[Federal Register Volume 61, Number 149 (Thursday, August 1, 1996)]
[Notices]
[Pages 40258-40260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19565]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22103; No. 812-9692]


ITT Hartford Life and Annuity Insurance Company, et. al.

July 26, 1996.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of Application for an Order pursuant to the Investment 
Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: ITT Hartford Life and Annuity Insurance Company (``ITT 
Hartford''), Separate Account VL I of ITT Hartford Life and Annuity 
Insurance Company (the ``Account''), and Hartford Equity Sales Company 
(``HESCO'').

RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 6(c) of 
the 1940 Act granting exemptions from Section 27(a)(3) thereof and 
Rules 6e-3(T)(b)(13)(ii) and 6e-3(T)(d)(1)(ii) thereunder.

SUMMARY OF APPLICATION: Applicants request an order to permit ITT 
Hartford, through the Account, to issue certain flexible premium 
variable life insurance contracts (``Contracts'') that provide for a 
front-end sales loan on premium payments in any given contract year up 
to a maximum amount (``Maximum Sales Load Premium'') and no sales load 
on premiums in excess of such Maximum Sales Load Premium (``Excess 
Premiums'') in any given contract year. Applicants also request 
exemptive relief to permit ITT Hartford, though separate accounts it 
establishes in the future, to issue flexible premium variable life 
insurance contracts that are materially similar to the Contracts.

FILING DATE: The application was filed on July 26, 1995, and amended on 
June 6, 1996.

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 Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on August 20, 1996, and must 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 may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, N.W., Washington, D.C. 20549. Applicants, c/o Scott K. 
Richardson, Assistant Counsel, ITT Hartford Insurance Companies, P.O. 
Box 2999, Hartford, Connecticut 06104-2999.

FOR FURTHER INFORMATION CONTACT:
Kevin M. Kirchoff, Senior Counsel, or Patrice M. Pitts, Special 
Counsel, Office of Insurance Products (Division of Investment 
Management), 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 Commission.

Applicants' Representations

    1. ITT Hartford is a stock life insurance company engaged in the 
business of writing annuities and both individual and group life 
insurance in the District of Columbia and all states except New York. 
ITT Hartford is a wholly-owned subsidiary of Hartford Life Insurance 
Company.
    2. The Account was established as a separate account of ITT 
Hartford on June 8, 1995, pursuant to the insurance law of the State of 
Connecticut. The Account is registered with the Commission pursuant to 
the 1940 Act as a unit investment trust. The Account presently consists 
of twenty-two subaccounts (``Subaccounts''), each of which will invest 
exclusively in certain open-end management investment companies.
    3. HESCO, the principal underwriter for the Contracts, is 
registered as a broker-dealer pursuant to the Securities Exchange Act 
of 1934, and is a member of the National Association of Securities 
Dealers, Inc.
    4. The Contracts are flexible premium variable life insurance 
policies. Contract owners choose the amount of premiums

[[Page 40259]]

