, Staff Attorney, or Joyce
Pickholz, Branch Chief, at (202) ______, Office of Insurance Products, Division
of Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the Application. The
complete Application is available for a fee from the SEC's Public Reference
Branch, 100 F Street, NE, Washington, DC 20549.
15
APPLICANTS' REPRESENTATIONS
1. On May 31, 2011, two initial registration statements on Form N-4 were filed
by the Applicants with the Commission in order to register a variable annuity
called Polaris Advantage II (the "Contract"). As detailed below, the Contract
offers a payment enhancement or "bonus" of up to 7.5% of purchase payments.
Applicants have other in--force annuities offering payment enhancements.
However, the payment enhancement feature under the Contract is sufficiently
different from that offered under the Applicants' other annuities that
Applicants are now seeking exemptions with respect to the particular payment
enhancement feature under the Contract (the "Payment Enhancements"). Applicants
seek a Commission order allowing them to recapture the Payment Enhancements
under the following circumstances: (a) if the Contract is returned during the
free look period, Applicants will deduct such Payment Enhancement(s) from the
contract value; (b) if the owner's date of death is within 12 months of any
Payment Enhancement(s) being credited to the Contract, Applicants will deduct
such Payment Enhancement(s) 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 Enhancement(s) being credited to the Contract,
Applicants will deduct such Payment Enhancement(s) 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.
2. 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 an order under this application.
3. Applicants seek an order pursuant to Section 6(c) of the Act exempting them
from Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act, and Rule 22c-1
thereunder, to the extent necessary to permit Applicants to recapture the
Payment Enhancements under the scenarios described above. Applicants request
that the order sought herein apply to any Future Separate Account that supports
variable annuity contracts offered by Applicants that are substantially similar
in all material respects to the Contract (the "Future Contracts"). Applicants
request that the order sought herein extend to any future insurance company that
will replace SunAmerica Annuity or First SunAmerica in the event of a merger,
acquisition by another company, or a name change. 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 Contract
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 Contract.
16
DESCRIPTION OF THE CONTRACT
1. The Contracts are flexible premium deferred variable annuity contracts that
are pending registration on Form N-4 (file nos. 333-174625 and 333-174626).
Applicants incorporate both Form N-4 registration statements by reference into
this application.
2. Under the Contracts, Applicants will credit a Payment Enhancement to the
contract value corresponding to each purchase payment made to the Contract in
the first two Contract years. Purchase payments made after the second Contract
year will not have a corresponding Payment Enhancement. The Payment Enhancement
is calculated as a percentage of each purchase payment received, and is credited
upon receipt of the purchase payment. The Payment Enhancement Rate that is
credited is the rate in effect for the applicable Payment Enhancement Level at
the time of receipt of each purchase payment. 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 day the
purchase payment is received. Currently, purchase payments are credited with the
Payment Enhancement Rate of up to 7.5%.
3. SunAmerica Annuity and First SunAmerica will fund Payment Enhancements from
their 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. The Payment
Enhancement Rate currently being offered may increase or decrease by the
Applicants at any time for prospectively issued contracts.
4. The minimum initial purchase payment for the Contract 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
Contract is 80, meaning that (i) the owner must be 80 or younger or (ii) for a
Contract that is non-natural owned, the annuitant must be 80 or younger.
5. 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). There is
a contingent deferred sales charge ("Withdrawal Charge") under the Contract, 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 Contract. 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 intends to
recapture a Payment Enhancement.
6. An owner may elect one of two optional living benefits: the SunAmerica Income
Plus, which offers a stream of guaranteed lifetime income based on an income
base which locks in the greater of either a higher anniversary value, or an
annual 6% Income Credit during the first 12 years; or the SunAmerica Income
Builder which offers a stream of guaranteed lifetime income
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based on an income base which locks in the greater of a highest anniversary
value, or an annual 8% Income Credit during the first 12 years. The initial
annual fee for SunAmerica Income Plus and SunAmerica Income Builder for one
covered person is 1.10% and for two covered persons is 1.35%. An owner will
receive the standard death benefit for no additional fee or may elect the
optional Maximum Anniversary Value death benefit for a fee of 0.25% of the
average daily net asset value allocated to the portfolios. Applicants may add
other optional living and death benefits to the Contract in the future.
