Hartford Life Insurance Company, et al.; Notice of Application, 49324-49335 [E7-16959]
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49324
Federal Register / Vol. 72, No. 166 / Tuesday, August 28, 2007 / Notices
opportunity for a hearing regarding the
renewal application was the subject of
the aforementioned Federal Register
notice (72 FR 46680). Matters related to
participation in any hearing are outside
the scope of matters to be discussed at
this public meeting.
At the conclusion of the scoping
process, the NRC will prepare a concise
summary of the determination and
conclusions reached, including the
significant issues identified, and will
send a copy of the summary to each
participant in the scoping process. The
summary will also be available for
inspection in ADAMS at https://
adamswebsearch.nrc.gov/dologin.htm.
The staff will then prepare and issue for
comment the draft supplement to the
GEIS, which will be the subject of a
separate notice and separate public
meeting. Copies will be available for
public inspection at the Burke County
Library, and one copy per request will
be provided free of charge. After receipt
and consideration of the comments, the
NRC will prepare a final supplement to
the GEIS, which will also be available
for public inspection.
Information about the proposed
action, the supplement to the GEIS, and
the scoping process may be obtained
from Mr. Leous at the aforementioned
telephone number or e-mail address.
Dated at Rockville, Maryland, this 21st day
of August 2007.
For the Nuclear Regulatory Commission.
Rani Franovich,
Branch Chief, Environmental Branch B,
Division of License Renewal, Office of Nuclear
Reactor Regulation.
[FR Doc. E7–16995 Filed 8–27–07; 8:45 am]
BILLING CODE 7590–01–P
NUCLEAR REGULATORY
COMMISSION
Sunshine Act Meeting
Weeks of August 27, September
3, 10, 17, 24, October 1, 2007.
PLACE: Commissioners’ Conference
Room, 11555 Rockville Pike, Rockville,
Maryland.
STATUS: Public and Closed.
DATES:
Matters to be Considered
Week of August 27, 2007
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Thursday, August 30, 2007
9 a.m. Affirmation Session (Public
Meeting) (Tentative).
a. Final Rule: 10 CFR parts 30, 31, 32,
and 150—Exemptions from
Licensing, General Licenses, and
Distribution of Byproduct. Material:
Licensing and Reporting
VerDate Aug<31>2005
19:52 Aug 27, 2007
Jkt 211001
Requirements (RIN 3150–AH41)
(Tentative).
b. Pacific Gas and Electric Co. (Diablo
Canyon ISFSI), Docket No. 72–26–
ISFSI, San Luis Obispo Mothers for
Peace’s Contentions and Request for
Hearing Regarding Diablo Canyon
Environmental Assessment
Supplement (Tentative).
c. Southern Nuclear Operating Co.
(Early Site Permit for Vogtle ESP
Site—Certified Question Regarding
Conduct of Mandatory Hearing
(Tentative).
Week of September 3, 2007—Tentative
Tuesday, September 4, 2007
2:30 p.m. Briefing on Radioactive
Materials Security and Licensing
(Public Meeting) (Contact: Robert
Lewis, 301–415–8722).
Week of September 10, 2007—Tentative
There are no meetings scheduled for
the Week of September 10, 2007.
Week of September 17, 2007—Tentative
There are no meetings scheduled for
the Week of September 17, 2007.
Week of September 24, 2007—Tentative
There are no meetings scheduled for
the Week of September 24, 2007.
Week of October 1, 2007—Tentative
Tuesday, October 2, 2007
9:30 a.m. Periodic Briefing on Security
Issues (Closed—Ex. 1 & 3).
Wednesday, October 3, 2007
2 p.m. Briefing on NRC’s International
Programs, Performance, and Plans
(Public Meeting) (Contact: Karen
Henderson, 301–415–0202).
The schedule for Commission
meetings is subject to change on short
notice. To verify the status of meetings
call (recording)—(301) 415–1291.
Contact person for more information:
Michelle Schroll, (301) 415–1662.
The NRC Commission Meeting
Schedule can be found on the Internet
at: www.nrc.gov/about-nrc/policymaking/schedule.html.
The NRC provides reasonable
accommodation to individuals with
disabilities where appropriate. If you
need a reasonable accommodation to
participate in theses public meetings, or
need this meeting notice or the
transcript or other information from the
public meetings in another format (e.g.,
braille, large print), please notify the
NRC’s Disability Program Coordinator,
Rohn Brown, at 301–492–2279, TDD:
301–415–2100, or by e-mail at
REB3@nrc.gov. Determinations on
requests for reasonable accommodation
will be made on a case-by-case basis.
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This notice is distributed by mail to
several hundred subscribers; if you no
longer wish to receive it, or would like
to be added to the distribution, please
contact the Office of the Secretary,
Washington, DC 20555 (301–415–1969).
In addition, distribution of this meeting
notice over the Internet system is
available. If you are interested in
receiving this Commission meeting
schedule electronically, please send an
electronic message to dkw@nrc.gov.
Dated: August 23, 2007.
R. Michelle Schroll,
Office of the Secretary.
[FR Doc. 07–4237 Filed 8–24–07; 10:29 am]
BILLING CODE 7590–01–M
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–27933; File No. 812–13267]
Hartford Life Insurance Company, et
al.; Notice of Application
August 22, 2007.
U.S. Securities and Exchange
Commission (the ‘‘Commission’’).
ACTION: Notice of application for an
order under the Investment Company
Act of 1940, as amended (the ‘‘Act’’).
AGENCY:
Hartford Life Insurance
Company (‘‘Hartford Life’’), Hartford
Life Insurance Company Separate
Account DC–I (‘‘Account DC–I’’),
Hartford Life Insurance Company
Separate Account Two (‘‘Account
Two’’), Hartford Life Insurance
Company Separate Account Eleven
(‘‘Account Eleven’’) (together with
Account DC–I and Account Two, the
‘‘Registered Accounts’’), and Hartford
Securities Distribution Company, Inc.
(‘‘HSD’’).
SUMMARY: Applicants request an order of
the Commission pursuant to section
11(a) of the Act approving the terms of
the proposed offers of exchange
described in this application.
Applicants propose to make the
following exchange offers: (1) Group
variable annuity contracts issued by
Hartford Life offering interests in
Account Eleven (the ‘‘New Contracts’’)
for certain group variable annuity
contracts issued by Hartford Life (the
‘‘Modified Old Contracts’’) offering
interests in both Account DC–I and
Account Two as well as certain other
separate accounts not registered as
investment companies under the Act;
(2) interests in Account DC–I and
Account Two, as originally offered to
contract owners, (‘‘Original Old
Contracts’’) for interests in the
APPLICANTS:
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Unregistered DC Accounts under
Modified Old Contracts; (3) New
Contracts for certain group variable
annuity contracts issued by Hartford
Life (‘‘457 Contracts’’) offering interests
in Hartford Life Insurance Company
Separate Account 457 (‘‘Account 457’’);
and (4) Original Old Contracts offering
interests in Account DC–I and Account
Two for 457 Contracts offering interests
in Account 457.
DATES: The application was filed on
March 2, 2006, and amended on August
21, 2007.
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 by writing to the
Commission’s Secretary and serving
Applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on September 17, 2007,
and should be accompanied by proof of
service on the 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
Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090.
Applicants, 200 Hopmeadow Street,
Simsbury, Connecticut 06089; copies to
David S. Goldstein, Sutherland Asbill &
Brennan LLP, 1275 Pennsylvania
Avenue, NW., Washington, DC 20004–
2415.
FOR FURTHER INFORMATION CONTACT:
Michael L. Kosoff, Staff Attorney, at
(202) 551–6754, or Harry Eisenstein,
Branch Chief, at (202) 551–6795, 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 ((202) 551–
8090).
Applicants’ Representations
1. Hartford Life is a stock life
insurance company originally
incorporated under the laws of the
Commonwealth of Massachusetts on
June 5, 1902, and subsequently redomiciled to the state of Connecticut.
Hartford Life is engaged in the business
of writing individual and group life
insurance and annuity contracts in the
District of Columbia and all States. As
VerDate Aug<31>2005
19:52 Aug 27, 2007
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of December 31, 2006, Hartford Life had
assets of approximately $214 billion.
For purposes of the Act, Hartford Life is
the depositor and sponsor of Account
DC–I, Account Two and Account
Eleven, as those terms have been
interpreted by the Commission with
respect to variable annuity separate
accounts registered under the Act as
unit investment trusts.
2. Hartford Life established Account
DC–I on or about March 31, 1988,
Account Two on June 2, 1986 and
Account Eleven on December 1, 2000, as
segregated asset accounts under
Connecticut law. Under Connecticut
law, the assets of Account DC–I and
Account Two, including assets
attributable to the Original Old
Contracts and the Modified Old
Contracts, are owned by Hartford Life,
but are held separately from all other
assets of Hartford Life for the benefit of
the owners of, and the persons entitled
to payment under, variable annuity
contracts issued by Hartford Life
through Account DC–I and Account
Two, including the Original Old
Contracts and Modified Old Contracts.
Likewise, the assets of Account Eleven,
including assets attributable to the New
Contracts, are owned by Hartford Life,
but are held separately from all other
assets of Hartford Life for the benefit of
the owners of, and the persons entitled
to payment under variable annuity
contracts issued by Hartford Life
through Account Eleven, including the
New Contracts. Consequently, assets in
each Account are not chargeable with
liabilities arising out of any other
business that Hartford Life may
conduct. Income, gains and loses,
realized and unrealized, from the assets
of each Account are credited to or
charged against that Account without
regard to the income, gains or loses
arising out of any other business that
Hartford Life may conduct. Each
Registered Account is a ‘‘separate
account’’ as defined by Rule 0–1(e)
under the Act, and is registered with the
Commission as a unit investment trust.
3. The assets of Account DC–I and
Account Two support Original Old
Contracts as well as Modified Old
Contracts. Hartford Life issued the
Original Old Contracts to, among other
parties, (a) Sponsors of non-qualified
deferred compensation plans
established by certain tax-exempt
organizations (‘‘tax-exempt plan
sponsors’’) pursuant to section 457(b)
and section 457(e)(1)(B) of the Internal
Revenue Code of 1986, as amended (the
‘‘IRC’’), as well as (b) trustees of trusts
created to hold assets for non-qualified
deferred compensation plans
established by state and municipal
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49325
governments, or instrumentalities
thereof, pursuant to section 457(b) and
section 457(e)(1)(A) of the IRC
(‘‘government plan trustees’’). Interests
in Account DC–I and Account Two
offered through Original Old Contracts
have been registered under the
Securities Act of 1933 (the ‘‘1933 Act’’)
on Form N–4.1
4. The New Contracts will be issued
through Account Eleven. Hartford Life
currently issues other group variable
annuity contracts similar to the New
Contracts through Account Eleven to a
variety of applicants including taxexempt plan sponsors, government plan
trustees, retirement plans qualified
under sections 401(a) and 403(a) of the
IRC, and annuity purchase plans
adopted by public school systems and
certain tax-exempt organizations
pursuant to section 403(b) of the IRC.
Interests in Account Eleven offered
through such group variable annuity
contracts have been registered under the
1933 Act on Form N–4.2 Likewise,
interests in Account Eleven to be issued
through the New Contracts will be
registered under the 1933 Act on a Form
N–4 registration statement to be filed
shortly with the Commission.
5. HSD is a Connecticut corporation
registered with the Commission as a
broker-dealer under the Securities
Exchange Act of 1934 and is a member
of the Financial Industry Regulatory
Authority, Inc. HSD is the principal
underwriter for the Original Old
Contracts, Modified Old Contracts, 457
Contracts and New Contracts and for
other Hartford Life variable annuity
contracts. HSD is an affiliated person of
Hartford Life.
6. Hartford Life established Separate
Account DC–III, Separate Account DC–
IV, Separate Account DC–V and
Separate Account DC–VI, as segregated
asset accounts under Connecticut law
(‘‘Unregistered DC Accounts’’). Each of
the Unregistered DC Accounts is
divided into several sub-accounts.
Hartford Life added endorsements to the
Original Old Contracts to make available
to owners of such contracts one or more
sub-accounts of the Unregistered DC
Accounts as investment options. The
Modified Old Contracts are those
Original Old Contracts issued to taxexempt plan sponsors to which the
endorsements were added.
7. Under Connecticut law, the assets
of each Unregistered DC Account
attributable to Modified Old Contracts
are owned by Hartford Life, but are held
separately from all other assets of
1 See 1933 Act File Nos. 33–19944, 33–19946, 33–
19947 and 33–19949.
2 See 1933 Act File No. 333–72042.
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Hartford Life for the benefit of the
owners of, and the persons entitled to
payment under the Modified Old
Contracts. Consequently, such assets in
each Unregistered DC Account are not
chargeable with liabilities arising out of
any other business that Hartford Life
may conduct. Income, gains and loses,
realized and unrealized, from the assets
of each Unregistered DC Account are
credited to or charged against that
Account without regard to the income,
gains or loses arising out of any other
business that Hartford Life may
conduct. Hartford Life has not registered
any Unregistered DC Account as an
investment company under the Act in
reliance upon the exclusion from the
definition of investment company found
in section 3(c)(11) of the Act.
8. Hartford Life established Account
457 on December 1, 1998, as a
segregated asset account under
Connecticut law. Under Connecticut
law, the assets of Account 457,
including assets attributable to the 457
Contracts, are owned by Hartford Life,
but are held separately from all other
assets of Hartford Life for the benefit of
the owners of, and the persons entitled
to payment under variable annuity
contracts issued by Hartford Life
through Account 457, including the 457
Contracts. Consequently, such assets in
Account 457 are not chargeable with
liabilities arising out of any other
business that Hartford Life may
conduct. Income, gains and loses,
realized and unrealized, from the assets
of Account 457 are credited to or
charged against the separate account
without regard to the income, gains or
loses arising out of any other business
that Hartford Life may conduct. Hartford
Life has not registered Account 457 as
an investment company under the Act
in reliance upon the exclusion from the
definition of investment company found
in section 3(c)(11) of the Act.
