[Federal Register Volume 59, Number 157 (Tuesday, August 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19959]


[[Page Unknown]]

[Federal Register: August 16, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20463; 812-9072]

 

ITT Hartford Life and Annuity Insurance Company et al.

August 9, 1994.
AGENCY: Securities and Exchange Commission (the ``SEC'' or 
``Commission'').

ACTION: Notice of Application for Exemptions 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 Three (the ``Separate Account''), and Hartford Equity Sales 
Company, Inc. (``HESCO'').

RELEVANT 1940 ACT SECTIONS: Exemptions requested under Section 6(c) 
from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order permitting the 
deduction of a mortality and expense risk charge from the assets of the 
Separate Account, which funds certain flexible premium deferred 
variable annuity contracts called the ITT Hartford Variable Annuity 
Contract (the ``Contracts'').

FILING DATE: The Application was filed on June 24, 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 by writing to the SEC's Secretary and 
serving Applicants with a copy of the request, personally or by mail. 
Hearing requests must be received by the SEC by September 6, 1994, and 
must be accompanied by proof of service on the Applicants in the form 
of an affidavit or, for lawyers, a certificate of service. Hearing 
requests must state the nature of the writer's interest, the reason for 
the request, and the issues contested. Persons may request notification 
of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, N.W., Washington, D.C. 20549. Applicants, c/o Rodney J. 
Vessels, Counsel, Hartford Life Insurance Companies, 200 Hopmeadow 
Street, Simsbury, Connecticut 06070.

FOR FURTHER INFORMATION CONTACT: C. Christopher Sprague, Senior Staff 
Attorney, or Michael V. Wible, Special Counsel, both at (202) 942-0670, 
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 
Commission's Public Reference Branch.

Applicants' Representations

    1. ITT Hartford, formerly ITT Hartford Life Insurance Corporation, 
is domiciled in the State of Wisconsin, and was incorporated on January 
9, 1956. ITT Hartford is a stock life insurance company engaged in the 
business of writing both individual and group life insurance and 
annuities in all states of the United States (except New York) and in 
the District of Columbia.
    2. On June 13, 1994, the Board of Directors of ITT Hartford passed 
a corporate resolution establishing the Separate Account under 
Connecticut law. On June 23, 1994, the Separate Account registered as a 
unit investment trust under the 1940 Act. The Contracts to be issued by 
the Separate Account will be offered for sale by HESCO, the designated 
principal underwriter for the Contracts. HESCO is a broker-dealer 
registered with the Commission under the Securities Exchange Act of 
1934 and is a member of the National Association of Securities Dealers, 
Inc.
    3. The Contract Owner has the right to allocate purchase payments 
to several sub-accounts of the Separate Account, each of which invests 
in a corresponding series of Dean Witter Select Dimensions Investment 
Series, an open-end diversified investment company. A Contract Owner 
also may allocate purchase payments to ITT Hartford's Fixed Account. 
The Contract offers a death benefit that is applicable prior to the 
annuity commencement date as well as four annuity options, including an 
annuity payable during the lifetime of the annuitant.
    4. The Contract Owner will not pay a sales charge at the time of a 
premium payment, although a contingent deferred 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 contingent deferred sales charge. Specifically, the contingent 
deferred sales charge equals 6% of a premium payment surrendered in the 
payment's first year, 6% during the second year, 5% during the third 
year, 5% during the fourth year, 4% during the fifth year, 3% during 
the sixth year, 2% during the seventh year, and 0% for all older 
premium payments.
    5. During the first seven Contract years, on a non-cumulative 
basis, a Contract Owner may make a partial surrender of Contract values 
of up to 10% of the aggregate premium payments made to the Contract (as 
determined on the date of the requested withdrawal) without the 
application of the contingent deferred 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 the 
application of the contingent deferred sales charge.
    6. Each Contract anniversary, ITT Hartford will deduct a $30 
maintenance fee from each Contract Owner's Contract value to reimburse 
it for expenses relating to administration and maintenance of the 
Contract and the sub-accounts of the Separate Account. There is no 
annual maintenance fee with respect to Contracts with more than $50,000 
of Contract value on the Contract anniversary. In addition, ITT 
Hartford will make a daily charge at the rate of .15% per annum against 
the assets of the Separate Account during both the accumulation and 
annuity phases of the Contracts for administration expenses. Neither of 
these charges may be increased during the life of the Contracts. Total 
revenues from all administrative charges under the Contracts are not 
expected to exceed ITT Hartford's average expected costs of 
administering the Contracts.
    7. The Contracts will provide for the deduction of a 1.25% annual 
asset charge that will be paid to ITT Hartford on a daily basis for 
providing mortality and expense guarantees with respect to the 
Contracts. ITT Hartford estimates that this charge will be composed of 
a .90% mortality risk component and a .35% expense risk component. The 
mortality undertaking provided by ITT Hartford, assuming the selection 
of one of the forms of life annuities, is to make monthly annuity 
payments (determined in accordance with the 1983(a) Individual Annuity 
Mortality Table with ages set back one year and other provisions 
contained in the Contract) to Contract Owners regardless of how long an 
annuitant may live, and regardless of how long all annuitants as a 
group may live. ITT Hartford also incurs a mortality risk because of 
its liability to pay a minimum death benefit under the Contract. ITT 
Hartford may experience a profit or a loss on the mortality component 
of the charge, depending on the actual mortality experience of Contract 
owners and Contract annuitants. The expense risk assumed by ITT 
Hartford is the risk that the administrative fees may be insufficient 
to cover actual expenses. The rate of the mortality and expense risk 
charge cannot be increased. If the charge is insufficient to cover the 
actual cost of the expense risk undertaking, ITT Hartford will bear the 
loss. Conversely, if the charge proves more than sufficient, the excess 
will be surplus to ITT Hartford and will be available for any proper 
corporate purpose. ITT Hartford expects a reasonable profit from the 
mortality and expense risk charge.
    8. Applicants ask that the requested order apply to the Separate 
Account and to future separate accounts issuing contracts that are 
substantially similar to the Contracts.

