[Federal Register Volume 59, Number 72 (Thursday, April 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9012]
[[Page Unknown]]
[Federal Register: April 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20205; 812-8824]
ITT Hartford Life and Annuity Insurance Company, et al.
April 8, 1994.
AGENCY: The Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: ITT Hartford Life and Annuity Insurance Company (``ITT
Hartford''), ITT Hartford Life and Annuity Insurance Company/Putnam
Capital Manager Trust Separate Account Two (the ``Separate Account'')
and Hartford Equity Sales Company, Inc. (``HESCO''), collectively, the
``Applicants.''
RELEVANT 1940 ACT SECTIONS: Order requested under section 6(c) of the
1940 Act for exemptions from sections 26(a)(2)(C) and 27(c)(2) of the
1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order permitting the
deduction of a mortality and expense risk charge from the assets of the
Separate Account which serves as the funding medium for certain
deferred variable annuity contracts issued by ITT Hartford (the
``Contracts'').
FILING DATE: The Application was filed initially on February 7, 1994,
and subsequently amended on March 24, 1994, and April 4, 1994.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing on the application by writing to the
Secretary of the Commission and serving the Applicants with a copy of
the request, either personally or by mail. Hearing requests must be
received by the Commission by 5:30 p.m. on May 3, 1994, and should be
accompanied by proof of service on the Applicants in the form of an
affidavit or, for lawyers, by certificate. Hearing requests should
state the nature of the interest, the reason for the request, and the
issues contested. Persons may request notification of the date of a
hearing by writing to the Secretary of the Commission.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants, c/o Kathleen A. McGah, Counsel, Hartford Life Insurance
Company, 200 Hopmeadow Street, Simsbury, CT 06089.
FOR FURTHER INFORMATION CONTACT: Patrice M. Pitts, Attorney, or Michael
V. Wible, Special Counsel, Office of Insurance Products, Division of
Investment Management, at (202) 272-2060.
SUPPLEMENTARY INFORMATION: The following is a summary of the
Application. The complete application is available for a fee from the
Commission's Public Reference Branch.
Applicants' Representations
1. ITT Hartford, formerly ITT Insurance Corporation, is a stock
life insurance company domiciled in Wisconsin.
2. On May 20, 1991, the Board of Directors of Hartford Life
established the Separate Account. The Separate Account issues only
flexible premium tax deferred variable annuity contracts. The Separate
Account consists of several subaccounts (the ``Subaccounts''), each of
which invests in certain underlying registered investment companies.
3. In December 1993, the Separate Account filed a Form N-4 to
register interests of a new flexible premium contract to be funded by
the Separate Account (the ``New Contract'').
4. HESCO will serve as the principal underwriter for the Contracts
(including the New Contract). HESCO is registered with the Commission
as a broker dealer under the Securities Exchange Act of 1934, and is a
member of the National Association of Securities Dealers.
5. Contract owners may allocate purchase payments to any one or
more of the Subaccounts, to the fixed account (the ``Fixed Account'')
which is part of the general account of ITT Hartford, or to a
combination of the Subaccounts and the Fixed Account.
6. A Contract owner may select one of four annuity options: life
annuity; life annuity with 120, 180 or 240 monthly payments; joint and
last survivor annuity; and payments for a designated period. Each
annuity option provides for a series of annuity payments commencing on
the annuity commencement date.
7. If upon death, prior to the annuity commencement date, the
annuitant or the Contract owner, as applicable, had not attained his or
her 90th birthday, the beneficiary of the Contract will receive the
greatest of:
(i) The Contract value determined as of the day written proof of
death of such person is received by ITT Hartford;
(ii) 100% of the total purchase payments made to such Contract; or
(iii) The maximum anniversary value\1\ increased by the dollar
amount of any purchase payments made and reduced by the dollar amount
of any partial surrenders (commonly referred to as a ``stepped up''
death benefit). If the deceased, the annuitant or the Contract owner,
as applicable, has attained age 90, the death benefit will equal the
Contract value.
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\1\The maximum anniversary value is equal to the greatest
anniversary value attained as follows. The anniversary value is
equal to the Contract value on a Contract anniversary (anniversary
of the effective date of the Contract), increased by the dollar
amount of any premium payments made since that anniversary and
reduced by the dollar amount of any partial surrenders since that
anniversary. As of the date of death, Hartford Life will calculate
anniversary value for each Contract anniversary prior to the
decedent's 81st birthday.
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8. Contract Owners will not pay a sales charge at the time of
purchase. However, a contingent deferred sales charge (``CDSC'') may be
assessed against Contract values when they are surrendered. The length
of time from receipt of a premium payment to the time of surrender
determines the contingent deferred sales charge. Purchase payments will
be deemed to be surrendered in the order in which they are received and
all surrenders will be first from purchase payments and then from other
Contract values. The CDSC equals 6% the first year, 6% the second year,
5% the third year, 5% the fourth year, 4% the fifth year and 3% the
sixth year, and 2% the seventh year, and 0% the eighth year.
