[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: 94-9635]


[[Page Unknown]]

[Federal Register: April 21, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20223; 812-8820]

 

Hartford Life Insurance company, et al.

April 15, 1994.
AGENCY: The Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

ACTION: Notice of Application for Exemption under the Ivestment Company 
Act of 1940 (the ``1940 Act'').

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APPLICANTS: Hartford Life Insurance Company (``Hartford Life''), 
Hartford Life Insurance Company/Putnam Capital Manager Trust Separate 
Account (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 Hartford Life (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 10, 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, N.W., Washington, D.C. 
20549. Applicants, c/o Kathleen A. McGah, Counsel, Hartford Life 
Insurance Company, 200 Hopmeadow Street, Simsbury, CT 06089.

FOR FURTHER INFORMATION CONTRACT: 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. Hartford Life, a stock life insurance company, was incorporated 
in Massachusetts on June 5, 1902, and subsequently was redomiciled to 
Connecticut.
    2. On June 22, 1987, the Board of Directors of Hartford Life 
established the Separate Account. The Separate Account issues only 
individual and group 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 Hartford Life, 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 Hartford Life; (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, 3% the sixth 
year, 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. Hartford Life 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, Hartford Life will 
deduct from Contract value each year, on the Contract anniversary, a 
maintenance fee of $30. The annual maintenance fee is designed to 
reimburse Hartford Life for expenses relating to the administration and 
maintenance of a Contract and the Subaccounts.
    11. The Applicants represent that none of the administrative 
charges may be increased during the life of the Contracts, and that the 
total revenues from all administrative charges under the Contracts are 
not expected to exceed Hartford Life's average expected costs of 
administering the Contracts.
    12. Hartford Life 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, .90% is for mortality risk and .35% is for expense 
risk.)
    13. The mortality risk arises, in large part, from Hartford Life'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 the administrative fees assessed by 
Hartford Life 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 Hartford Life. Conversely, if the charge 
proves more than sufficient to meet actual experience, the excess will 
be a profit to Hartford Life and will become part of its general 
account surplus. Hartford Life 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 charge for mortality and 
expense risks is reasonable in relation to the risks assumed by 
Hartford Life 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, Hartford Life 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. 94-9635 Filed 4-20-94; 8:45 am]
BILLING CODE 8010-01-M