9. Hartford Life has not registered
interests in the Unregistered DC
Accounts offered through Modified Old
Contracts as securities under the 1933
Act in reliance upon the exemption
from registration found in section 3(a)(2)
of the 1933 Act. Likewise, Hartford life
has not registered interests in Account
457 offered through the 457 Contracts as
securities under the 1933 Act.
Description of the Contracts
10. During the accumulation period,
the Original Old Contracts, Modified
Old Contracts, 457 Contracts, and New
Contracts (together, the ‘‘Contracts’’)
each provides for the allocation of
purchase payments and transfer of
Contract values between and among
various sub-accounts of the separate
account through which each is issued.
Each sub-account invests in shares of a
particular open-end management
investment company (a ‘‘mutual fund’’)
which serves as an investment option
under the Contract. The Contracts also
offer a ‘‘fixed’’ interest investment
option supported by Hartford Life’s
general account. During the annuity
payment period, the Contracts all
provide a variety of settlement or
annuity payment options on a variable
basis, fixed basis, or both. Owners of
Contracts may withdraw some or all of
their Contract’s value at any time during
the accumulation period or apply such
values to the ‘‘purchase’’ of a settlement
or annuity payment option. The
Contracts incorporate many other
features, including ‘‘death benefits’’
payable upon the death of a plan
participant (or beneficiary) and certain
fees and charges.
11. The Original Old Contracts,
Modified Old Contracts and New
Contracts do not impose any fees or
charges in connection with purchase
payments. The tables below describe the
fees and charges deducted from separate
account assets on an ongoing basis
during both the accumulation and
annuity payment periods, and the fees
and charges payable by a Contract
owner upon the withdrawal or
surrender of Contract value during the
accumulation period. The tables also
indicate the annual rate of interest
guaranteed for the ‘‘fixed’’ option under
each Contract and identify the number
of sub-accounts available as investment
options under the Contract, along with
the minimum and maximum total
annual operating expenses for the
mutual funds in which such subaccounts invest as of December 31,
2006. The letter designation in the lefthand column represents different
Contract variations.
ORIGINAL OLD CONTRACTS
[Account DC–I and Account Two]
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Type of contract
Number of
mutual
funds
A ............................................
B ............................................
C ...........................................
D ...........................................
E ............................................
F ............................................
G ...........................................
H ...........................................
I .............................................
J ............................................
K ............................................
L ............................................
M ...........................................
N ...........................................
O ...........................................
P ............................................
Q ...........................................
VerDate Aug<31>2005
19:52 Aug 27, 2007
M&E risk and
administrative
charge
(payout
period)
(% of average
daily sub-account assets)
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
Jkt 211001
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1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
Frm 00080
M&E risk and
administrative charge
(pay-in period)
(% of average daily
sub-account
assets)
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
Minimum guaranteed annual
interest rate
CDSC
(% of amount
surrendered)
Minimum total
annual portfolio expenses
(% of average
daily net asset
value)
Maximum total
annual portfolio expenses
(% of average
daily net asset
value)
4
4
4
4
4
4
4
4
4
4
4
4
4
4
3
4
4
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
12 YR ..........
12 YR ..........
7 YR ............
7 YR ............
N/A ..............
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.91
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
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Federal Register / Vol. 72, No. 166 / Tuesday, August 28, 2007 / Notices
MODIFIED OLD CONTRACTS
[Account DC–I, Account Two and Unregistered DC Accounts]
Type of contract
Number of
mutual
funds
A ............................................
B ............................................
C ...........................................
D ...........................................
E ............................................
F ............................................
G ...........................................
H ...........................................
I .............................................
J ............................................
K ............................................
L ............................................
M ...........................................
N ...........................................
O ...........................................
P ............................................
Q ...........................................
M&E risk and
administrative charge
(pay-in period)
(% of average daily
sub-account
assets)
M&E risk and
administrative
charge
(payout
period)
(% of average
daily sub-account assets)
23
24
24
24
25
25
25
25
26
26
26
27
23
26
23
23
24
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
to
Minimum guaranteed annual
interest rate
CDSC
(% of amount
surrendered)
Minimum total
annual portfolio expenses
(% of average
daily net asset
value)
Maximum total
annual portfolio expenses
(% of average
daily net asset
value)
4
4
4
4
4
4
4
4
4
4
4
4
4
4
3
4
4
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
N/A ..............
12 YR ..........
12 YR ..........
7 YR ............
7 YR ............
N/A ..............
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
NEW CONTRACTS
[Account Eleven]
Type of contract
Number of
mutual
funds
New Contract ........................
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M&E risk and
administrative
charge
(payout
period)
(% of average
daily sub-account assets)
19:52 Aug 27, 2007
Minimum guaranteed annual
interest rate
CDSC
(% of amount
surrendered)
Minimum total
annual portfolio expenses
(% of average
daily net asset
value)
Maximum total
annual portfolio expenses
(% of average
daily net asset
value)
0.70
0.70 .............
4
N/A ..............
0.34
1.49
48
12. Hartford Life does not assess a
CDSC under Modified Old Contracts A,
B, C, D, E, F, G, H, I, J, K, L and Q and
corresponding Original Old Contracts A,
B, C, D, E, F, G, H, I, J, K, L and Q.
Under Modified Old Contracts M, N, O
and P and corresponding Original Old
Contracts M, N, O and P, a contingent
deferred sales charge (‘‘CDSC’’) may be
assessed against the amount withdrawn
or surrendered by a Contract owner.
However, those who will be moved to
the Original Old Contracts or from the
Modified Old Contracts will not be
subject to a CDSC.
13. As the tables indicate, the
mortality and expense risk and
administrative charge during the
accumulation period under the New
Contracts is less than that imposed
under the Original Old Contracts and
the Modified Old Contracts. The
mortality and expense risk and
administrative charge during the
annuity payment period under the New
VerDate Aug<31>2005
M&E risk and
administrative charge
(pay-in period)
(% of average daily
sub-account
assets)
Jkt 211001
Contracts is substantially less than that
imposed under the Original Old
Contracts and the Modified Old
Contracts.
14. Hartford Life may deduct a charge
corresponding to any applicable state or
municipal premium taxes under each
Contract. Hartford Life may deduct the
charge for premium taxes at the time of
payment of such taxes to the
appropriate taxing authority, surrender
of the Contract, upon payment of a
death benefit or upon the
commencement of annuity payments to
a participant (or beneficiary).
15. Under the Original Old Contracts
and the Modified Old Contracts,
Hartford Life reserves the right to
deduct a $5 fee for each transfer of
Contract value between or among subaccounts in a Contract year. Under New
Contracts, Hartford Life reserves the
right to deduct a $5 fee for each transfer
in excess of twelve transfers of Contract
value within a participant account by a
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participant between or among the subaccounts in any participant account
year. Currently, the Company does not
assess a transfer fee under any Contract.
16. The sub-accounts of Account
Eleven offered by the New Contracts
invest in all of the mutual funds in
which the sub-accounts of Account DC–
I and Account Two offered by the
Original Old Contracts and the Modified
Old Contracts invest, and many of the
mutual funds (or variable insurance
fund counterpart) in which subaccounts of the Unregistered DC
Accounts offered by the Modified Old
Contracts invest. In most cases, where a
particular mutual fund available under
a Modified Old Contract (or its variable
insurance fund counterpart) is not
available as an investment option under
the New Contract, a mutual fund with
substantially identical or closely
comparable investment objectives and
principal strategies would be available
under the New Contract. In all but four
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cases, these alternative mutual funds
had the same or lower total expenses
during their most recent fiscal year.
Notwithstanding this, for each subaccount available under the New
Contract that has a counterpart under an
Original Old Contract or a Modified Old
Contract, the annual mortality and
expense risk and administrative charge
when combined with the annual
expense ratio of the mutual in which
such sub-account invests, is less under
the New Contract than under either the
Original Old Contract or the Modified
Old Contract.
17. The Original Old Contracts, 457
Contracts and New Contracts do not
impose any fees or charges in
connection with purchase payments.
The tables below describe the fees and
charges deducted from separate account
assets on an ongoing basis during both
the accumulation and annuity payment
periods, and the fees and charges
payable by a Contract owner upon the
withdrawal or surrender of Contract
value during the accumulation period.
The tables also indicate the annual rate
of interest guaranteed for the ‘‘fixed’’
option under each Contract and identify
the number of sub-accounts available as
investment options under the Contract,
along with the minimum and maximum
total annual operating expenses for the
mutual funds in which such subaccounts invest as of December 31,
2006. The letter designation in the lefthand column represents different
Contract variations, with type A
corresponding to type U and type B
corresponding to type V, etc.
457 CONTRACTS
[Account 457]
Type of contract
A
B
C
D
E
F
Number of
mutual
funds
............................................
............................................
...........................................
...........................................
............................................
............................................
M&E risk and
administrative charge
(pay-in period)
(% of average daily
sub-account
assets)
M&E risk and
administrative
charge
(payout
period)
(% of average
daily sub-account assets)
27
24
47
47
51
47
1.25
1.25
1.25
1.25
1.25
1.25
0.75
0.75
0.75
0.75
0.45
0.75
Minimum guaranteed annual
interest rate
CDSC
(% of amount
surrendered)
Minimum total
annual portfolio expenses
(% of average
daily net asset
value)
Maximum total
annual portfolio expenses
(% of average
daily net asset
value)
4
4
4
4
4
4
N/A ..............
12 YR ..........
12 YR ..........
7 YR ............
N/A ..............
N/A ..............
0.34
0.34
0.34
0.34
0.34
0.34
1.73
1.73
1.73
1.73
1.73
1.73
Minimum guaranteed annual
interest rate
CDSC
(% of amount
surrendered)
Minimum total
annual portfolio expenses
(% of average
daily net asset
value)
Maximum total
annual portfolio expenses
(% of average
daily net asset
value)
4
4
4
4
4
4
N/A ..............
12 YR ..........
12 YR ..........
7 YR ............
N/A ..............
N/A ..............
0.34
0.34
0.34
0.34
0.34
0.34
0.91
0.91
0.91
0.91
0.91
0.91
to 0.90
to 0.90
to 0.90
to 0.90
.............
to 0.90
ORIGINAL OLD CONTRACTS
[Account DC–I and Account Two]
Type of contract
Number of
mutual
funds
U ...........................................
V ............................................
W ...........................................
X ............................................
Y ............................................
Z ............................................
M&E risk and
administrative charge
(pay-in period)
(% of average daily
sub-account
assets)
M&E risk and
administrative
charge
(payout
period)
(% of average
daily sub-account assets)
10
10
10
10
10
10
1.25
1.25
1.25
1.25
1.25
1.25
0.75
0.75
0.75
0.75
0.45
0.75
to 0.90
to 0.90
to 0.90
to 0.90
.............
to 0.90
NEW CONTRACTS
[Account Eleven]
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Type of contract
M&E risk and
administrative
charge
(payout
period)
(% of average
daily sub-account assets)
Number of
mutual
funds
New Contract ........................
19:52 Aug 27, 2007
Minimum guaranteed annual
interest rate
CDSC
(% of amount
surrendered)
Minimum total
annual portfolio expenses
(% of average
daily net asset
value)
Maximum total
annual portfolio expenses
(% of average
daily net asset
value)
0.70
0.70 .............
4
N/A ..............
0.34
1.49
48
18. Hartford Life does not assess a
CDSC under Original Old Contracts U,
VerDate Aug<31>2005
M&E risk and
administrative charge
(pay-in period)
(% of average daily
sub-account
assets)
Jkt 211001
Y and Z and 457 Contracts A, E and F.
Likewise, Hartford Life does not assess
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a CDSC under the New Contract. Under
the Original Old Contracts V, W and X,
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and the 457 Contracts B, C and D, a
CDSC may be assessed against the
amount withdrawn or surrendered by a
Contract owner. However, those who
will be moved to the Original Old
Contracts or from the Modified Old
Contracts will not be subject to a CDSC.
19. As the tables indicate, with two
exceptions, the mortality and expense
risk and administrative charge during
the accumulation period under the New
Contracts is less than that imposed
under the Original Old Contracts and
the 457 Contracts. The mortality and
expense risk and administrative charge
during the annuity payment period
under the New Contracts is substantially
less than that imposed under the
Original Old Contracts and the 457
Contracts.
20. Hartford Life may deduct a charge
corresponding to any applicable state or
municipal premium taxes under each
Contract. Hartford Life may deduct the
charge for premium taxes at the time of
payment of such taxes to the
appropriate taxing authority, surrender
of the Contract, upon payment of a
death benefit or upon the
commencement of annuity payments to
a participant (or beneficiary).
21. Under the Original Old Contracts
and the 457 Contracts, Hartford Life
reserves the right to deduct a $5 fee for
each transfer Contract value between or
among sub-accounts in a Contract year.
Under New Contracts, Hartford Life
reserves the right to deduct a $5 fee for
each transfer in excess of twelve
transfers of Contract value within a
participant account by a participant
between or among the sub-accounts in
any participant account year. Currently,
the Company does not assess a transfer
fee under any Contract.
22. The sub-accounts of Account
Eleven offered by the New Contracts
invest in all but a few of the mutual
funds (or variable insurance fund
counterparts) in which the sub-accounts
of Account 457 invest. In most cases,
where a particular mutual fund
available under a 457 Contract (or its
variable insurance fund counterpart) is
not available as an investment option
under the New Contract, a mutual fund
with substantially identical or closely
comparable investment objectives and
principal strategies would be available
under the New Contract. In all but five
cases, these alternative mutual funds
had the same or lower total expenses
during their most recent fiscal year. In
all but four cases, these alternative
mutual funds have the same investment
adviser as the fund they would
‘‘replace.’’ Notwithstanding this, with
two exceptions, for each sub-account
available under the New Contract that
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19:52 Aug 27, 2007
Jkt 211001
has a counterpart under an Original Old
Contract or a 457 Contract, the annual
mortality and expense risk and
administrative charge when combined
with the annual expense ratio of the
mutual fund in which such sub-account
invests, is less under the New Contract
than under either the Original Old
Contract or the 457 Contract.
