[Federal Register Volume 59, Number 77 (Thursday, April 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9582]
[[Page Unknown]]
[Federal Register: April 21, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20219; 812-8822]
ITT Hartford Life and Annuity Insurance Company, et al.
April 14, 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'').
-----------------------------------------------------------------------
APPLICANTS: ITT Hartford Life and Annuity Insurance Company (``ITT
Hartford''), ITT Hartford Life and Annuity Insurance Company/Separate
Account One (the ``Account'') and Hartford Equity Sales Company, Inc.
(``HESCO'') (collectively, ``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
Account which serves as the funding medium for certain flexible premium
deferred variable annuity contracts issues by ITT Hartford (the
``Contracts'').
FILING DATE: The application was filed on February 7, 1994. Amendment
number one to the application was filed on March 28, 1994 and amendment
number two to the application was filed on 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 9, 1994, and should be
accompanied by proof of service on the Applicants in the form of an
affidavit or, for lawyers, by certificate of service. 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
Companies, 200 Hopmeadow Street, Simsbury, CT 06089.
FOR FURTHER INFORMATION CONTACT:
Barbara J. Whisler, Senior Attorney, or Michael V. Wible, Special
Counsel, Office of Insurance Products, Division of Investment
Management, both at (202) 272-2060.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
Public Reference Branch of the Commission.
Applicants' Representations
1. ITT Hartford is a stock life insurance company domiciled in
Wisconsin. On May 20, 1991, the board of directors of ITT Hartford
established the Account. The Account serves as the funding medium for
the Contracts and consists of several subaccounts (the
``Subaccounts''), each of which invests in certain underlying
registered investment companies.\1\
---------------------------------------------------------------------------
\1\In December of 1993, a registration statement on Form N-4 was
filed with the Commission to register the Contracts. As of the date
of this notice, the registration statement had not yet been declared
effective.
---------------------------------------------------------------------------
2. HESCO, the principal underwriter for the Contracts, 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.
3. Owners of the Contracts may allocate purchase payments to 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.
4. A Contract owner may select an annuity option on either a fixed
or variable basis and may select one of four annuity options: Life
annuity; life annuity with 120, 180 or 240 monthly payments certain;
joint and last survivor annuity; and payments for a designated period.
Each annuity option provides for a series of annuity payments beginning
on the annuity commencement date.
5. If upon death, prior to the annuity commencement date, the
annuitant or the Contractor owner, as applicable, had not attained his
or her 90th birthday, the beneficiary of the Contract will receive the
greatest of:
(a) The Contract value determined as of the day written proof of
death of such person is received by ITT Hartford;
(b) 100% of the total purchase payments made to such Contract,
reduced by any prior surrenders; or
(c) The maximum anniversary value\2\ 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, had attained age 90, the death benefit will equal the
Contract value.
---------------------------------------------------------------------------
\2\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, ITT Hartford will calculate an
anniversary value for each Contract anniversary prior to the
deceased's attain age 81.
---------------------------------------------------------------------------
6. A contingent deferred sales charge (the ``Sales Charge'') may be
assessed against Contract values upon surrender. The length of time
from receipt of a premium payment to the time of surrender determines
the Sales Charge. Purchase payments will be deemed to be surrendered in
the order in which they are received and all surrenders will be deemed
made first from purchase payments and then from other Contract values.
7. The Sales Charge is 6% the first and second years, 5% the third
and fourth years, 4% the fifth year, 3% the sixth year, 2% the seventh
year, and 0% the eighth year. During the first seven Contract years, on
a non-cumulative basis, a Contract owner may make a partial surrender
of Contract values up to 10% of the aggregate premium payments made to
the Contract (as determined on the date of the requested withdrawal)
without application of the Sales Charge. 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 application of a
Sales Charge.
8. ITT Hartford will deduct an annual maintenance fee of $30 from
each Contract to reimburse ITT Hartford for expenses relating to
administration and maintenance of the Contract and the Subaccounts.
There is no charge for Contracts with more than a $50,000 Contract
value on the Contract anniversary. The application states that the
annual maintenance fee may not be increased during the life of the
Contracts. Applicants further state that total revenues from the annual
maintenance fees under the Contracts are not expected to exceed ITT
Hartford's average expected costs for administering the Contracts.
9. ITT Hartford will deduct a daily charge at the rate of 1.25%
annually to compensate it for providing mortality and expense
guarantees with respect to the Contracts. Applicants estimate that
0.90% of the 1.25% charge is for mortality risk and 0.35% is for
expense risk.
10. Applicants state that the mortality risk arises from the
obligation of ITT Hartford to: (a) make monthly annuity payments,
regardless of how long an annuitant may live and regardless of how long
annuitants as a group may live; and (b) pay the minimum death benefit
under a Contract.
11. Applicants state that the expense risk assumed by ITT Hartford
is the risk that the administrative fees assessed by ITT Hartford will
be insufficient to cover actual expenses.
12. 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 expenses, the excess will be profit
to ITT Hartford and will be available for any proper corporate purpose.
Applicants state that ITT Hartford expects a reasonable profit from the
mortality and expense risk charge.
Applicants' Legal Analysis and Conclusions
1. 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 Account.
2. Sections 26(a)(2)(C) and 27(c)(2), in pertinent part, prohibit a
registered unit investment trust and any depositor thereof or
underwriter therefor from selling periodic payment plan certifications
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 of a character normally performed by the bank
itself.
3. Applicants represent that the mortality and expense risk charge
is reasonable in relation to the risks assumed by ITT Hartford under
the Contracts.
4. Applicants represent that the mortality and expense risk charge
is within the range of industry practice for comparable variable
annuity contracts. Applicants state that this representation is based
upon a survey of comparable contracts issued by a large number of other
insurance companies. The application states that ITT Hartford will
undertake to maintain and make available to the Commission upon request
a memorandum setting forth in detail the methodology and the contracts
of other insurance companies underlying this representation.
5. Applicants represent that ITT Hartford has concluded that there
is the likelihood that the proceeds from sales loads will be
insufficient to cover the expected costs of distributing the contracts.
Applicants state that any shortfall will be covered from the assets of
the general account, which may include profit from the mortality and
expense risk charge. ITT Hartford has concluded that there is a
reasonable likelihood that the Account's distribution financing
arrangement will benefit the Account and Contract owners. Applicants
further state that ITT Hartford undertakes to maintain and make
available to the Commission, upon request, a memorandum setting forth
the basis for this representation.
6. Applicants represent that the Account will invest only the open-
end management companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the open-
end management company, formulate and approve any plan under Rule 12b-1
of the 1940 Act to finance distribution expenses.
Conclusion
Applicants assert that for the reasons and upon the facts set forth
above, the requested exemptions from sections 26(a)(2)(C) and 27(c)(2)
of the 1940 Act are necessary and appropriate in the public interest
and consistent with the protection of investors and the purposes fairly
intended by the policy 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. 94-9582 Filed 4-20-94; 8:45 am]
BILLING CODE 8010-01-M