[Federal Register Volume 59, Number 77 (Thursday, April 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9582]


[[Page Unknown]]

[Federal Register: April 21, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20219; 812-8822]

 

ITT Hartford Life and Annuity Insurance Company, et al.

April 14, 1994.
AGENCY: The Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

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

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APPLICANTS: ITT Hartford Life and Annuity Insurance Company (``ITT 
Hartford''), ITT Hartford Life and Annuity Insurance Company/Separate 
Account One (the ``Account'') and Hartford Equity Sales Company, Inc. 
(``HESCO'') (collectively, ``Applicants'').

RELEVANT 1940 ACT SECTIONS: Order requested under section 6(c) of the 
1940 Act for exemptions from sections 26(a)(2)(C) and 27(c)(2) of the 
1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order permitting the 
deduction of a mortality and expense risk charge from the assets of the 
Account which serves as the funding medium for certain flexible premium 
deferred variable annuity contracts issues by ITT Hartford (the 
``Contracts'').

FILING DATE: The application was filed on February 7, 1994. Amendment 
number one to the application was filed on March 28, 1994 and amendment 
number two to the application was filed on April 4, 1994.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on the application by writing to the 
Secretary of the Commission and serving the Applicants with a copy of 
the request, either personally or by mail. Hearing requests must be 
received by the Commission by 5:30 p.m. on May 9, 1994, and should be 
accompanied by proof of service on the Applicants in the form of an 
affidavit or, for lawyers, by certificate of service. Hearing requests 
should state the nature of the interest, the reason for the request, 
and the issues contested. Persons may request notification of the date 
of a hearing by writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549. 
Applicants, c/o Kathleen A. McGah, Counsel, Hartford Life Insurance 
Companies, 200 Hopmeadow Street, Simsbury, CT 06089.

FOR FURTHER INFORMATION CONTACT:
Barbara J. Whisler, Senior Attorney, or Michael V. Wible, Special 
Counsel, Office of Insurance Products, Division of Investment 
Management, both at (202) 272-2060.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Public Reference Branch of the Commission.

Applicants' Representations

    1. ITT Hartford is a stock life insurance company domiciled in 
Wisconsin. On May 20, 1991, the board of directors of ITT Hartford 
established the Account. The Account serves as the funding medium for 
the Contracts and consists of several subaccounts (the 
``Subaccounts''), each of which invests in certain underlying 
registered investment companies.\1\
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    \1\In December of 1993, a registration statement on Form N-4 was 
filed with the Commission to register the Contracts. As of the date 
of this notice, the registration statement had not yet been declared 
effective.
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    2. HESCO, the principal underwriter for the Contracts, is 
registered with the Commission as a broker dealer under the Securities 
Exchange Act of 1934 and is a member of the National Association of 
Securities Dealers.
    3. Owners of the Contracts may allocate purchase payments to one or 
more of the Subaccounts, to the fixed account (the ``Fixed Account'') 
which is part of the general account of ITT Hartford, or to a 
combination of the Subaccounts and the Fixed Account.
    4. A Contract owner may select an annuity option on either a fixed 
or variable basis and may select one of four annuity options: Life 
annuity; life annuity with 120, 180 or 240 monthly payments certain; 
joint and last survivor annuity; and payments for a designated period. 
Each annuity option provides for a series of annuity payments beginning 
on the annuity commencement date.
    5. If upon death, prior to the annuity commencement date, the 
annuitant or the Contractor owner, as applicable, had not attained his 
or her 90th birthday, the beneficiary of the Contract will receive the 
greatest of:
    (a) The Contract value determined as of the day written proof of 
death of such person is received by ITT Hartford;
    (b) 100% of the total purchase payments made to such Contract, 
reduced by any prior surrenders; or
    (c) The maximum anniversary value\2\ increased by the dollar amount 
of any purchase payments made and reduced by the dollar amount of any 
partial surrenders (commonly referred to as a ``stepped up'' death 
benefit). If the deceased, the annuitant or the Contract owner, as 
applicable, had attained age 90, the death benefit will equal the 
Contract value.
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    \2\The maximum anniversary value is equal to the greatest 
anniversary value attained as follows. The anniversary value is 
equal to the Contract value on a Contract anniversary (anniversary 
of the effective date of the Contract), increased by the dollar 
amount of any premium payments made since that anniversary and 
reduced by the dollar amount of any partial surrenders since that 
anniversary. As of the date of death, ITT Hartford will calculate an 
anniversary value for each Contract anniversary prior to the 
deceased's attain age 81.
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    6. A contingent deferred sales charge (the ``Sales Charge'') may be 
assessed against Contract values upon surrender. The length of time 
from receipt of a premium payment to the time of surrender determines 
the Sales Charge. Purchase payments will be deemed to be surrendered in 
the order in which they are received and all surrenders will be deemed 
made first from purchase payments and then from other Contract values.
    7. The Sales Charge is 6% the first and second years, 5% the third 
and fourth years, 4% the fifth year, 3% the sixth year, 2% the seventh 
year, and 0% the eighth year. During the first seven Contract years, on 
a non-cumulative basis, a Contract owner may make a partial surrender 
of Contract values up to 10% of the aggregate premium payments made to 
the Contract (as determined on the date of the requested withdrawal) 
without application of the Sales Charge. After the seventh Contract 
year, the Contract owner may make a partial surrender of the greater of 
10% of premium payments made during the seven years prior to the 
surrender, or 100% of the Contract value less the premium payments made 
during the seven years prior to the surrender, without application of a 
Sales Charge.
    8. ITT Hartford will deduct an annual maintenance fee of $30 from 
each Contract to reimburse ITT Hartford for expenses relating to 
administration and maintenance of the Contract and the Subaccounts. 
There is no charge for Contracts with more than a $50,000 Contract 
value on the Contract anniversary. The application states that the 
annual maintenance fee may not be increased during the life of the 
Contracts. Applicants further state that total revenues from the annual 
maintenance fees under the Contracts are not expected to exceed ITT 
Hartford's average expected costs for administering the Contracts.
    9. ITT Hartford will deduct a daily charge at the rate of 1.25% 
annually to compensate it for providing mortality and expense 
guarantees with respect to the Contracts. Applicants estimate that 
0.90% of the 1.25% charge is for mortality risk and 0.35% is for 
expense risk.
    10. Applicants state that the mortality risk arises from the 
obligation of ITT Hartford to: (a) make monthly annuity payments, 
regardless of how long an annuitant may live and regardless of how long 
annuitants as a group may live; and (b) pay the minimum death benefit 
under a Contract.
    11. Applicants state that the expense risk assumed by ITT Hartford 
is the risk that the administrative fees assessed by ITT Hartford will 
be insufficient to cover actual expenses.
    12. Applicants represent that the mortality and expense risk charge 
will not increase. If the charge is insufficient to cover actual costs, 
the loss will fall on ITT Hartford. Conversely, if the charge proves 
more than sufficient to meet actual expenses, the excess will be profit 
to ITT Hartford and will be available for any proper corporate purpose. 
Applicants state that ITT Hartford expects a reasonable profit from the 
mortality and expense risk charge.

