[Federal Register Volume 61, Number 83 (Monday, April 29, 1996)]
[Notices]
[Pages 18763-18765]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10469]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21909; File No. 812-9836]
The Travelers Life and Annuity Company, et al.
April 22, 1996.
AGENCY: U.S. Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``1940 Act'').
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Applicants: The Travelers Life and Annuity Company (``Company''), The
Travelers Fund ABD II for Variable Annuities (``Fund ABD II'') and
Tower Square Securities, Inc. (``TSSI'').
Relevant 1940 Act Sections: Order requested under Section 6(c) of the
1940 Act for exemptions from Sections 26(a)(2)(C) and 27(c)(2) thereof.
SUMMARY of Application: Applicants and any other separate account
established by the Company (``Other Accounts,'' together with Fund ABD,
``Accounts'') seek an order pursuant to Section 6(c) of the 1940 Act
granting exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940
Act to the extent necessary to permit the deduction of a mortality and
expense risk charge from the assets of the Accounts under certain
flexible premium deferred variable annuity contracts issued by the
Company.
Filing Date: The application was filed on October 27, 1995, and amended
and restated on March 28, 1996.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the Secretary of the SEC and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on May 17, 1996 and
should be accompanied by proof of service on 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
Secretary of the SEC.
[[Page 18764]]
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549; Applicants, The Travelers Life and Annuity Company, One Tower
Square, Hartford, Connecticut 06183, Attention: Kathleen A. McGah,
Counsel and Assistant Secretary.
FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, Staff Attorney, or Patrice M. Pitts, Special
Counsel, Division of Investment Management, Office of Insurance
Products, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application.
The complete application is available for a fee from the Public
Reference Branch of the SEC.
Applicants' Representations
1. The Company, a stock life insurance company organized under the
laws of the State of Connecticut in 1973, is a wholly-owned subsidiary
of The Travelers Insurance Company, which is an indirect wholly-owned
subsidiary of Travelers Group, Inc. The Company currently is licensed
to do business in all states except Alabama, Hawaii, Kansas, Maine, New
Hampshire, New Jersey, North Carolina, Tennessee, Texas, Wyoming and
New York, and currently is seeking licensure in the remaining United
States except New York.
2. Fund ABD II was established on October 17, 1995, as a separate
account under the laws of the State of Connecticut to fund individual
and group flexible premium deferred variable annuity contracts and
certificates to be issued by the Company (the ``Current Contracts'').
Fund ABD II currently is divided into six subaccounts, each of which
invests its assets exclusively in the shares of four open-end
management investment companies.
3. In the future, the Company may issue through Fund ABD II or the
Other Accounts other contracts (``Future Contracts'') that are
materially similar to the Contracts. (Future Contracts and Current
Contracts collectively are referred to as ``Contracts.'')
4. TSSI, a broker-dealer registered with the SEC under the
Securities Exchange At of 1934, is a member of the National Association
of Securities Dealers, Inc. TSSI is an affiliate of the Company and an
indirect wholly-owned subsidiary of Travelers Group, Inc. TSSI will be
the distributor of the Contracts.
5. The Contracts are designed to provide retirement payments and
other benefits for persons covered under plans qualified for federal
income tax advantages available under the Internal Revenue Code of
1986, as amended, and for persons desiring such benefits who do not
qualify for such tax advantages. Under group contracts, purchase
payments will be made by or on behalf of a participant who is covered
under a retirement plan. The Contracts provide for allocation of
purchase payments to the subaccount and/or to a fixed account. Upon
retirement, annuity payments will be made on a fixed or variable basis.
Fixed payments are based on the tables shown in the Contract; however,
if a more beneficial payment table is in effect at the time the first
payment is being determined, it will be used. Once payments are
determined, they will be assured throughout the payout period and are
fixed in nature. Variable annuity payments will increase or decrease
during the payout period. The first variable payment is based on the
tables shown in the Contract, but subsequent payments will increase or
decrease depending on the net investment performance of the underlying
mutual funds chosen for investment during the annuity period. If the
annuitant dies before the maturity date of the Contract, the Company
will pay a death benefit. Before annuity or income payments begin,
however, Contract owners may transfer all or part of their contract
value from one subaccount to another without fees, penalty or charge.
There currently are no restrictions on the frequency of transfers, but
the Company reserves the right to limit transfers to no more than one
in any six month period.
6. The Company will assess an annual contract administrative charge
of $30 for the Contracts. This charge will not be assessed after an
annuity payout has begun, at the death of the annuitant or the Contract
owner, or if the Contract owner has a contract value greater than
$40,000 on the assessment date. The Company also will assess the
subaccount of Fund ABD II a daily asset charge at an effective rate of
0.15% per annum for administrative expenses. These charges cannot be
increased during the life of the Contract. These charges represent
reimbursement for only the actual administrative costs expected to be
incurred over the life of the Contracts. The Company will not profit
from these charges.
7. The Company will deduct certain state and local government
premium taxes. These deductions may be made when the Contract is
purchased, when the Contract is surrendered, when retirement payments
begin, or upon payment of a death benefit. Currently these taxes range
from 0.5% to 5% and depend on the state in which the Contract owner
resides or the Contract was sold.
8. To compensate itself for assuming mortality and expense risks,
the Company will assess the subaccount of Fund ABD II an amount equal
on an annual basis to 1.25% of the daily net asset value of the
subaccount. Approximately 0.9375% of the daily net asset value of the
subaccount is for assumption of the mortality risk, and 0.3125% is for
assumption of the expense risk. These charges cannot be increased
during the life of the Contracts.