7. In addition to the optional living benefits and death benefit, the Contract
offers several optional administrative features at no additional cost such as
automatic asset rebalancing, systematic withdrawals, dollar cost averaging,
nursing home waiver, and spousal continuation with death benefit step-up.
8. The Contract offers variable portfolios and fixed account(s). At present, the
Contract offers 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 Contract, 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 or subsequent purchase payments, transfers or
allocations. 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).
9. An owner can annuitize the Contract 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.
10. With respect to Contracts issued on or after the date of the Commission
order under this application, Applicants wish to recapture the full amount of
any Payment Enhancement(s) as described above.
APPLICANT'S 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. 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.
2. 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. The Payment Enhancements will be recaptured only under
the circumstances described above. The amounts recaptured equal the Payment
Enhancements provided by SunAmerica Annuity and
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First SunAmerica from its own general account assets. When SunAmerica Annuity
and First SunAmerica recapture the Payment Enhancement, it is merely retrieving
SunAmerica Annuity's and First SunAmerica's own assets, and the owner has not
been deprived of a proportionate share of the Separate 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
of the Contract, it would be unfair to allow an owner exercising that privilege
to retain the Payment Enhancement under a Contract that has been returned for a
refund after a period of only a few days. If Applicants could not deduct the
Payment Enhancement from the amount returned to an individual during the free
look period, an individual could purchase a Contract with no intention of
retaining it, and simply return it for a quick profit. If the Contract is
returned during the free look period, Applicants also note that the individual
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 Applicants
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 Contract which could result in significant financial
exposure to the Applicants.
3. Applicants submit that the provisions for recapture of the Payment
Enhancement do not, and any such Future Contract provisions will not, violate
Sections 2(a)(32) and 27(i)(2)(A) of the Act, and Rule 22c-1 thereunder, and
that the relief requested is consistent with the exemptive relief provided under
Commission precedent. See, e.g., Prudential Annuities Life Assurance Corporation
et al., Investment Company Act Release Nos. 28354 (August 8, 2008) and 28373
(September 3, 2008) (order granting recapture of credits applied to purchase
payments); Minnesota Life Insurance Company et al., Investment Company Act
Release Nos. 27960 (August 30, 2007) and 27979 (September 25, 2007) (order
granting recapture of certain credit enhancements); and Merrill Lynch Life
Insurance Group, Investment Company Act Release Nos. 26712 (December 21, 2004)
and 26726 (January 21, 2005) (order).
4. 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 harmful issues 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.
5. 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 Applicants 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.
6. 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
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recapture will occur on the basis of the net asset value calculated in
accordance with Rule 22c-1 on the date of the recapture.
7. Applicants submit that their request for an order that applies to any
Separate Account or any Future Separate Account established by SunAmerica
Annuity and First SunAmerica 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 replace
SunAmerica Annuity or First SunAmerica in the event of a merger, acquisition by
another company, or a name change. 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.
8. 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.
9. All requirements of the articles and by-laws of SunAmerica Annuity and First
SunAmerica have been complied with in connection with the execution and filing
of this application. SunAmerica Annuity and First SunAmerica have authorized its
proper officers to sign and file an application, including any amendment
thereto, for an order under Section 6(c) permitting the recapture of the Payment
Enhancement under the circumstances described herein. Similarly, with respect to
the Distributor, resolutions adopting the by-laws authorize any and all actions
that proper officers may deem necessary, as well as the making, executing and
delivering of all instruments in the name of and on behalf of the Distributor.
CONCLUSION
Applicants submit that their request for an 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.
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