 Applicants' Legal Analysis and Conclusions

    1. Applicants request an exemption from sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to the extent relief is necessary to permit 
the deduction of a mortality and expense risk charge from the assets of 
the Account.
    2. Sections 26(a)(2)(C) and 27(c)(2), in pertinent part, prohibit a 
registered unit investment trust and any depositor thereof or 
underwriter therefor from selling periodic payment plan certifications 
unless the proceeds of all payments (other than sales load) are 
deposited with a qualified bank as trustee or custodian and held under 
arrangements which prohibit any payment to the depositor or principal 
underwriter except a fee, not exceeding such reasonable amounts as the 
Commission may prescribe, for performing bookkeeping and other 
administrative services of a character normally performed by the bank 
itself.
    3. Applicants represent that the mortality and expense risk charge 
is reasonable in relation to the risks assumed by ITT Hartford under 
the Contracts.
    4. Applicants represent that the mortality and expense risk charge 
is within the range of industry practice for comparable variable 
annuity contracts. Applicants state that this representation is based 
upon a survey of comparable contracts issued by a large number of other 
insurance companies. The application states that ITT Hartford will 
undertake to maintain and make available to the Commission upon request 
a memorandum setting forth in detail the methodology and the contracts 
of other insurance companies underlying this representation.
    5. Applicants represent that ITT Hartford has concluded that there 
is the likelihood that the proceeds from sales loads will be 
insufficient to cover the expected costs of distributing the contracts. 
Applicants state that any shortfall will be covered from the assets of 
the general account, which may include profit from the mortality and 
expense risk charge. ITT Hartford has concluded that there is a 
reasonable likelihood that the Account's distribution financing 
arrangement will benefit the Account and Contract owners. Applicants 
further state that ITT Hartford undertakes to maintain and make 
available to the Commission, upon request, a memorandum setting forth 
the basis for this representation.
    6. Applicants represent that the Account will invest only the open-
end management companies which have undertaken to have a board of 
directors, a majority of whom are not interested persons of the open-
end management company, formulate and approve any plan under Rule 12b-1 
of the 1940 Act to finance distribution expenses.

Conclusion

    Applicants assert that for the reasons and upon the facts set forth 
above, the requested exemptions from sections 26(a)(2)(C) and 27(c)(2) 
of the 1940 Act are necessary and 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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-9582 Filed 4-20-94; 8:45 am]
BILLING CODE 8010-01-M