9. During the first seven Contract years, on a non-cumulative
basis, a Contract owner may make a partial surrender of Contract values
of up to 10% of the aggregate premium payments made to the Contract (as
determined on the date of the requested withdrawal) without the
application of the CDSC. After the seventh Contract year, the Contract
owner may make a partial surrender of the greater of 10% of premium
payments made during the seven years prior to the surrender, or 100% of
the Contract value less the premium payments made during the seven
years prior to the surrender, without the application of a CDSC.
10. ITT Hartford will deduct from Contract value each year a daily
administrative charge at the rate of .15% per annum. In addition, for
Contracts with Contract value less than $50,000, ITT Hartford will
deduct from Contract value each year, on the Contract anniversary, a
maintenance fee of $30. The annual maintenance fee is designed to
reimburse ITT Hartford for expenses relating to the administration and
maintenance of a Contract and the Subaccounts.
11. The Applicants represent that neither the annual maintenance
charge nor the administrative charge may be increased during the life
of the Contracts. Moreover, Applicants do not expect the annual
maintenance and administrative charges to exceed ITT Hartford's average
expected costs of administering the Contracts.
12. ITT Hartford will deduct a daily charge at the rate of 1.25%
per annum to compensate it for providing mortality and expense
guarantees with respect to the Contracts. (The Applicants estimate that
of the 1.25% charge, 0.90% is for mortality risk and 0.35% is for
expense risk.)
13. The mortality risk arises, in large part, from ITT Hartford's
obligation:
(i) To make monthly annuity payments, regardless of how long an
annuitant may live, and regardless of how long annuitants as a group
may live; and
(ii) To pay the minimum death benefit under a Contract.
14. The expense risk is that administrative fees assessed by ITT
Hartford will fail to meet the actual expenses incurred.
15. The Applicants represent that the mortality and expense risk
charge will not increase. If the charge is insufficient to cover actual
costs, the loss will fall on ITT Hartford. Conversely, if the charge
proves more than sufficient to meet actual experience, the excess will
be a profit to ITT Hartford and will become part of its general account
surplus. ITT Hartford expects to realize a profit from the mortality
and expense risk charge.
Applicants' Legal Analysis and Conclusions
1. The Applicants request an exemption from sections 26(a)(2)(C)
and 27(c)(2) of the 1940 Act to the extent relief is necessary to
permit the deduction of a mortality and expense risk charge from the
assets of the Separate Account which serves as a funding medium for the
Contracts.
2. Sections 26(a)(2)(C) and 27(c)(2), as herein pertinent, prohibit
a registered unit investment trust and any depositor thereof or
underwriter therefor from selling periodic payment certificates unless
the proceeds of all payments (other than sales load) are deposited with
a qualified bank as trustee or custodian and held under arrangements
which prohibit any payment to the depositor or principal underwriter
except a fee, not exceeding such reasonable amounts as the Commission
may prescribe, for performing bookkeeping and other administrative
services.
3. The Applicants represent that the mortality and expense risk
charge is reasonable in relation to the risks assumed by ITT Hartford
under the Contracts.
4. The Applicants represent that the mortality and expense risk
charge is within the range of industry practice for comparable variable
annuity contracts. This representation is based upon Hartford Life's
survey of comparable contracts issued by a large number of other
insurance companies. Hartford Life will undertake to maintain and make
available to the Commission upon request a memorandum outlining the
methodology underlying this representation.
5. The Applicants represent that it is likely that the proceeds
from sales loads will be insufficient to cover the expected costs of
distributing the contracts. Any shortfall will be covered from the
assets of the general account, which may include profit from the
mortality and expense risk charge. Therefore, ITT Hartford has
concluded that there is a reasonable likelihood that the Separate
Account's distribution financing arrangement will benefit the Separate
Account and Contract owners, and that it will maintain and make
available to the Commission, upon request, a memorandum setting forth
the basis for this representation.
6. The Applicants represent that the Separate Account will invest
only in open-end management companies which, if they should adopt any
distribution financing plan under Rule 12b-1 under the 1940 Act, will
have a board of directors, a majority of whom are not interested
persons of the open-end management company. Such board of directors
must formulate and approve any such distribution plan.
Applicants' Conclusion
The Applicants assert that for the reasons set forth above, the
requested exemptions from sections 26(a)(2)(C) and 27(c)(2) of the 1940
Act to deduct a mortality and expense risk charge under the Contracts
meet the standards in section 6(c) of the 1940 Act. The Applicants
assert that the requested exemptions are necessary or appropriate in
the public interest and consistent with the protection of investors and
the purposes fairly intended by the policies and provisions of the 1940
Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-9012 Filed 4-13-94; 8:45 am]
BILLING CODE 8010-01-M