23. As explained in more detail
immediately below, this Application
relates to Modified Old Contracts and
457 Contracts sold to tax-exempt plan
sponsors. In each case, a tax-exempt
plan sponsor purchased a Contract to
fund its obligations to participants in a
non-qualified deferred compensation
plan established by it pursuant to IRC
sections 457(b) and 457(e)(1)(B).3 Also,
in each case, the plan participants are
employees, past employees, or
beneficiaries of employees or past
employees of the tax-exempt plan
sponsor.
24. Taken together, IRC sections
457(b) and 457(e)(1)(B) permit a taxexempt employer to enter into an
agreement with one or more of its
employees pursuant to which
compensation otherwise payable to the
employee is withheld by the employer
and paid to the employee at a future
time. By this mechanism, the employee
defers receipt of the compensation for
federal income tax purposes until such
time as the employer actually pays the
compensation to the employee.
Typically, deferred compensation
agreements between tax-exempt
employers and their employees provide
for the employer to pay the deferred
amount plus interest at a specified rate
to the employee at specific date in the
future or, subject to certain limitations,
within a specified period time after the
employee requests payment. In lieu of
paying interest on the deferred amount,
the agreement may call for payment of
the deferred amount plus or minus the
performance of a specified measure,
such as a securities index or a mutual
fund. Under sections 457(b) and
457(e)(1)(B), the employer is fully
responsible for making the payments
required by the deferred compensation
agreement. In this regard, the deferred
compensation agreements are, in effect,
promissory notes issued by the
employer, and the employees to whom
3 In contrast, issuers may rely on section 3(a)(2)
of the 1933 Act in connection with the offer and
sale of unregistered securities to government plan
trustees, because non-qualified deferred
compensation plans established by state and
municipal governments, or instrumentalities
thereof, pursuant to IRC sections 457(b) and
457(e)(1)(A) come within the definition of a
‘‘governmental plan’’ in section 3(a)(2)(C) of the
1933 Act. See Mass Mutual Life Insurance
Company, et al., (Aug. 10, 1998).
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49329
the deferred compensation is owed are
general creditors of the employer.
Employees having deferred
compensation agreements with a taxexempt employer are not preferred
creditors of the employer and have no
security interest in the deferred amounts
held by the employer.
25. Tax-exempt plan sponsors are not
required to invest the compensation
deferred by their employees pursuant to
deferred compensation agreements.
They are free to bear the risk that they
will not have sufficient assets to make
payment of the deferred amounts plus
earnings (or minus losses) owed to
employees under the deferred
compensation agreements. Many taxexempt employers, however, choose to
invest the deferred amounts in a manner
that will ensure that they can make
payment under deferred compensation
agreements which they have entered
into. The Original Old Contracts,
Modified Old Contracts and the 457
Contracts were designed as investment
vehicles for this purpose and the taxexempt plan sponsors use their Original
Old Contract, Modified Old Contract or
457 Contract to fund their obligations to
their employees (or employees’
beneficiaries) or to past employees (or
beneficiaries of past employees) under
the sponsors’ non-qualified deferred
compensation plans.
26. Consistent with the foregoing, the
Modified Old Contracts and the 457
Contracts provide the owner with all the
rights and privileges of ownership and
do not reserve any such rights and
privileges to the employees with whom
the employer has deferred
compensation agreements (i.e., the
participants in the non-qualified
deferred compensation plan).
27. During the period from the early
1980s through April 2001, Hartford Life
issued the Original Old Contracts to
both tax-exempt plan sponsors and
government plan trustees. Beginning in
May 1992, Hartford Life began offering
endorsements to the Original Old
Contracts to make available to owners of
such Contracts sub-accounts of one or
more of the Unregistered DC Accounts
as investment options. At that time and
thereafter, Hartford Life intended only
to issue the Unregistered DC Account
endorsements to Original Old Contracts
held by government plan trustees and
not to Contracts held by tax-exempt
plan sponsors. Unfortunately, Hartford
Life inadvertently issued endorsements
offering the sub-accounts of one or more
of the Unregistered DC Accounts as
investment options to certain taxexempt plan sponsors in connection
with their Original Old Contracts. In
most cases, tax-exempt plan sponsors
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holding Modified Old Contracts have
(usually pursuant to participant
instructions) invested some or all of
their tax-exempt plan’s assets in one or
more sub-accounts of the Unregistered
DC Accounts. As of the date of this
Application, seventy-one Modified Old
Contracts held by tax-exempt plan
sponsors have Contract value allocated
to sub-accounts of one or more of the
Unregistered DC Accounts.
28. Unfortunately, issuers, such as
insurance companies and their separate
accounts, may not rely on the
exemption from registration provisions
of the 1933 Act provided by section
3(a)(2) of the 1933 Act when offering
and selling securities to tax-exempt plan
sponsors as funding vehicles for such
sponsors’ non-qualified deferred
compensation plans established
pursuant to IRC sections 457(b) and
457(e)(1)(B). As a result, through the
seventy-one Modified Old Contracts,
Separate Account DC–III, Separate
Account DC–IV, Separate Account DC–
V and Separate Account DC–VI issued
interests to the tax-exempt plan
sponsors holding such Contracts that
should have been registered under the
1933 Act, but were not.
29. In addition, from the time
Hartford Life invested the first purchase
payment under a Modified Original
Contract held by a tax-exempt plan
sponsor in an Unregistered DC Account,
that Account has failed to meet the
requirements for relying on section
3(c)(11) of the Act. This is because
reliance on section 3(c)(11) requires,
among other things, that the assets of
the separate account be derived solely
from:
• Contributions from pension and
profit sharing plans meeting the
requirements of IRC section 401, or the
requirements for the deduction of the
employer’s contribution under IRC
section 404(a)(2);
• Contributions under government
plans in connection with which
interests, participations, or securities are
exempted from the registration
provisions of the 1933 Act by section
3(a)(2)(C) thereof; and
• Advances made by the insurance
company in connection with the
operation of the separate account.
Some of each Unregistered DC
Account’s assets were derived from
contributions from tax-exempt plans
rather than the specified pension and
profit-sharing plans or government
plans. As a result, each of the
Unregistered DC Accounts should have
been registered as an investment
company under the Act, but was not.
30. Applicant’s state that in order to
restore the ability of the Unregistered
VerDate Aug<31>2005
19:52 Aug 27, 2007
Jkt 211001
DC Accounts to rely on section 3(c)(11)
of the Act, as well as to mitigate any
potential liability under the 1933 Act
and the Act, Hartford Life proposes to
remove from each Unregistered DC
Account all assets attributable to
purchase payments under Modified Old
Contracts held by tax-exempt plan
sponsors via the rescission offer
described below.
31. From August 11, 2001 through
November 15, 2003, Hartford Life
inadvertently issued fourteen 457
Contracts to tax-exempt plan sponsors
that owned Original Old Contracts or
Modified Old Contracts. The 457
Contracts were new contracts and not
endorsements to either an Original Old
Contract or a Modified Old Contract.
During the period that Hartford Life
issued the 457 Contracts, it was
undergoing a conversion from one
electronic data processing system used
to administer its group variable annuity
contracts business to a new and better
system. Among other things, the
conversion involved the replacement of
most Original Old Contracts and
Modified Old Contracts held by
government plan trustees with 457
Contracts. The replacement of Original
Old Contracts and Modified Old
Contracts with 457 Contracts entailed
the transfer of Contract value from subaccounts of Account DC–I, Account
Two, and one or more of the
Unregistered DC Accounts, to
corresponding sub-accounts of Account
457. The replacement of Original Old
Contracts and Modified Old Contracts
with the 457 Contracts also entailed the
investment of subsequent purchase
payments in sub-accounts of Account
457 rather than sub-accounts of Account
DC–I, Account Two, and one or more of
the Unregistered DC Accounts.
32. Hartford Life did not intend to
permit, in connection with the system
conversion, tax-exempt plan sponsors to
replace their Original Old Contracts or
Modified Old Contracts with 457
Contracts. Nevertheless, during the
period when approximately 1,000
government plan trustees replaced their
Old Original Contracts and Modified
Old Contracts with 457 Contracts,
fourteen tax-exempt plan sponsors did
likewise. As in the case of interests in
the Unregistered DC Accounts made
available to tax-exempt plan sponsors
under Modified Old Contracts, Account
457 issued interests to tax-exempt plan
sponsors through 457 Contracts that
should have been registered as
securities under the 1933 Act but were
not. Similarly, from the time Hartford
Life invested the first purchase payment
under a 457 Contract held by a taxexempt plan sponsor in Account 457,
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Frm 00084
Fmt 4703
Sfmt 4703
that Account has failed to meet the
requirements for relying on section
3(c)(11) of the Act. As a result, Account
457 should have been registered as an
investment company under the Act, but
was not.
33. Applicants believe that in order to
restore the ability of Account 457 to rely
on section 3(c)(11) of the Act, as well as
to mitigate any potential liability under
the 1933 Act and the Act, Hartford Life
proposes to remove from the Account
457 all assets attributable to purchase
payments under the 457 Contracts held
by tax-exempt plan sponsors via the
rescission offer described below.
Proposed Rescission Offers
34. Hartford Life believes that it must
take all action reasonably practicable to
mitigate or reverse any adverse
consequences to tax-exempt plan
sponsors and their participants arising
from investment in the Unregistered DC
Accounts under Modified Old
Contracts. Therefore, Hartford Life
proposes to offer each affected taxexempt plan sponsor the opportunity to
(1) Exchange its Modified Old Contract
for a New Contract, or (2) surrender the
endorsement attached to the Modified
Old Contracts and either (a) exchange its
interests in the Unregistered DC
Accounts for interests in Account DC–
I and/or Account Two by transferring all
contract value from the sub-accounts of
the Unregistered DC Accounts to the
sub-accounts of Account DC–I and/or
Account Two, or (b) exchange its
interests in the Unregistered DC
Accounts for interests in Account DC–
I and/or Account two by accepting a
new contract value equal to the contract
value as of a stated reinstatement date
plus interest invested in Account DC–I
and/or Account two, as described
below. The second option would have
the effect, more or less, of ‘‘restoring’’
the Original Old Contract. Alternatively,
each tax-exempt plan sponsor may elect
to surrender its Modified Old Contract.
Expressed in more detail, the options
are:
• To exchange their Modified Old
Contract for a New Contract (‘‘Option
1’’);
• To transfer contract values under
their Modified Old Contract that are
invested in Separate Account DC–III,
Separate Account DC–IV, Separate
Account DC–V and Separate Account
DC–VI to corresponding or sponsordesignated investment options under
their Modified Old Contract in Account
DC–I and/or Account Two or, if it
would result in a greater contract value,
to ‘‘reinstate’’ all contract values as they
were under their Original Old Contract
at the time contract values were first
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invested in Separate Account DC–III,
Separate Account DC–IV, Separate
Account DC–V or Separate Account DC–
VI (the ‘‘Option 2 reinstatement date’’)
and crediting such contract values with
interest for the period from the Option
2 reinstatement date until the date a
plan sponsor elects Option 2 at an
annual rate of 3%, as described below
(‘‘Option 2’’); or
• To surrender their Modified Old
Contract for its full contract value
without the imposition of any surrender
or withdrawal charges (‘‘Option 3’’).
If a sponsor does not elect one of the
foregoing options, Hartford Life would
consider Option 1 as the default option.
35. Hartford Life would credit interest
under Option 2 in a manner that makes
appropriate adjustments to take into
account purchase payments and
withdrawals made after the Option 2
reinstatement date by crediting interest
each month at a rate of 0.247% (the
monthly equivalent of an annual rate of
3%) on the amount equal to the total
contract value under a Modified Old
Contract as of the Option 2
reinstatement date, and for each
subsequent month until the date on
which the sponsor elects an Option:
• Plus purchase payments allocated
to the contract during the prior month;
• Less withdrawals from the contract
during the prior month.
Purchase payments made under the
contract and withdrawals from the
contract would be treated as if each
occurred in the middle of the month
and will be credited with interest for
one-half of the month in which the
transaction occurs.
36. As in the case of the Modified Old
Contracts, Hartford Life believes that it
must take all action reasonably
practicable to mitigate or reverse any
adverse consequences to tax-exempt
plan sponsors and their participants
arising from investment in Account 457
under the 457 Contracts. Therefore,
Hartford Life proposes to offer each
affected tax-exempt plan sponsor the
opportunity to (1) Exchange its 457
Contract for a New Contract, (2)
exchange its 457 Contract for its
Original Old Contract and transfer all
contract value from sub-accounts of
Account 457 under its 457 Contract to
sub-accounts of Account DC–I and/or
Account Two, or (3) exchange its 457
Contract for its Original Old Contract
with contract value equal to the contract
value under the Original Old Contract at
the time it was first invested in (a) an
Unregistered DC Account, or (b)
Account 457, plus interest, as described
below. The second option would have
the effect, more or less, of reinstating the
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19:52 Aug 27, 2007
Jkt 211001
Original Old Contract. Alternatively,
each tax-exempt plan sponsor may elect
to surrender its 457 Contract. Expressed
in more detail, the options are:
• To exchange their 457 Contract for
a New Contract (‘‘Option 1’’);
• To exchange their 457 Contract for
(or ‘‘reinstate’’) their Original Old
Contract by having their 457 Contract
values transferred to corresponding or
sponsor-designated investment options
under their Original Old Contract in
Account DC–I and/or Account Two or,
if it would result in a greater contract
value, to ‘‘reinstate’’ all contract values
under their Original Old Contract by
reinstating such values as they were at
the time that contract values were first
invested in Separate Account DC–III,
Separate Account DC–IV, Separate
Account DC–V, Separate Account DC–
VI, or Account 457 (the ‘‘Option 2
reinstatement date’’) and crediting such
contract values with interest for the
period from the Option 2 reinstatement
date until the date a plan sponsor elects
Option 2 at an annual rate of 3%, as
described below (‘‘Option 2’’); or
• To surrender their 457 Contract for
its full contract value without the
imposition of any surrender or
withdrawal charges (‘‘Option 3’’).
