[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