9. The Company assumes certain mortality risks by its contractual
obligation to continue to make annuity payments for the life of the
annuitant, under annuity options that involve life contingencies. The
Company assumes additional mortality and expense risks by its
contractual obligation to pay the death benefit if either the annuitant
or the Contract owner dies prior to the maturity date. The Company
assumes an expense risk because the administrative charges may be
insufficient to cover actual administrative expenses. Although the
Company does not expect to profit from the mortality and expense risk
charge, any profit would be available to the Company for any proper
corporate purpose, including payment of distribution expenses.
10. No sales charge is collected or deducted at the time purchase
payments are applied under the Contracts. A contingent deferred sales
charge (``Surrender Charge'') will be assessed upon certain full or
partial surrenders. A Surrender Charge applies if all or part of the
contract value is surrendered during the first seven years following a
purchase payment. The Surrender Charge starts at 6% of a purchase
payment in the first and second years following the purchase payment,
and reduces to 5% in the third and fourth years, 4% in the fifth year,
3% in the sixth year, and 2% in the seventh year following the payment.
There is no charge after eight years following a purchase payment.
11. After the first contract year, Contract owners may surrender up
to 10% of their contract value (as of the beginning of the contract
year) without incurring a Surrender Charge (the ``Free Withdrawal
Amount''). The Free Withdrawal Amount applies to partial surrenders of
any amount and to full surrenders, except where the contract value is
directly transferred to annuity contracts issued by other financial
institutions.
12. There is no charge on contract earnings, which equal: (1) The
contract value; minus (2) the sum of all purchase
[[Page 18765]]
payments received that have not been previously surrendered; minus (3)
the Free Withdrawal Amount, if applicable. To determine the amount of
any Surrender Charge, surrenders will be deemed to be taken first from
any applicable Free Withdrawal Amount, next from purchase payments (on
a first-in, first-out basis), and finally from contract earnings (in
excess of any Free Withdrawal Amount). The Company does not expect that
the Surrender Charge will cover sales and distribution expenses
incurred in connection with the Contracts.
13. Prior to a Contract's maturity date, all or part of the
contract value may be transferred between the subaccount without
penalty, fee, or charge. Although there currently are no restrictions
on the frequency of transfers, the Company reserves the right to limit
transfers to no more than one in any six-month period.
Applicants' Legal Analysis
1. Section 6(c) of the 1940 Act authorizes the SEC to grant an
exemption from any provision, rule or regulation of the 1940 Act to the
extent that it is necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the 1940 Act to do so.
2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant
part, prohibit a registered unit investment trust, its depositor or
principal underwriter, from selling periodic payment plan certificates
unless the proceeds of all payments, other than sales loads, are
deposited with a qualified bank and held under arrangements which
prohibit any payment to the depositor or principal underwriter except a
reasonable fee, as the SEC may prescribe, for performing bookkeeping
and other administrative duties normally performed by the bank itself.
3. Applicants seek an order under Section 6(c) of the 1940 Act
granting exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940
Act to the extent necessary to permit the deduction of a mortality and
expenses risk charge from the assets of the Accounts under the
Contracts.
4. Applicants state that the terms of the relief requested with
respect to any Future Contracts funded by the Accounts are consistent
with the standards set forth in Section 6(c) of the 1940 Act.
Applicants represent that the Future Contracts to be funded by the
Accounts will be materially similar to the Current Contracts.
Applicants state that without the requested relief, the Company would
have to request and obtain exemptive relief for the Accounts to fund
each Future Contract. Applicants assert that these additional requests
for exemptive relief would present no issues under the 1940 Act not
already addressed in this application, and that the requested relief is
appropriate in the public interest because the relief will promote
competitiveness in the variable annuity market by eliminating the
Applicants' need to file redundant exemptive applications, thereby
reducing administrative expenses and maximizing efficient use of
resources.
5. Applicants represent that the 1.25% mortality and expense risk
charge for the Contracts is reasonable in relation to the risks assumed
by the Company under the Contracts, and is within the range of industry
practice for comparable annuity contracts, based on a review of the
publicly available information regarding products of other companies.
The Company represents that it will maintain at its principal offices,
and make available upon request to the Commission or its staff, a
memorandum detailing the variable annuity products analyzed, and the
methodology used in, and the results of, the comparative review.
6. Applicants acknowledge that the Surrender Charge may be
insufficient to cover all distribution costs, and that if a profit is
realized from the mortality and expense risk charge, all or a portion
of such profit may be offset by distribution expenses not reimbursed by
the Surrender Charge. Notwithstanding this, the Company has concluded
that there is a reasonable likelihood that the proposed distribution
financing arrangements made with respect to the Contracts will benefit
Fund ABD II, the Other Accounts,\1\ and Contract owners. The basis for
such conclusion is set forth in a memorandum which will be maintained
by the Company at its home office and will be available to the
Commission or its staff upon request.
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\1\ Applicants represent that they will amend the application
during the notice period to include the Other Accounts.
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7. The Company also represents that the Accounts will invest only
in underlying mutual funds which have undertaken to have a board of
directors or a board of trustees, as applicable, a majority of whom are
not ``interested persons'' of such Accounts within the meaning of
Section 2(a)(19) of the 1940 Act, formulate and approve any plan under
Rule 12b-1 (under the 1940 Act) to finance distribution expenses.
Conclusion
For the reasons set forth above, Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and purposes
fairly intended by the policy and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-10469 Filed 4-26-96; 8:45 am]
BILLING CODE 8010-01-M