If a sponsor does not elect one of the
foregoing options, Hartford Life would
consider Option 1 as the default option.
37. Hartford Life would credit interest
under Option 2 in a manner that makes
appropriate adjustments to take into
account purchase payments and
withdrawals made under the 457
Contracts (or under the Modified Old
Contracts and the 457 Contracts) after
the Option 2 reinstatement date by
crediting interest each month at a rate
of 0.247% (the monthly equivalent of an
annual rate of 3%) on the amount equal
to the contract value as of the Option 2
reinstatement date, and for each
subsequent month until the date on
which the sponsor elects an Option:
• Plus purchase payments made
during the prior month;
• Less withdrawals of contract value
from during the prior month.
Purchase payments and withdrawals
would be treated as if each occurred in
the middle of the month and will be
credited with interest for one-half of the
month in which the transaction occurs.
38. Hartford Life proposes to make
each of the above offers to essentially
‘‘rescind’’ the Modified Old Contracts
and 457 Contracts issued to tax-exempt
plan sponsors and put each tax-exempt
plan sponsor and plan (including plan
participants) in at least as favorable a
position as each would have been had
no Modified Old Contract or 457
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49331
Contract been issued. Unlike many
conventional rescission offers, Hartford
Life would not offer an option whereby
the tax-exempt plan sponsor could elect
to retain its current investment (i.e., a
Modified Old Contract or 457 Contract).
In this regard, Hartford Life’s goal is to
remove from the Unregistered DC
Accounts all of the assets represented by
Modified Old Contracts held by taxexempt plan sponsors and from Account
457 all of the assets represented by 457
Contracts held by tax-exempt plan
sponsors. Hartford Life believes that the
offers described in this Application are
necessary to restore the status of each
Unregistered DC Account and Account
457 as a separate account excluded from
the definition of an investment
company pursuant to section 3(c)(11) of
the Act. Similarly, Hartford Life believes
that the offers described in this
Application are necessary to mitigate
any potential liability to itself, the
Unregistered DC Accounts and Account
457 that may arise under the 1933 Act
and/or the Act as a result of the events
described above.
39. Hartford Life proposes to make the
exchange offers through a supplement to
the prospectuses for the New Contracts
to be included with such prospectuses
in the Form N–4 registration statement
for the New Contracts and Separate
Account Eleven. Hartford Life intends to
use two such supplements: One to make
an exchange offer to tax-exempt plan
sponsors that currently own Modified
Old Contracts, and another to make an
exchange offer to tax-exempt plan
sponsors that own 457 Contracts
(including such tax-exempt plan
sponsors that previously owned
Modified Old Contracts). The
supplements will notify tax-exempt
plan sponsors of the exchange offer
being made to them and explain the
terms of the offer in detail. Among other
matters, each supplement will describe
the following:
• The purpose of the exchange offer;
• The material terms of the exchange
offer, such as the expiration date and
the specifics of each option a taxexempt sponsor may elect;
• The material differences between
the Contract held by the tax-exempt
plan sponsor and the New Contract or
Original Old Contract, as applicable,
including but not limited to, fees and
charges, number of sub-accounts
available under each Contract and the
mutual funds in which each invests,
and the minimum and maximum total
annual operating expenses for such
funds;
• Procedures for electing an exchange
offer option; and
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• The advantages and disadvantages
of each of the exchange offer options.
40. Each supplement will clearly
disclose the fact that Option 1 will
apply in the event the tax-exempt plan
sponsor fails to elect another option by
the expiration date. If an election form
is incomplete, Hartford Life will contact
the tax-exempt plan sponsor by
telephone and facsimile for instructions.
Included in either the supplement or an
accompanying letter will be each taxexempt plan sponsor’s Option 2
reinstatement date and Option 2
reinstatement value. Also included with
the accompanying letter will be
information identifying each mutual
fund available under the Modified Old
Contracts or the 457 Contracts that is
not available under the New Contract
along with an explanation that if a taxexempt plan sponsor does not provide
instructions as to reallocating contract
value in sub-accounts invested in such
funds, then such contract value will be
allocated under the New Contract by
default to a sub-account investing in a
money market mutual fund. In addition,
the letter will also identify each fund
offered under the New Contract that is
a variable insurance product ‘‘clone’’ of
a fund available under the Modified Old
Contracts or the 457 Contracts.
41. Tax-exempt plan sponsors and
their plans will not incur any fees or
charges in connection with any of the
proposed exchange offer options.
Hartford Life will bear all costs
associated with administering the
exchange offers. In addition, tax-exempt
plan sponsors that elect an exchange
offer option or have Option 1 imposed
on them by default, will not thereby
subject their plans to any adverse tax
consequences. Hartford Life will not
compensate any broker-dealer or agent
in connection with the proposed
exchange offers.
42. Under each Option 1, the
exchange of Modified Old Contracts for
New Contracts or 457 Contracts for New
Contracts would occur at the relative net
asset value of the Contracts with no
change in aggregate contract value, the
number or size of annuity payments
being made under a Contract, or the
amount or value of death benefits
available under a Contract. Hartford Life
would waive any CDSC otherwise
applicable upon the exchange of a
Modified Old Contract or a 457 Contract
for a New Contract.
43. Upon exchange of a Modified Old
Contract or 457 Contract for a New
Contract, Hartford Life would transfer
contract value from each sub-account
under a Modified Old Contract or a 457
Contract (‘‘old sub-account’’) to a subaccount under the New Contract that
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invests in the same underlying mutual
fund as the old sub-account
(‘‘corresponding new sub-account’’). If
there is no corresponding new subaccount for one or more old subaccounts under the Modified Old
Contract or 457 Contract, Hartford Life
would transfer Contract value from the
old sub-accounts under the Modified
Old Contract or 457 Contract to subaccounts under the New Contract upon
the direction of the tax-exempt plan
sponsor. If the tax-exempt plan sponsor
does not provide such direction,
Hartford Life would transfer contract
value from old sub-accounts under the
Modified Old Contract or 457 Contract
to a sub-account under the New
Contract that invests in a money market
mutual fund.
44. Under Option 2 relating to the
Modified Old Contract offers, the
transfer of contract value from subaccounts of the Unregistered DC
Accounts to sub-accounts of Account
DC–I and/or Account Two would occur
at the relative net asset value of the
Contracts with no change in aggregate
contract value, the number or size of
annuity payments being made under a
Contract, or the amount of death
benefits available under a Contract.
Hartford Life also would waive any
CDSC remaining under the Modified
Old Contract in the future. Under
Option 2 relating to the 457 Contract
offers, the exchange of 457 Contracts for
reinstated Original Old Contracts and
the related transfer of contract value
from sub-accounts of Account 457 to
sub-accounts of Account DC–I and/or
Account Two under Original Old
Contracts would occur at the relative net
asset value of the Contracts with no
change in aggregate contract value, the
number or size of annuity payments
being made under a Contract, or the
amount of death benefits available
under a Contract. Hartford Life would
waive any CDSC otherwise applicable
upon the exchange of 457 Contracts for
reinstated Original Old Contracts and
the related transfer of contract value
from sub-accounts of Account 457 to
sub-accounts of Account DC–I and/or
Account Two. Likewise, Hartford Life
would waive any CDSC under the
reinstated Original Old Contract that
would otherwise apply in the future.
45. Under Option 2 relating to both
the Modified Old Contract offers and the
457 Contract offers, Hartford Life would
transfer contract value from each subaccount under a Modified Old Contract
or 457 Contract to a sub-account of
Account DC–I and/or Account Two that
invests in the same underlying mutual
fund as the sub-account from which
such value was transferred. If there is no
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corresponding sub-account for one or
more sub-accounts under the Modified
Old Contract or 457 Contract, Hartford
Life would transfer contract value from
the sub-accounts under the Modified
Old Contract or 457 Contract to subaccounts of Account DC–I and/or
Account Two upon the direction of the
tax-exempt plan sponsor. If the taxexempt plan sponsor does not provide
such direction, Hartford Life would
transfer contract value from subaccounts under the Modified Old
Contract or 457 Contract to a subaccount of Account DC–I and/or
Account Two that invests in a money
market mutual fund.
46. Alternatively, under Option 2
relating to both the Modified Old
Contract offers and the 457 Contract
offers, Hartford Life would reinstate
contract value under the Original Old
Contract at the amount existing in subaccounts of Account DC–I and/or
Account Two immediately before the
tax-exempt plan sponsor first invested
contract value in one of the
Unregistered DC Accounts or Account
457 and credit such contract value with
interest at an annual effective rate of 3%
for the period from that date until the
date of the tax-exempt plan sponsor’s
election of Option 2. As described
above, adjustments would be made to
reflect subsequent purchase payments
and withdrawals made since the
reinstatement date. With regard to
Option 2, Hartford Life would only
implement the interest rate alternative if
a tax-exempt plan sponsor elects Option
2 and the interest rate alternative would
result in a greater reinstated contract
value for the tax-exempt plan sponsor
than the primary Option 2 alternative.
47. Under the interest rate alternative
for Option 2, Hartford Life would waive
any CDSC otherwise applicable upon
the exchange of a 457 Contract for a
reinstated Original Old Contract and
would waive any CDSC under the
reinstated Original Old Contract that
would otherwise apply in the future.
48. Under Options 1 and 2, for
Contracts pursuant to which Hartford
Life maintains individual participant
accounts, exercise of the exchange offer
options would not alter the value of
such accounts, the number or size of
annuity payments being made in
connection with such accounts, or the
amount of death benefits available in
connection with such accounts.
49. For the reasons set forth below,
Applicants believe the proposed
exchanges will benefit the tax-exempt
plan sponsors and their plans. Except
for: (1) The number of sub-accounts
available and the particular mutual
funds in which such sub-accounts
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invest; and (2) small variations in the
fees and charges, the Original Old
Contracts, Modified Old Contracts, 457
Contracts and New Contracts are
substantially the same in most material
respects. In particular, all four types of
Contracts offer the same surrender,
withdrawal, dollar cost averaging,
general account investment option,
death benefit and annuity payment
option features. Therefore, except as
described below in connection with
mutual fund investment options and fee
and charge variations, the tax-exempt
plan sponsors and their plans should be
in at least as favorable a position after
electing an exchange offer option (or
defaulting into Option 1) as they were
before the proposed exchange offers.
Moreover, for tax-exempt plan sponsors
that elect a New Contract, they and their
plans should be better off than they
would have been had they continued to
hold their Modified Old Contract or 457
Contract.
50. The mortality and expense risk
and administrative charge under the
New Contracts is lower than the
mortality and expense risk and
administrative charges assessed under
the Modified Old Contracts and, with
one exception, lower than the mortality
and expense risk and administrative
charges assessed under the 457
Contracts.4 Under Modified Old
Contracts and 457 Contracts, Hartford
Life assesses a mortality and expense
risk charge during the accumulation
period at annual rates ranging from
.75% to .90% of average daily subaccount net assets. (The rate for any
Modified Old Contract or 457 Contract
may also be a function of reductions due
either to experience rating or reductions
negotiated by the tax-exempt plan
sponsor with Hartford Life.) Under
Modified Old Contracts and 457
Contracts, the mortality and expense
risk charge during the annuity payment
period is at an annual rate of 1.25% of
average daily sub-account net assets.
Under New Contracts, the mortality and
expense risk and administrative charge
is a flat annual rate of 0.70% of average
daily sub-account net assets during both
the accumulation period and the
annuity payment period.5 Reductions in
the mortality and expense risk and
administrative charge charges due to
4 The exception is the type E 457 Contract, which
has a charge of 0.45% of average daily sub-account
net assets. The rate for type E Contracts was the
result of experience ratings or negotiation, or both.
There are two type E 457 Contracts outstanding.
5 However, to preserve prior experience ratings
and/or negotiated rates, any New Contract issued to
a holder of a type E 457 Contract will have a
mortality and expense risk and administrative
charge of 0.45% of average daily sub-account net
assets.
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experience rating and negotiated rates
are available under the New Contracts
on the same basis as the same are
available under the Modified Old
Contracts and the 457 Contracts.
51. The vast majority of underlying
mutual funds available under the New
Contracts have total operating expenses
that are lower (in many cases,
substantially lower) than the total
operating expenses of the corresponding
underlying mutual funds available
under the Modified Old Contracts and
the 457 Contracts. Most significantly, as
a result of the lower mortality and
expense risk and administrative charge
rates under the New Contracts, for any
sub-account of Account Eleven available
under the New Contracts, the aggregate
of such charges on an annual basis and
the total annual expenses of the mutual
fund in which that sub-account invests,
will be less than the same aggregate for
the corresponding sub-account of either
Account DC–I or Account Two available
under the Modified Old Contracts or the
corresponding sub-account of Account
457 available under the 457 Contracts.
52. If a tax-exempt plan sponsor elects
Option 1 under either the Modified Old
Contract exchange offer or the 457
Contract exchange offer, it will have
available as investment options for itself
and participants in its plan, 48 subaccounts offering an indirect investment
in 48 mutual funds. This array of
mutual funds represents the most
attractive line-up of funds offered by
Hartford Life to government plan
trustees, tax-exempt plan sponsors and
other retirement plan sponsors in its
latest and most attractive group variable
annuity contracts. In the event that a
tax-exempt plan sponsor elects Option 2
under an offer, the sponsor and its plan
(including plan participants) would be
in the same position vis-a-vis available
sub-account investment options as they
would have been had no 457 Contracts
or Modified Old Contracts been issued.
