Subject: File No. S7-14-08
From: Bruce Hartrich

July 14, 2008

I strongly object to the passage off rule 151A for the following reason.

Here is an analysis showing how an indexed annuity can produce an acceptable yield even under poor market conditions. How this can be defined as an asset at risk and therefore must fall under SEC jurisdiction is beyond me.

The following is an currently offered indexed annuity at current rates. The annuity has the following features:

5% upfront bonus

8.25% annual point to point cap

After the 5th year, you can by contract, annuitize the full account value
(without market value adjustment or surrender charge) over 5 payments.
Hence you can access 100% of the account value over 5 payments.

The product comes with a 90% at 3% minimum guarantee. Accordingly you
can get close to 100% of your money back after just three years.

The linked spreadsheet shows how the indexed annuity would have done had the caps remained constant and had the user held the annuity for five years. It shows the results of every five year period from the end of 1989 to the end of 2007. The worst gain occurred from 1999 to 2004, a time when the SP 500 fell about 20%. Had you contributed $100,000 to this indexed annuity, your balance after the end of the fifth year would have grown to $123,040, a gain of $23,040. This represents an annual gain of $4,608 or 4.61% simple interest yield.

During a time when the market fell, the indexed annuity produced a simple interest yield of 4.61%. Under the worst market conditions the indexed annuity still produced a yield competitive with CDs. The indexed annuity provided results (not guarantees) in line with their stated objectives of competing with other fixed income options such as CDs.

This is exactly the type of safe money options many seek. An option that was not marketed or offered by most or any securities representatives prior to its innovation in the early 1990s. It is just this kind of innovation that can occur when there are various entities competing for the savers market. Once the SEC takes jurisdiction over this market and no doubt over similar markets (life insurance linked to an index, fixed annuities with market value adjustments or whatever variation the SEC deems their domain), competition is stifled or eliminated.

The insurance industry is an industry that is meant to provide insurance over all aspects of one's life and this brilliant innovation has extended the insurance to ones savings. Finally the consumer has a choice to allocate some of their savings to a vehicle that is protected by the issuing annuity company.

My hope is that your rule is challenged in court as was the case when annuities were not considered to be a security by the supreme court. Interestingly at that time, fixed annuities had long surrender periods, high surrender charges and a fixed rate that was declared annually by the carrier. All these are attributes shared by the current crop of indexed annuities. The primary difference is the methodology for crediting rates. Certainly had the supreme court seen an annuity that yielded a historical minimum of 4.61%, no one would have successfully argued that this annuity should be considered an at risk vehicle and hence should be under NASD (today FINRA) supervision.