Applicants' Legal Analysis

    1. Applicants request 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 the mortality 
and expense risk charge. Sections 26(a)(2)(C) and 27(c)(2) prohibit a 
registered unit investment trust and any depositor or underwriter 
thereof from selling periodic payment plan certificates unless the 
proceeds of all payments are deposited with a trustee or custodian 
having the qualifications prescribed by Section 26(a)(1) of the 1940 
Act and are held under an agreement that provides that no payment to 
the depositor or principal underwriter shall be allowed except a fee, 
not exceeding such reasonable amount as the Commission may prescribe, 
for bookkeeping and other administrative services. Applicants' proposed 
mortality and expense risk charge would not be considered a bookkeeping 
and administrative expense.
    2. Applicants have consented that the requested exemptions from 
Sections 26(a)(2)(C) and 27(c)(2) may be made subject to the following 
representations:
    (a) The mortality and expense risk charge is reasonable in relation 
to the risks assumed by ITT Hartford under the Contracts;
    (b) The mortality and expense risk charge is within the range of 
industry practice for comparable annuity contracts as determined by a 
survey of comparable contracts issued by a large number of other 
insurance companies. Applicants' Contract is comparable to the 
contracts of other insurance companies in that (i) current charge 
levels are approximately the same; (ii) all provide minimum death 
benefit guarantees the same as or lower than Applicants' Contract: 
(iii) all have guaranteed annuity purchase rates; (iv) all have the 
same special accounting system for separate account unit value 
administration; and (v) all are offered in the same market. ITT 
Hartford undertakes to maintain at its Home Office available to the 
Commission upon request a memorandum setting forth in detail the 
methodology and contracts of other insurance companies underlying this 
representation.
    (c) There is the likelihood that the proceeds from explicit sales 
loads will be insufficient to cover the expected costs of distributing 
the Contracts. Any shortfall will be covered from the assets of the 
general account, which may include profit from the mortality and 
expense risk charge. Therefore, ITT Hartford has concluded that there 
is a reasonable likelihood that the Separate Account's distribution 
financing arrangement will benefit the Separate Account and Contract 
Owners. ITT Hartford undertakes to maintain at its Home Office and make 
available to the Commission upon request a memorandum setting forth the 
basis for this representation; and
    (d) The Separate Account will invest only in 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 to finance 
distribution expenses.

Applicants' Conclusion

    Applicants request exemptions from Sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act so that they may offer and sell the Contracts 
subject to the charge for mortality and expense guarantees described 
above. Applicants submit that, for all of the reasons stated herein, 
the requested exemptions from Sections 26(a)(2)(C) and 27(c)(2) meet 
the standards set out in Section 6(c) of the 1940 Act. Applicants 
assert that the requested exemptions are necessary or appropriate in 
the public interest and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the 1940 
Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-19959 Filed 8-15-94; 8:45 am]
BILLING CODE 8010-01-M