53. Under Options 1 and 2 relating to
the Modified Old Contract offers, a taxexempt plan sponsor would replace
interests in one or more of the
Unregistered DC Accounts that are not
registered as securities under the 1933
Act with interests in Account DC–I,
Account Two or Account Eleven which
would be registered as securities under
the 1933 Act. Likewise, under Options
1 and 2 relating to the 457 Contract
offers, a tax-exempt plan sponsor would
replace interests in Account 457 that are
not registered as securities under the
1933 Act with interests in Account DC–
I, Account Two or Account Eleven
which would be registered as securities
under the 1933 Act. As a result, such
tax-exempt plan sponsors would, among
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49333
other things, receive prospectuses and
other disclosure documents at regular
intervals in a prescribed format and
otherwise obtain the protections of the
1933 Act and rules and regulations
thereunder. Similarly, such tax-exempt
plan sponsors would be exchanging
interests in one or more of the
Unregistered DC Accounts or Account
457 which are not registered as
investment companies under the Act,
for interests in Account DC–I, Account
Two or Account Eleven which are each
registered as an investment company
under the Act and thereby obtain for
themselves and the participants in their
plans the considerable protections of the
Act.
Applicants’ Legal Analysis
1. Section 11(a) of the Act makes it
unlawful for any registered open-end
investment company, or any principal
underwriter for such an investment
company, to make an offer to the holder
of a security of such investment
company, or of any other open-end
investment company, to exchange his or
her security for a security in the same
or another such company on any basis
other than the relative net asset values
of the respective securities, unless the
terms of the offer have first been
submitted to and approved by the
Commission or are in accordance with
Commission rules adopted under
section 11. Section 11(c) of the Act
provides the provisions of section 11(a)
are applicable to any offer of exchange
of the securities of a registered unit
investment trust for the securities of any
other investment company regardless of
the basis of the exchange. As a result,
the Commission must approve any such
offer unless the offer satisfies an
applicable rule adopted under section
11.
2. Applicants state that the primary
purpose of section 11 of the Act is to
prevent ‘‘switching’’—the practice of
inducing security holders of one
investment company to exchange their
securities for those of a different
investment company ‘‘solely for the
purpose of exacting additional selling
charges.’’ In the 1930s prior to adoption
of the Act, Congress found evidence of
widespread ‘‘switching’’ operations. The
legislative history of section 11 makes it
clear that the potential for harm to
investors perceived in switching was its
use to extract additional sales charges
from those investors. Accordingly,
applications under section 11(a) and
orders granting those applications
appropriately have focused on sales
loads or sales load differentials and
administrative fees to be imposed for
effecting a proposed exchange and have
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ignored other fees and charges, such as
the respective advisory fee charges of
the exchanged and acquired securities.
3. The Applicant states that section
11(c) of the Act requires Commission
approval (by order or by rule) of any
exchange, regardless of its basis,
involving securities issued by a unit
investment trust, because Congress
found investors in unit investment
trusts to be particularly vulnerable to
switching operations. As noted by the
Commission, ‘‘In order to earn another
sales commission, a [unit investment
trust] sponsor would often pressure
unitholders into exchanging their units
for those of another of the sponsor’s
trusts.’’
4. The Commission adopted Rule
11a–2 under Section 11 of the Act in
1983. By its terms, the Rule permits
certain offers of exchange of one
variable annuity contract for another or
interests in one registered separate
account through which variable annuity
contracts are issued for interests in
another registered separate account.
More specifically, Rule 11a–2 permits
exchange offers involving variable
annuity contracts provided that the only
variance from a relative net asset value
exchange is an administrative fee
disclosed in the registration statement of
the offering separate account and/or a
sales load or sales load differential
calculated according to methods
prescribed in the rule.
5. Under Option 1 of the Modified
Old Contract offers, a tax-exempt plan
sponsor that exchanges a Modified Old
Contract for a New Contract would
effect a transfer of assets held in
Account DC–I, Account Two and/or the
Unregistered DC Accounts to Account
Eleven. Likewise, under Option 1 of the
457 Contract offers, a tax-exempt plan
sponsor that exchanges a 457 Contract
for a New Contract would effect a
transfer of assets from Account 457 to
Account Eleven. Along with the transfer
of assets to Account Eleven, such a taxexempt plan sponsor would receive an
interest in Account Eleven equal to the
contract value in its New Contract.
6. Election of Option 2 of the
Modified Old Contract offers by a taxexempt plan sponsor would result in a
transfer of assets representing contract
value under the sponsor’s Modified Old
Contract from one or more of the
Unregistered Accounts to Account DC–
I and/or Account Two. Likewise,
election of Option 2 of the 457 Contract
offers by a tax-exempt plan sponsor
would result in a transfer of assets
representing contract value under the
sponsor’s 457 Contract from Account
457 to Account DC–I and/or Account
Two. Along with the transfer of assets
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19:52 Aug 27, 2007
Jkt 211001
to Account DC–I and/or Account Two,
such a tax-exempt plan sponsor would
receive an interest in Account DC–I
and/or Account Two equal to the
contract value in its New Contract.
7. Account DC–I, Account Two and
Account Eleven is each registered with
the Commission under the Act as a unit
investment trust. Each of the
Unregistered Accounts and Account
457, not currently being able to rely on
the section 3(c)(11) exclusion from the
definition of an investment company,
are investment companies; though not
registered as such under the Act.
Accordingly, Hartford Life’s proposed
offer to exchange interests in each for
interests held by the tax-exempt plan
sponsors in the Unregistered Accounts
or Account 457, would constitute an
offer to exchange securities of a
registered unit investment trust for
securities of another investment
company. Thus, unless the terms of
each proposed offer are consistent with
those permitted by a Commission rule,
Applicants may only make the proposed
offers pursuant to a Commission order
under section 11(a) approving the terms
of the offers.
8. Applicants assert that the terms of
the exchange offers proposed in this
application are such that the offers
would not involve any of the practices
section 11 of the Act was designed to
prevent and are otherwise fair and
equitable to the tax-exempt plan
sponsors and their plans (including plan
participants) because:
• Tax-exempt plan sponsors would
receive full disclosure of all material
aspects of the proposed exchange offers
including:
Æ Complete discussion of each
Option available;
Æ A complete discussion of their
rights in connection with the offers; and
Æ Prospectuses for New Contracts and
Original Old Contracts;
• No charges (including any CDSC)
would be imposed in connection with
the proposed exchange offers and
therefore the exchanges would be made
on the basis of the relative net asset
value;
• Tax-exempt plan sponsors and their
plans (including plan participants)
would not be subject to a CDSC or any
other sales charge under the New
Contracts or Original Old Contracts;
• In all material respects, the New
Contracts would be at least as favorable,
if not more favorable, to tax-exempt
plan sponsors and their plans (including
plan participants) as either the 457
Contracts or the Modified Old Contracts;
• Most of the mutual funds available
to tax-exempt plan sponsors and their
plans (including plan participants) as
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investment options under Modified Old
Contracts and 457 Contracts would be
available under the New Contracts (or
their variable insurance fund
counterparts would be available), and to
the extent that some funds, or their
variable insurance fund counterparts,
are not available under the New
Contracts, alternative mutual funds with
substantially the same or similar
investment objectives and strategies
would be available as investment
options;
• Tax-exempt plan sponsors that do
not elect another Option, may elect to
surrender their Modified Old Contract
or 457 Contract without the imposition
of any surrender or withdrawal charge;
and
• Based on their review of existing
federal income tax laws and regulations,
Applicants believe that tax-exempt plan
sponsors and their plans (including plan
participants) would not suffer any
adverse tax consequences as a result of
electing any Option in connection with
the proposed exchange offers.
9. Applicants believe that the terms of
the exchange offers proposed in this
application meet the standards
established by the Commission for
exchange offers to holders of group
variable annuity contracts issued
through separate accounts registered as
unit investment trusts under the Act.
The conditions of Rule 11a–2 reflect
theses standards and the terms of the
proposed exchange offers meet the
conditions of the Rule. In fact,
Applicants would be able to rely on
Rule 11a–2 if the Unregistered DC
Accounts and Account 457 were
registered with the Commission as
investment companies under the Act.
Applicants submit that, in making
exchange offers proposed herein, they
should not be subject to conditions
more stringent than those found in Rule
11a–2.
10. Applicants further submit that the
specific terms of the process by which
tax-exempt plan sponsors would elect
an Option in response to the proposed
offers, including the implementation of
Option 1 as a default option in the event
that a tax-exempt plan sponsor does not
affirmatively elect any Option, would
satisfy the standards of section 11. The
Commission has broad authority to
approve the terms of an exchange offer
under Section 11 that is fair and does
not result in switching or the other
types of potential abuses at which
Section 11 is directed. There are no
statutory standards relating to
requirements for, or the manner of
obtaining, elections or approvals from
parties in situations similar to those of
the Applicants explained above when
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conducting an exchange subject to
section 11. This is supported by Rule
11a–2 which sets forth a number of
specific requirements under which
exchanges offers involving variable
annuity contracts (and interests in
separate accounts through which such
contracts are issued) are permissible. All
of the applicable requirements of the
Rule concern the basis of the exchange
and/or the fees that may be imposed,
but the Rule does not regulate the
manner by which investors may elect an
option under an exchange offer.
Accordingly, the Commission may find,
and in the past has found, that a default
election in an exchange offer is
permissible if the application sets forth
facts that demonstrate that the offeror
cannot permit an offeree to retain its
current investment and that the overall
terms of the offer are otherwise fair and
equitable to investors.
11. Moreover, Applicants state that
the Commission staff has consistently
taken ‘‘no-action’’ positions under
section 22(e) of the Act with respect to
the analogous issue of forced
redemptions of mutual fund shares
when certain conditions were met. In
these situations, a basic investment
decision (i.e., the decision to redeem)
was permitted to be made on behalf of
investors on the basis of informed,
implied consent. These letters, in effect,
permit such forced redemptions on the
basis of notice to shareholders and
prospectus disclosure of those events
which may trigger such a redemption
(i.e., account falling below a certain
value, failure to provide a taxpayer
identification number, negative balances
in other accounts, etc.) and the absence
of any action by a shareholder to take
an available alternative route within a
specified time period. Applicants
submit that the communications which
will be made to tax-exempt plan
sponsors with respect to their rights
under all of the Options to provide for
timely and extensive disclosure
comparable to that which is required for
these automatic redemptions of mutual
fund shares.
12. Applicants believe that the
legislative history of section 11 makes it
clear that Congress believed the
potential harm to investors from
‘‘switching’’ was its use to extract
additional sales charges from those
investors. Consequently, prior
applications under section 11(a) (and
orders granted in response to those
applications) appropriately focused on
sales loads or sales load differentials
and administrative fees to be imposed in
connection with a proposed exchange
offer. In granting approval orders
requested in prior section 11
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19:52 Aug 27, 2007
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applications involving the exchange of
one variable annuity contract for
another, or the exchange of interests in
one registered separate account for
another, the Commission staff has
considered whether or not the
consummation of the exchange would
have inequitable results for contract
owners, and has viewed the absence of
duplication of sales loads and
administrative fees in effecting the
exchanges as persuasive evidence that
the proposed exchange does not present
the abuses section 11 of the Act
designed to prevent.
13. Applicants state that in the event
that the Commission does not issue an
order under section 11 approving the
proposed exchange offers, Hartford Life
will be forced, at great expense, to
register the Unregistered DC Accounts
and Account 457 as investment
companies under the Act and to register
interests issued in such Accounts issued
through Modified Old Contracts and the
Tax-Exempt 457 Contracts as securities
under the 1933 Act. Registration of the
Unregistered DC Accounts and Account
457 as investment companies would be
particularly burdensome because each
would have to comply with the
extensive regulatory regime imposed by
the Act. Applicants submit that any
benefit to the government plan trustees
and their plans (including plan
participants) from such registration
could not justify the great expense and
other considerable burdens attendant to
such registration. Because the
government plan trustees and their
plans make up the overwhelming
majority of investors in each
Unregistered DC Account and Account
457, Applicants believe that the
proposed exchange offers represent a far
more efficient, reasonable and balanced
response to the inadvertent issuance of
the Modified Old Contracts and the 457
Contracts to tax-exempt plan sponsors.
Conclusion
Applicants submit that, for the
reasons discussed above, the terms of
the proposed exchange offers are such
that the offers would not entail any of
the practices section 11 was intended to
prevent and are otherwise fair and
equitable to the tax-exempt plan
sponsors, their plans and participants in
their plans. For these reasons,
Applicants submit that the terms of the
proposed offers are consistent with the
protection of investors, the standards
that the Commission has applied to
prior applications for orders under
section 11(a) of the Act, and the
purposes fairly intended by the public
policies underlying section 11 of the
Act.
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49335
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–16959 Filed 8–27–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56299; File No. SR–BSE–
2007–42]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Relating to
Exchange Fees and Charges
August 22, 2007.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
15, 2007, the Boston Stock Exchange,
Inc. (‘‘BSE’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been substantially prepared by the
Exchange. The Exchange filed the
proposal pursuant to section
19(b)(3)(A)(ii) of the Act 3 and Rule 19b–
4(f)(2) thereunder,4 which renders the
proposal effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Minimum Activity Charge (‘‘MAC’’)
contained in the Fee Schedule for the
Boston Options Exchange (‘‘BOX’’). The
Exchange proposes to add a seventh
category to its MAC table for classes
with an Options Clearing Corporation
Average Daily Volume (‘‘OCC ADV’’) of
less than 2,000 contracts. In addition,
the Exchange proposes to make a
clerical correction to the BOX Fee
Schedule to rectify an inadvertent
omission from a previous rule filing.5
The text of the proposed rule change is
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
5 See Securities Exchange Act Release No. 55197
(January 30, 2007), 72 FR 5772 (February 7, 2007)
(SR–BSE–2007–02) (seeking to change the month in
which the MAC reclassifications are calculated
from January to July, among other proposed
changes).
2 17
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]]>Agencies
[Federal Register Volume 72, Number 166 (Tuesday, August 28, 2007)]
[Notices]
[Pages 49324-49335]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-16959]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-27933; File No. 812-13267]
Hartford Life Insurance Company, et al.; Notice of Application
August 22, 2007.
AGENCY: U.S. Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940, as amended (the ``Act'').
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APPLICANTS: Hartford Life Insurance Company (``Hartford Life''),
Hartford Life Insurance Company Separate Account DC-I (``Account DC-
I''), Hartford Life Insurance Company Separate Account Two (``Account
Two''), Hartford Life Insurance Company Separate Account Eleven
(``Account Eleven'') (together with Account DC-I and Account Two, the
``Registered Accounts''), and Hartford Securities Distribution Company,
Inc. (``HSD'').
SUMMARY: Applicants request an order of the Commission pursuant to
section 11(a) of the Act approving the terms of the proposed offers of
exchange described in this application. Applicants propose to make the
following exchange offers: (1) Group variable annuity contracts issued
by Hartford Life offering interests in Account Eleven (the ``New
Contracts'') for certain group variable annuity contracts issued by
Hartford Life (the ``Modified Old Contracts'') offering interests in
both Account DC-I and Account Two as well as certain other separate
accounts not registered as investment companies under the Act; (2)
interests in Account DC-I and Account Two, as originally offered to
contract owners, (``Original Old Contracts'') for interests in the
[[Page 49325]]
Unregistered DC Accounts under Modified Old Contracts; (3) New
Contracts for certain group variable annuity contracts issued by
Hartford Life (``457 Contracts'') offering interests in Hartford Life
Insurance Company Separate Account 457 (``Account 457''); and (4)
Original Old Contracts offering interests in Account DC-I and Account
Two for 457 Contracts offering interests in Account 457.
DATES: The application was filed on March 2, 2006, and amended on
August 21, 2007.
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 by writing to the Commission's Secretary
and serving Applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on September 17, 2007, and should be accompanied by proof of
service on the 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 Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090. Applicants, 200 Hopmeadow Street,
Simsbury, Connecticut 06089; copies to David S. Goldstein, Sutherland
Asbill & Brennan LLP, 1275 Pennsylvania Avenue, NW., Washington, DC
20004-2415.
FOR FURTHER INFORMATION CONTACT: Michael L. Kosoff, Staff Attorney, at
(202) 551-6754, or Harry Eisenstein, Branch Chief, at (202) 551-6795,
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
((202) 551-8090).
Applicants' Representations
1. Hartford Life is a stock life insurance company originally
incorporated under the laws of the Commonwealth of Massachusetts on
June 5, 1902, and subsequently re-domiciled to the state of
Connecticut. Hartford Life is engaged in the business of writing
individual and group life insurance and annuity contracts in the
District of Columbia and all States. As of December 31, 2006, Hartford
Life had assets of approximately $214 billion. For purposes of the Act,
Hartford Life is the depositor and sponsor of Account DC-I, Account Two
and Account Eleven, as those terms have been interpreted by the
Commission with respect to variable annuity separate accounts
registered under the Act as unit investment trusts.
2. Hartford Life established Account DC-I on or about March 31,
1988, Account Two on June 2, 1986 and Account Eleven on December 1,
2000, as segregated asset accounts under Connecticut law. Under
Connecticut law, the assets of Account DC-I and Account Two, including
assets attributable to the Original Old Contracts and the Modified Old
Contracts, are owned by Hartford Life, but are held separately from all
other assets of Hartford Life for the benefit of the owners of, and the
persons entitled to payment under, variable annuity contracts issued by
Hartford Life through Account DC-I and Account Two, including the
Original Old Contracts and Modified Old Contracts. Likewise, the assets
of Account Eleven, including assets attributable to the New Contracts,
are owned by Hartford Life, but are held separately from all other
assets of Hartford Life for the benefit of the owners of, and the
persons entitled to payment under variable annuity contracts issued by
Hartford Life through Account Eleven, including the New Contracts.
Consequently, assets in each Account are not chargeable with
liabilities arising out of any other business that Hartford Life may
conduct. Income, gains and loses, realized and unrealized, from the
assets of each Account are credited to or charged against that Account
without regard to the income, gains or loses arising out of any other
business that Hartford Life may conduct. Each Registered Account is a
``separate account'' as defined by Rule 0-1(e) under the Act, and is
registered with the Commission as a unit investment trust.
3. The assets of Account DC-I and Account Two support Original Old
Contracts as well as Modified Old Contracts. Hartford Life issued the
Original Old Contracts to, among other parties, (a) Sponsors of non-
qualified deferred compensation plans established by certain tax-exempt
organizations (``tax-exempt plan sponsors'') pursuant to section 457(b)
and section 457(e)(1)(B) of the Internal Revenue Code of 1986, as
amended (the ``IRC''), as well as (b) trustees of trusts created to
hold assets for non-qualified deferred compensation plans established
by state and municipal governments, or instrumentalities thereof,
pursuant to section 457(b) and section 457(e)(1)(A) of the IRC
(``government plan trustees''). Interests in Account DC-I and Account
Two offered through Original Old Contracts have been registered under
the Securities Act of 1933 (the ``1933 Act'') on Form N-4.\1\
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\1\ See 1933 Act File Nos. 33-19944, 33-19946, 33-19947 and 33-
19949.
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4. The New Contracts will be issued through Account Eleven.
Hartford Life currently issues other group variable annuity contracts
similar to the New Contracts through Account Eleven to a variety of
applicants including tax-exempt plan sponsors, government plan
trustees, retirement plans qualified under sections 401(a) and 403(a)
of the IRC, and annuity purchase plans adopted by public school systems
and certain tax-exempt organizations pursuant to section 403(b) of the
IRC. Interests in Account Eleven offered through such group variable
annuity contracts have been registered under the 1933 Act on Form N-
4.\2\ Likewise, interests in Account Eleven to be issued through the
New Contracts will be registered under the 1933 Act on a Form N-4
registration statement to be filed shortly with the Commission.
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\2\ See 1933 Act File No. 333-72042.
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5. HSD is a Connecticut corporation registered with the Commission
as a broker-dealer under the Securities Exchange Act of 1934 and is a
member of the Financial Industry Regulatory Authority, Inc. HSD is the
principal underwriter for the Original Old Contracts, Modified Old
Contracts, 457 Contracts and New Contracts and for other Hartford Life
variable annuity contracts. HSD is an affiliated person of Hartford
Life.
6. Hartford Life established Separate Account DC-III, Separate
Account DC-IV, Separate Account DC-V and Separate Account DC-VI, as
segregated asset accounts under Connecticut law (``Unregistered DC
Accounts''). Each of the Unregistered DC Accounts is divided into
several sub-accounts. Hartford Life added endorsements to the Original
Old Contracts to make available to owners of such contracts one or more
sub-accounts of the Unregistered DC Accounts as investment options. The
Modified Old Contracts are those Original Old Contracts issued to tax-
exempt plan sponsors to which the endorsements were added.
7. Under Connecticut law, the assets of each Unregistered DC
Account attributable to Modified Old Contracts are owned by Hartford
Life, but are held separately from all other assets of
[[Page 49326]]
Hartford Life for the benefit of the owners of, and the persons
entitled to payment under the Modified Old Contracts. Consequently,
such assets in each Unregistered DC Account are not chargeable with
liabilities arising out of any other business that Hartford Life may
conduct. Income, gains and loses, realized and unrealized, from the
assets of each Unregistered DC Account are credited to or charged
against that Account without regard to the income, gains or loses
arising out of any other business that Hartford Life may conduct.
Hartford Life has not registered any Unregistered DC Account as an
investment company under the Act in reliance upon the exclusion from
the definition of investment company found in section 3(c)(11) of the
Act.
8. Hartford Life established Account 457 on December 1, 1998, as a
segregated asset account under Connecticut law. Under Connecticut law,
the assets of Account 457, including assets attributable to the 457
Contracts, are owned by Hartford Life, but are held separately from all
other assets of Hartford Life for the benefit of the owners of, and the
persons entitled to payment under variable annuity contracts issued by
Hartford Life through Account 457, including the 457 Contracts.
Consequently, such assets in Account 457 are not chargeable with
liabilities arising out of any other business that Hartford Life may
conduct. Income, gains and loses, realized and unrealized, from the
assets of Account 457 are credited to or charged against the separate
account without regard to the income, gains or loses arising out of any
other business that Hartford Life may conduct. Hartford Life has not
registered Account 457 as an investment company under the Act in
reliance upon the exclusion from the definition of investment company
found in section 3(c)(11) of the Act.
9. Hartford Life has not registered interests in the Unregistered
DC Accounts offered through Modified Old Contracts as securities under
the 1933 Act in reliance upon the exemption from registration found in
section 3(a)(2) of the 1933 Act. Likewise, Hartford life has not
registered interests in Account 457 offered through the 457 Contracts
as securities under the 1933 Act.
Description of the Contracts
10. During the accumulation period, the Original Old Contracts,
Modified Old Contracts, 457 Contracts, and New Contracts (together, the
``Contracts'') each provides for the allocation of purchase payments
and transfer of Contract values between and among various sub-accounts
of the separate account through which each is issued. Each sub-account
invests in shares of a particular open-end management investment
company (a ``mutual fund'') which serves as an investment option under
the Contract. The Contracts also offer a ``fixed'' interest investment
option supported by Hartford Life's general account. During the annuity
payment period, the Contracts all provide a variety of settlement or
annuity payment options on a variable basis, fixed basis, or both.
Owners of Contracts may withdraw some or all of their Contract's value
at any time during the accumulation period or apply such values to the
``purchase'' of a settlement or annuity payment option. The Contracts
incorporate many other features, including ``death benefits'' payable
upon the death of a plan participant (or beneficiary) and certain fees
and charges.
11. The Original Old Contracts, Modified Old Contracts and New
Contracts do not impose any fees or charges in connection with purchase
payments. The tables below describe the fees and charges deducted from
separate account assets on an ongoing basis during both the
accumulation and annuity payment periods, and the fees and charges
payable by a Contract owner upon the withdrawal or surrender of
Contract value during the accumulation period. The tables also indicate
the annual rate of interest guaranteed for the ``fixed'' option under
each Contract and identify the number of sub-accounts available as
investment options under the Contract, along with the minimum and
maximum total annual operating expenses for the mutual funds in which
such sub-accounts invest as of December 31, 2006. The letter
designation in the left-hand column represents different Contract
variations.
Original Old Contracts
[Account DC-I and Account Two]
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M&E risk and
administrative M&E risk and Minimum total Maximum total
charge administrative Minimum annual annual
Number of (payout charge (pay-in guaranteed CDSC (% of amount portfolio portfolio
Type of contract mutual period) (% of period) (% of annual surrendered) expenses (% expenses (%
funds average daily average daily sub- interest rate of average of average
sub-account account assets) daily net daily net
assets) asset value) asset value)
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A............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
B............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
C............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
D............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
E............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
F............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
G............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
H............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
I............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
J............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
K............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
L............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
M............................... 10 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 0.91
N............................... 10 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 0.91
O............................... 10 1.25 0.75 to 0.90........ 3 7 YR............... 0.34 0.91
P............................... 10 1.25 0.75 to 0.90........ 4 7 YR............... 0.34 0.91
Q............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
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[[Page 49327]]
Modified Old Contracts
[Account DC-I, Account Two and Unregistered DC Accounts]
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M&E risk and
administrative M&E risk and Minimum total Maximum total
charge administrative Minimum annual annual
Number of (payout charge (pay-in guaranteed CDSC (% of amount portfolio portfolio
Type of contract mutual period) (% of period) (% of annual surrendered) expenses (% expenses (%
funds average daily average daily sub- interest rate of average of average
sub-account account assets) daily net daily net
assets) asset value) asset value)
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A............................... 23 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
B............................... 24 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
C............................... 24 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
D............................... 24 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
E............................... 25 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
F............................... 25 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
G............................... 25 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
H............................... 25 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
I............................... 26 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
J............................... 26 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
K............................... 26 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
L............................... 27 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
M............................... 23 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 1.73
N............................... 26 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 1.73
O............................... 23 1.25 0.75 to 0.90........ 3 7 YR............... 0.34 1.73
P............................... 23 1.25 0.75 to 0.90........ 4 7 YR............... 0.34 1.73
Q............................... 24 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
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New Contracts
[Account Eleven]
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M&E risk and
administrative M&E risk and Minimum total Maximum total
charge administrative Minimum annual annual
Number of (payout charge (pay-in guaranteed CDSC (% of amount portfolio portfolio
Type of contract mutual period) (% of period) (% of annual surrendered) expenses (% expenses (%
funds average daily average daily sub- interest rate of average of average
sub-account account assets) daily net daily net
assets) asset value) asset value)
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New Contract.................... 48 0.70 0.70................ 4 N/A................ 0.34 1.49
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12. Hartford Life does not assess a CDSC under Modified Old
Contracts A, B, C, D, E, F, G, H, I, J, K, L and Q and corresponding
Original Old Contracts A, B, C, D, E, F, G, H, I, J, K, L and Q. Under
Modified Old Contracts M, N, O and P and corresponding Original Old
Contracts M, N, O and P, a contingent deferred sales charge (``CDSC'')
may be assessed against the amount withdrawn or surrendered by a
Contract owner. However, those who will be moved to the Original Old
Contracts or from the Modified Old Contracts will not be subject to a
CDSC.
13. As the tables indicate, the mortality and expense risk and
administrative charge during the accumulation period under the New
Contracts is less than that imposed under the Original Old Contracts
and the Modified Old Contracts. The mortality and expense risk and
administrative charge during the annuity payment period under the New
Contracts is substantially less than that imposed under the Original
Old Contracts and the Modified Old Contracts.
14. Hartford Life may deduct a charge corresponding to any
applicable state or municipal premium taxes under each Contract.
Hartford Life may deduct the charge for premium taxes at the time of
payment of such taxes to the appropriate taxing authority, surrender of
the Contract, upon payment of a death benefit or upon the commencement
of annuity payments to a participant (or beneficiary).
15. Under the Original Old Contracts and the Modified Old
Contracts, Hartford Life reserves the right to deduct a $5 fee for each
transfer of Contract value between or among sub-accounts in a Contract
year. Under New Contracts, Hartford Life reserves the right to deduct a
$5 fee for each transfer in excess of twelve transfers of Contract
value within a participant account by a participant between or among
the sub-accounts in any participant account year. Currently, the
Company does not assess a transfer fee under any Contract.
16. The sub-accounts of Account Eleven offered by the New Contracts
invest in all of the mutual funds in which the sub-accounts of Account
DC-I and Account Two offered by the Original Old Contracts and the
Modified Old Contracts invest, and many of the mutual funds (or
variable insurance fund counterpart) in which sub-accounts of the
Unregistered DC Accounts offered by the Modified Old Contracts invest.
In most cases, where a particular mutual fund available under a
Modified Old Contract (or its variable insurance fund counterpart) is
not available as an investment option under the New Contract, a mutual
fund with substantially identical or closely comparable investment
objectives and principal strategies would be available under the New
Contract. In all but four
[[Page 49328]]
cases, these alternative mutual funds had the same or lower total
expenses during their most recent fiscal year. Notwithstanding this,
for each sub-account available under the New Contract that has a
counterpart under an Original Old Contract or a Modified Old Contract,
the annual mortality and expense risk and administrative charge when
combined with the annual expense ratio of the mutual in which such sub-
account invests, is less under the New Contract than under either the
Original Old Contract or the Modified Old Contract.
17. The Original Old Contracts, 457 Contracts and New Contracts do
not impose any fees or charges in connection with purchase payments.
The tables below describe the fees and charges deducted from separate
account assets on an ongoing basis during both the accumulation and
annuity payment periods, and the fees and charges payable by a Contract
owner upon the withdrawal or surrender of Contract value during the
accumulation period. The tables also indicate the annual rate of
interest guaranteed for the ``fixed'' option under each Contract and
identify the number of sub-accounts available as investment options
under the Contract, along with the minimum and maximum total annual
operating expenses for the mutual funds in which such sub-accounts
invest as of December 31, 2006. The letter designation in the left-hand
column represents different Contract variations, with type A
corresponding to type U and type B corresponding to type V, etc.
457 Contracts
[Account 457]
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M&E risk and
administrative M&E risk and Minimum total Maximum total
charge administrative Minimum annual annual
Number of (payout charge (pay-in guaranteed CDSC (% of amount portfolio portfolio
Type of contract mutual period) (% of period) (% of annual surrendered) expenses (% expenses (%
funds average daily average daily sub- interest rate of average of average
sub-account account assets) daily net daily net
assets) asset value) asset value)
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A............................... 27 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
B............................... 24 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 1.73
C............................... 47 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 1.73
D............................... 47 1.25 0.75 to 0.90........ 4 7 YR............... 0.34 1.73
E............................... 51 1.25 0.45................ 4 N/A................ 0.34 1.73
F............................... 47 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
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Original Old Contracts
[Account DC-I and Account Two]
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M&E risk and
administrative M&E risk and Minimum total Maximum total
charge administrative Minimum annual annual
Number of (payout charge (pay-in guaranteed CDSC (% of amount portfolio portfolio
Type of contract mutual period) (% of period) (% of annual surrendered) expenses (% expenses (%
funds average daily average daily sub- interest rate of average of average
sub-account account assets) daily net daily net
assets) asset value) asset value)
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U............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
V............................... 10 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 0.91
W............................... 10 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 0.91
X............................... 10 1.25 0.75 to 0.90........ 4 7 YR............... 0.34 0.91
Y............................... 10 1.25 0.45................ 4 N/A................ 0.34 0.91
Z............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
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New Contracts
[Account Eleven]
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M&E risk and
administrative M&E risk and Minimum total Maximum total
charge administrative Minimum annual annual
Number of (payout charge (pay-in guaranteed CDSC (% of amount portfolio portfolio
Type of contract mutual period) (% of period) (% of annual surrendered) expenses (% expenses (%
funds average daily average daily sub- interest rate of average of average
sub-account account assets) daily net daily net
assets) asset value) asset value)
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New Contract.................... 48 0.70 0.70................ 4 N/A................ 0.34 1.49
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18. Hartford Life does not assess a CDSC under Original Old
Contracts U, Y and Z and 457 Contracts A, E and F. Likewise, Hartford
Life does not assess a CDSC under the New Contract. Under the Original
Old Contracts V, W and X,
[[Page 49329]]
and the 457 Contracts B, C and D, a CDSC may be assessed against the
amount withdrawn or surrendered by a Contract owner. However, those who
will be moved to the Original Old Contracts or from the Modified Old
Contracts will not be subject to a CDSC.
19. As the tables indicate, with two exceptions, the mortality and
expense risk and administrative charge during the accumulation period
under the New Contracts is less than that imposed under the Original
Old Contracts and the 457 Contracts. The mortality and expense risk and
administrative charge during the annuity payment period under the New
Contracts is substantially less than that imposed under the Original
Old Contracts and the 457 Contracts.
20. Hartford Life may deduct a charge corresponding to any
applicable state or municipal premium taxes under each Contract.
Hartford Life may deduct the charge for premium taxes at the time of
payment of such taxes to the appropriate taxing authority, surrender of
the Contract, upon payment of a death benefit or upon the commencement
of annuity payments to a participant (or beneficiary).
21. Under the Original Old Contracts and the 457 Contracts,
Hartford Life reserves the right to deduct a $5 fee for each transfer
Contract value between or among sub-accounts in a Contract year. Under
New Contracts, Hartford Life reserves the right to deduct a $5 fee for
each transfer in excess of twelve transfers of Contract value within a
participant account by a participant between or among the sub-accounts
in any participant account year. Currently, the Company does not assess
a transfer fee under any Contract.
22. The sub-accounts of Account Eleven offered by the New Contracts
invest in all but a few of the mutual funds (or variable insurance fund
counterparts) in which the sub-accounts of Account 457 invest. In most
cases, where a particular mutual fund available under a 457 Contract
(or its variable insurance fund counterpart) is not available as an
investment option under the New Contract, a mutual fund with
substantially identical or closely comparable investment objectives and
principal strategies would be available under the New Contract. In all
but five cases, these alternative mutual funds had the same or lower
total expenses during their most recent fiscal year. In all but four
cases, these alternative mutual funds have the same investment adviser
as the fund they would ``replace.'' Notwithstanding this, with two
exceptions, for each sub-account available under the New Contract that
has a counterpart under an Original Old Contract or a 457 Contract, the
annual mortality and expense risk and administrative charge when
combined with the annual expense ratio of the mutual fund in which such
sub-account invests, is less under the New Contract than under either
the Original Old Contract or the 457 Contract.
23. As explained in more detail immediately below, this Application
relates to Modified Old Contracts and 457 Contracts sold to tax-exempt
plan sponsors. In each case, a tax-exempt plan sponsor purchased a
Contract to fund its obligations to participants in a non-qualified
deferred compensation plan established by it pursuant to IRC sections
457(b) and 457(e)(1)(B).\3\ Also, in each case, the plan participants
are employees, past employees, or beneficiaries of employees or past
employees of the tax-exempt plan sponsor.
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\3\ In contrast, issuers may rely on section 3(a)(2) of the 1933
Act in connection with the offer and sale of unregistered securities
to government plan trustees, because non-qualified deferred
compensation plans established by state and municipal governments,
or instrumentalities thereof, pursuant to IRC sections 457(b) and
457(e)(1)(A) come within the definition of a ``governmental plan''
in section 3(a)(2)(C) of the 1933 Act. See Mass Mutual Life
Insurance Company, et al., (Aug. 10, 1998).
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24. Taken together, IRC sections 457(b) and 457(e)(1)(B) permit a
tax-exempt employer to enter into an agreement with one or more of its
employees pursuant to which compensation otherwise payable to the
employee is withheld by the employer and paid to the employee at a
future time. By this mechanism, the employee defers receipt of the
compensation for federal income tax purposes until such time as the
employer actually pays the compensation to the employee. Typically,
deferred compensation agreements between tax-exempt employers and their
employees provide for the employer to pay the deferred amount plus
interest at a specified rate to the employee at specific date in the
future or, subject to certain limitations, within a specified period
time after the employee requests payment. In lieu of paying interest on
the deferred amount, the agreement may call for payment of the deferred
amount plus or minus the performance of a specified measure, such as a
securities index or a mutual fund. Under sections 457(b) and
457(e)(1)(B), the employer is fully responsible for making the payments
required by the deferred compensation agreement. In this regard, the
deferred compensation agreements are, in effect, promissory notes
issued by the employer, and the employees to whom the deferred
compensation is owed are general creditors of the employer. Employees
having deferred compensation agreements with a tax-exempt employer are
not preferred creditors of the employer and have no security interest
in the deferred amounts held by the employer.
25. Tax-exempt plan sponsors are not required to invest the
compensation deferred by their employees pursuant to deferred
compensation agreements. They are free to bear the risk that they will
not have sufficient assets to make payment of the deferred amounts plus
earnings (or minus losses) owed to employees under the deferred
compensation agreements. Many tax-exempt employers, however, choose to
invest the deferred amounts in a manner that will ensure that they can
make payment under deferred compensation agreements which they have
entered into. The Original Old Contracts, Modified Old Contracts and
the 457 Contracts were designed as investment vehicles for this purpose
and the tax-exempt plan sponsors use their Original Old Contract,
Modified Old Contract or 457 Contract to fund their obligations to
their employees (or employees' beneficiaries) or to past employees (or
beneficiaries of past employees) under the sponsors' non-qualified
deferred compensation plans.
26. Consistent with the foregoing, the Modified Old Contracts and
the 457 Contracts provide the owner with all the rights and privileges
of ownership and do not reserve any such rights and privileges to the
employees with whom the employer has deferred compensation agreements
(i.e., the participants in the non-qualified deferred compensation
plan).
27. During the period from the early 1980s through April 2001,
Hartford Life issued the Original Old Contracts to both tax-exempt plan
sponsors and government plan trustees. Beginning in May 1992, Hartford
Life began offering endorsements to the Original Old Contracts to make
available to owners of such Contracts sub-accounts of one or more of
the Unregistered DC Accounts as investment options. At that time and
thereafter, Hartford Life intended only to issue the Unregistered DC
Account endorsements to Original Old Contracts held by government plan
trustees and not to Contracts held by tax-exempt plan sponsors.
Unfortunately, Hartford Life inadvertently issued endorsements offering
the sub-accounts of one or more of the Unregistered DC Accounts as
investment options to certain tax-exempt plan sponsors in connection
with their Original Old Contracts. In most cases, tax-exempt plan
sponsors
[[Page 49330]]
holding Modified Old Contracts have (usually pursuant to participant
instructions) invested some or all of their tax-exempt plan's assets in
one or more sub-accounts of the Unregistered DC Accounts. As of the
date of this Application, seventy-one Modified Old Contracts held by
tax-exempt plan sponsors have Contract value allocated to sub-accounts
of one or more of the Unregistered DC Accounts.
28. Unfortunately, issuers, such as insurance companies and their
separate accounts, may not rely on the exemption from registration
provisions of the 1933 Act provided by section 3(a)(2) of the 1933 Act
when offering and selling securities to tax-exempt plan sponsors as
funding vehicles for such sponsors' non-qualified deferred compensation
plans established pursuant to IRC sections 457(b) and 457(e)(1)(B). As
a result, through the seventy-one Modified Old Contracts, Separate
Account DC-III, Separate Account DC-IV, Separate Account DC-V and
Separate Account DC-VI issued interests to the tax-exempt plan sponsors
holding such Contracts that should have been registered under the 1933
Act, but were not.
29. In addition, from the time Hartford Life invested the first
purchase payment under a Modified Original Contract held by a tax-
exempt plan sponsor in an Unregistered DC Account, that Account has
failed to meet the requirements for relying on section 3(c)(11) of the
Act. This is because reliance on section 3(c)(11) requires, among other
things, that the assets of the separate account be derived solely from:
Contributions from pension and profit sharing plans
meeting the requirements of IRC section 401, or the requirements for
the deduction of the employer's contribution under IRC section
404(a)(2);
Contributions under government plans in connection with
which interests, participations, or securities are exempted from the
registration provisions of the 1933 Act by section 3(a)(2)(C) thereof;
and
Advances made by the insurance company in connection with
the operation of the separate account.
Some of each Unregistered DC Account's assets were derived from
contributions from tax-exempt plans rather than the specified pension
and profit-sharing plans or government plans. As a result, each of the
Unregistered DC Accounts should have been registered as an investment
company under the Act, but was not.
30. Applicant's state that in order to restore the ability of the
Unregistered DC Accounts to rely on section 3(c)(11) of the Act, as
well as to mitigate any potential liability under the 1933 Act and the
Act, Hartford Life proposes to remove from each Unregistered DC Account
all assets attributable to purchase payments under Modified Old
Contracts held by tax-exempt plan sponsors via the rescission offer
described below.
31. From August 11, 2001 through November 15, 2003, Hartford Life
inadvertently issued fourteen 457 Contracts to tax-exempt plan sponsors
that owned Original Old Contracts or Modified Old Contracts. The 457
Contracts were new contracts and not endorsements to either an Original
Old Contract or a Modified Old Contract. During the period that
Hartford Life issued the 457 Contracts, it was undergoing a conversion
from one electronic data processing system used to administer its group
variable annuity contracts business to a new and better system. Among
other things, the conversion involved the replacement of most Original
Old Contracts and Modified Old Contracts held by government plan
trustees with 457 Contracts. The replacement of Original Old Contracts
and Modified Old Contracts with 457 Contracts entailed the transfer of
Contract value from sub-accounts of Account DC-I, Account Two, and one
or more of the Unregistered DC Accounts, to corresponding sub-accounts
of Account 457. The replacement of Original Old Contracts and Modified
Old Contracts with the 457 Contracts also entailed the investment of
subsequent purchase payments in sub-accounts of Account 457 rather than
sub-accounts of Account DC-I, Account Two, and one or more of the
Unregistered DC Accounts.
32. Hartford Life did not intend to permit, in connection with the
system conversion, tax-exempt plan sponsors to replace their Original
Old Contracts or Modified Old Contracts with 457 Contracts.
Nevertheless, during the period when approximately 1,000 government
plan trustees replaced their Old Original Contracts and Modified Old
Contracts with 457 Contracts, fourteen tax-exempt plan sponsors did
likewise. As in the case of interests in the Unregistered DC Accounts
made available to tax-exempt plan sponsors under Modified Old
Contracts, Account 457 issued interests to tax-exempt plan sponsors
through 457 Contracts that should have been registered as securities
under the 1933 Act but were not. Similarly, from the time Hartford Life
invested the first purchase payment under a 457 Contract held by a tax-
exempt plan sponsor in Account 457, that Account has failed to meet the
requirements for relying on section 3(c)(11) of the Act. As a result,
Account 457 should have been registered as an investment company under
the Act, but was not.
33. Applicants believe that in order to restore the ability of
Account 457 to rely on section 3(c)(11) of the Act, as well as to
mitigate any potential liability under the 1933 Act and the Act,
Hartford Life proposes to remove from the Account 457 all assets
attributable to purchase payments under the 457 Contracts held by tax-
exempt plan sponsors via the rescission offer described below.
Proposed Rescission Offers
34. Hartford Life believes that it must take all action reasonably
practicable to mitigate or reverse any adverse consequences to tax-
exempt plan sponsors and their participants arising from investment in
the Unregistered DC Accounts under Modified Old Contracts. Therefore,
Hartford Life proposes to offer each affected tax-exempt plan sponsor
the opportunity to (1) Exchange its Modified Old Contract for a New
Contract, or (2) surrender the endorsement attached to the Modified Old
Contracts and either (a) exchange its interests in the Unregistered DC
Accounts for interests in Account DC-I and/or Account Two by
transferring all contract value from the sub-accounts of the
Unregistered DC Accounts to the sub-accounts of Account DC-I and/or
Account Two, or (b) exchange its interests in the Unregistered DC
Accounts for interests in Account DC-I and/or Account two by accepting
a new contract value equal to the contract value as of a stated
reinstatement date plus interest invested in Account DC-I and/or
Account two, as described below. The second option would have the
effect, more or less, of ``restoring'' the Original Old Contract.
Alternatively, each tax-exempt plan sponsor may elect to surrender its
Modified Old Contract. Expressed in more detail, the options are:
To exchange their Modified Old Contract for a New Contract
(``Option 1'');
To transfer contract values under their Modified Old
Contract that are invested in Separate Account DC-III, Separate Account
DC-IV, Separate Account DC-V and Separate Account DC-VI to
corresponding or sponsor-designated investment options under their
Modified Old Contract in Account DC-I and/or Account Two or, if it
would result in a greater contract value, to ``reinstate'' all contract
values as they were under their Original Old Contract at the time
contract values were first
[[Page 49331]]
invested in Separate Account DC-III, Separate Account DC-IV, Separate
Account DC-V or Separate Account DC-VI (the ``Option 2 reinstatement
date'') and crediting such contract values with interest for the period
from the Option 2 reinstatement date until the date a plan sponsor
elects Option 2 at an annual rate of 3%, as described below (``Option
2''); or
To surrender their Modified Old Contract for its full
contract value without the imposition of any surrender or withdrawal
charges (``Option 3'').
If a sponsor does not elect one of the foregoing options, Hartford Life
would consider Option 1 as the default option.
35. Hartford Life would credit interest under Option 2 in a manner
that makes appropriate adjustments to take into account purchase
payments and withdrawals made after the Option 2 reinstatement date by
crediting interest each month at a rate of 0.247% (the monthly
equivalent of an annual rate of 3%) on the amount equal to the total
contract value under a Modified Old Contract as of the Option 2
reinstatement date, and for each subsequent month until the date on
which the sponsor elects an Option:
Plus purchase payments allocated to the contract during
the prior month;
Less withdrawals from the contract during the prior month.
Purchase payments made under the contract and withdrawals from the
contract would be treated as if each occurred in the middle of the
month and will be credited with interest for one-half of the month in
which the transaction occurs.
36. As in the case of the Modified Old Contracts, Hartford Life
believes that it must take all action reasonably practicable to
mitigate or reverse any adverse consequences to tax-exempt plan
sponsors and their participants arising from investment in Account 457
under the 457 Contracts. Therefore, Hartford Life proposes to offer
each affected tax-exempt plan sponsor the opportunity to (1) Exchange
its 457 Contract for a New Contract, (2) exchange its 457 Contract for
its Original Old Contract and transfer all contract value from sub-
accounts of Account 457 under its 457 Contract to sub-accounts of
Account DC-I and/or Account Two, or (3) exchange its 457 Contract for
its Original Old Contract with contract value equal to the contract
value under the Original Old Contract at the time it was first invested
in (a) an Unregistered DC Account, or (b) Account 457, plus interest,
as described below. The second option would have the effect, more or
less, of reinstating the Original Old Contract. Alternatively, each
tax-exempt plan sponsor may elect to surrender its 457 Contract.
Expressed in more detail, the options are:
To exchange their 457 Contract for a New Contract
(``Option 1'');
To exchange their 457 Contract for (or ``reinstate'')
their Original Old Contract by having their 457 Contract values
transferred to corresponding or sponsor-designated investment options
under their Original Old Contract in Account DC-I and/or Account Two
or, if it would result in a greater contract value, to ``reinstate''
all contract values under their Original Old Contract by reinstating
such values as they were at the time that contract values were first
invested in Separate Account DC-III, Separate Account DC-IV, Separate
Account DC-V, Separate Account DC-VI, or Account 457 (the ``Option 2
reinstatement date'') and crediting such contract values with interest
for the period from the Option 2 reinstatement date until the date a
plan sponsor elects Option 2 at an annual rate of 3%, as described
below (``Option 2''); or
To surrender their 457 Contract for its full contract
value without the imposition of any surrender or withdrawal charges
(``Option 3'').
If a sponsor does not elect one of the foregoing options, Hartford Life
would consider Option 1 as the default option.
37. Hartford Life would credit interest under Option 2 in a manner
that makes appropriate adjustments to take into account purchase
payments and withdrawals made under the 457 Contracts (or under the
Modified Old Contracts and the 457 Contracts) after the Option 2
reinstatement date by crediting interest each month at a rate of 0.247%
(the monthly equivalent of an annual rate of 3%) on the amount equal to
the contract value as of the Option 2 reinstatement date, and for each
subsequent month until the date on which the sponsor elects an Option:
Plus purchase payments made during the prior month;
Less withdrawals of contract value from during the prior
month.
Purchase payments and withdrawals would be treated as if each occurred
in the middle of the month and will be credited with interest for one-
half of the month in which the transaction occurs.
38. Hartford Life proposes to make each of the above offers to
essentially ``rescind'' the Modified Old Contracts and 457 Contracts
issued to tax-exempt plan sponsors and put each tax-exempt plan sponsor
and plan (including plan participants) in at least as favorable a
position as each would have been had no Modified Old Contract or 457
Contract been issued. Unlike many conventional rescission offers,
Hartford Life would not offer an option whereby the tax-exempt plan
sponsor could elect to retain its current investment (i.e., a Modified
Old Contract or 457 Contract). In this regard, Hartford Life's goal is
to remove from the Unregistered DC Accounts all of the assets
represented by Modified Old Contracts held by tax-exempt plan sponsors
and from Account 457 all of the assets represented by 457 Contracts
held by tax-exempt plan sponsors. Hartford Life believes that the
offers described in this Application are necessary to restore the
status of each Unregistered DC Account and Account 457 as a separate
account excluded from the definition of an investment company pursuant
to section 3(c)(11) of the Act. Similarly, Hartford Life believes that
the offers described in this Application are necessary to mitigate any
potential liability to itself, the Unregistered DC Accounts and Account
457 that may arise under the 1933 Act and/or the Act as a result of the
events described above.
39. Hartford Life proposes to make the exchange offers through a
supplement to the prospectuses for the New Contracts to be included
with such prospectuses in the Form N-4 registration statement for the
New Contracts and Separate Account Eleven. Hartford Life intends to use
two such supplements: One to make an exchange offer to tax-exempt plan
sponsors that currently own Modified Old Contracts, and another to make
an exchange offer to tax-exempt plan sponsors that own 457 Contracts
(including such tax-exempt plan sponsors that previously owned Modified
Old Contracts). The supplements will notify tax-exempt plan sponsors of
the exchange offer being made to them and explain the terms of the
offer in detail. Among other matters, each supplement will describe the
following:
The purpose of the exchange offer;
The material terms of the exchange offer, such as the
expiration date and the specifics of each option a tax-exempt sponsor
may elect;
The material differences between the Contract held by the
tax-exempt plan sponsor and the New Contract or Original Old Contract,
as applicable, including but not limited to, fees and charges, number
of sub-accounts available under each Contract and the mutual funds in
which each invests, and the minimum and maximum total annual operating
expenses for such funds;
Procedures for electing an exchange offer option; and
[[Page 49332]]
The advantages and disadvantages of each of the exchange
offer options.
40. Each supplement will clearly disclose the fact that Option 1
will apply in the event the tax-exempt plan sponsor fails to elect
another option by the expiration date. If an election form is
incomplete, Hartford Life will contact the tax-exempt plan sponsor by
telephone and facsimile for instructions. Included in either the
supplement or an accompanying letter will be each tax-exempt plan
sponsor's Option 2 reinstatement date and Option 2 reinstatement value.
Also included with the accompanying letter will be information
identifying each mutual fund available under the Modified Old Contracts
or the 457 Contracts that is not available under the New Contract along
with an explanation that if a tax-exempt plan sponsor does not provide
instructions as to reallocating contract value in sub-accounts invested
in such funds, then such contract value will be allocated under the New
Contract by default to a sub-account investing in a money market mutual
fund. In addition, the letter will also identify each fund offered
under the New Contract that is a variable insurance product ``clone''
of a fund available under the Modified Old Contracts or the 457
Contracts.
41. Tax-exempt plan sponsors and their plans will not incur any
fees or charges in connection with any of the proposed exchange offer
options. Hartford Life will bear all costs associated with
administering the exchange offers. In addition, tax-exempt plan
sponsors that elect an exchange offer option or have Option 1 imposed
on them by default, will not thereby subject their plans to any adverse
tax consequences. Hartford Life will not compensate any broker-dealer
or agent in connection with the proposed exchange offers.
42. Under each Option 1, the exchange of Modified Old Contracts for
New Contracts or 457 Contracts for New Contracts would occur at the
relative net asset value of the Contracts with no change in aggregate
contract value, the number or size of annuity payments being made under
a Contract, or the amount or value of death benefits available under a
Contract. Hartford Life would waive any CDSC otherwise applicable upon
the exchange of a Modified Old Contract or a 457 Contract for a New
Contract.
43. Upon exchange of a Modified Old Contract or 457 Contract for a
New Contract, Hartford Life would transfer contract value from each
sub-account under a Modified Old Contract or a 457 Contract (``old sub-
account'') to a sub-account under the New Contract that invests in the
same underlying mutual fund as the old sub-account (``corresponding new
sub-account''). If there is no corresponding new sub-account for one or
more old sub-accounts under the Modified Old Contract or 457 Contract,
Hartford Life would transfer Contract value from the old sub-accounts
under the Modified Old Contract or 457 Contract to sub-accounts under
the New Contract upon the direction of the tax-exempt plan sponsor. If
the tax-exempt plan sponsor does not provide such direction, Hartford
Life would transfer contract value from old sub-accounts under the
Modified Old Contract or 457 Contract to a sub-account under the New
Contract that invests in a money market mutual fund.
44. Under Option 2 relating to the Modified Old Contract offers,
the transfer of contract value from sub-accounts of the Unregistered DC
Accounts to sub-accounts of Account DC-I and/or Account Two would occur
at the relative net asset value of the Contracts with no change in
aggregate contract value, the number or size of annuity payments being
made under a Contract, or the amount of death benefits available under
a Contract. Hartford Life also would waive any CDSC remaining under the
Modified Old Contract in the future. Under Option 2 relating to the 457
Contract offers, the exchange of 457 Contracts for reinstated Original
Old Contracts and the related transfer of contract value from sub-
accounts of Account 457 to sub-accounts of Account DC-I and/or Account
Two under Original Old Contracts would occur at the relative net asset
value of the Contracts with no change in aggregate contract value, the
number or size of annuity payments being made under a Contract, or the
amount of death benefits available under a Contract. Hartford Life
would waive any CDSC otherwise applicable upon the exchange of 457
Contracts for reinstated Original Old Contracts and the related
transfer of contract value from sub-accounts of Account 457 to sub-
accounts of Account DC-I and/or Account Two. Likewise, Hartford Life
would waive any CDSC under the reinstated Original Old Contract that
would otherwise apply in the future.
45. Under Option 2 relating to both the Modified Old Contract
offers and the 457 Contract offers, Hartford Life would transfer
contract value from each sub-account under a Modified Old Contract or
457 Contract to a sub-account of Account DC-I and/or Account Two that
invests in the same underlying mutual fund as the sub-account from
which such value was transferred. If there is no corresponding sub-
account for one or more sub-accounts under the Modified Old Contract or
457 Contract, Hartford Life would transfer contract value from the sub-
accounts under the Modified Old Contract or 457 Contract to sub-
accounts of Account DC-I and/or Account Two upon the direction of the
tax-exempt plan sponsor. If the tax-exempt plan sponsor does not
provide such direction, Hartford Life would transfer contract value
from sub-accounts under the Modified Old Contract or 457 Contract to a
sub-account of Account DC-I and/or Account Two that invests in a money