they intend to pay (``Scheduled Premiums'') within a range determined 
by ITT Hartford based on a variety of factors, including the face 
amount of the Contract, the insured's sex (except where unisex rates 
apply), age at issue, and risk classification. Contract owners also may 
pay other premiums at any time (``Unscheduled Premiums''), subject to 
certain restrictions. The cash value under a Contract will, and the 
death benefit may, increase or decrease depending on the investment 
experience of the Subaccounts to which the premium payments have been 
allocated.
    5. The Guideline Annual Premium, as provided by Rule 6e-
3(T)(c)(8)(i), is the level annual premium necessary to provide the 
future benefits under the Contract through maturity, based on certain 
specified assumptions, which include mortality charges based on the 
1980 Commissioners' Standard Ordinary Mortality Smoker or Non-Smoker 
Table, age last birthday, and assured annual net rate of return of at 
least 5 percent per year, and a reduction of the guaranteed fees and 
changes specified in the policy.
    6. During a period which begins on the date the Contract is 
effective and continues for one to ten years as selected by the 
Contract owner (``Guarantee Period''), ITT Hartford will guarantee that 
the Contract will not lapse, regardless of the investment experience of 
the Subaccounts, if the Contract owner pays the Scheduled Premiums when 
due. In addition, Unscheduled Premiums will be allowed during the 
Guarantee Period. If the Contract owner does not pay all Scheduled 
Premiums during the Guarantee period, the Contract will stay in force 
as long as an amount calculated under the Contract exceeds the 
indebtedness under the Contract.
    7. The Contracts provide for the payment of a death benefit to the 
beneficiary when the insured dies. The death benefit equals the death 
benefit less any indebtedness under the Contract and any due and unpaid 
monthly deduction amount occurring during a grace period.
    8. ITT Hartford deducts a sales load from premium payments prior to 
allocating them to the account value of a Contract. The amount of the 
deduction is calculated using a percentage of the premiums paid during 
each Contract year, as specified in the Contract. The amount of the 
front-end sales load will be based on the amount of the Scheduled 
Premiums for the Contract, the Guarantee Period, and any Unscheduled 
Premiums paid. The maximum front-end sales load applied to any premium 
in the first Contract year will be 50 percent of the amount of premiums 
paid during the first Contract year, subject to the limits described 
below. Also subject to certain limits, the maximum front-end sales load 
in a Contract year will be 11 percent of premiums paid during Contract 
years two through ten and 3 percent of premiums paid in Contract years 
eleven and beyond.
    9. No front-end sales load in excess of the Guideline Annual 
Premium will be imposed under the Contracts on premium payments in any 
Contract year. In the first Contract year, no sales load will be 
imposed on premiums that exceed the Scheduled Premium, if it is less 
than the Guideline Annual Premium. The maximum amount of a premium 
payment subject to a front-end sales load is the ``Maximum Sales Load 
Premium.''
    10. A contingent deferred sales charge will be assessed against the 
account value of a Contract prior to a lapse or surrender if the 
Contract lapses or is surrendered within the first nine years 
(``Surrender Charge''). The amount of the Surrender Charge applicable 
to the first Contract year under a Contract will be established by ITT 
Hartford and will decrease by an equal amount each Contract year until 
it reaches zero during the tenth year. Generally, the shorter the 
Guarantee Period under a Contract, the lower the Surrender Charge that 
will apply to the Contract.
    11. The aggregate of the front-end sales load and Surrender Charge 
assessed will not exceed 180 percent of the Guideline Annual Premium, 
or nine percent of the sum of the Guideline Annual Premium that would 
be paid over a twenty year period. In cases where the anticipated life 
expectancy of the insured named in the Contract is less than twenty 
years, the total sales load will be reduced to nine percent of the sum 
of the Guideline Annual Premium for the shorter period.
    12. If a Contract is surrendered during the first two Contract 
years, the Contract owner may be entitled to a refund of some of the 
front-end sales load or Surrender Charge assessed. The refund will be 
equal to the excess, if any, of the actual front-end sales load and 
Surrender Charge assessed under the Contract over:
    (a) the sum of 30 percent of the aggregate premium payments less 
than or equal to one Guideline Annual Premium plus 10 percent of such 
payments greater than one, but not more than two, Guideline Annual 
Premium(s); and
    (b) 9 percent of each premium payment exceeding two Guideline 
Annual Premiums.
    13. On a designated date each month, ITT Hartford will deduct from 
the account value, from the fixed account and each of the Subaccounts 
funding a Contract on a pro-rata basis, the following charges:
    (a) a cost of insurance charge;
    (b) a mortality and expense risk charge that varies proportionately 
from .90 percent of account value annually for a Contract with a one-
year Guarantee Period to .60 percent for a Contract with a ten-year 
Guarantee Period;
    (c) an administrative charge of $8.33 per month initially, 
guaranteed not to increase during the Guarantee Period, and guaranteed 
not to exceed $12.00 per month after the Guarantee Period;
    (d) during the first Contract year, a monthly charge for 
underwriting and issuance costs of $8.33 per month, plus an amount that 
varies based on the age of the insured and the initial face amount of 
the Contract;
    (e) a percentage of each premium to pay premium taxes, varying by 
locale, depending on tax rates in effect; \1\
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    \1\ Currently, no charge is assessed for Federal, state and 
local income taxes attributable to premiums, however ITT Hartford 
reserves the right to assess such a charge in the future.
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    (f) if applicable, charges for additional benefits provided by 
riders to the Contract; and
    (g) if applicable, a charge for a special insurance class rating of 
the insured.

Applicants' Legal Analysis

    1. Pursuant to Section 6(c) of the 1940 Act, the Commission may 
exempt any person, security, or transaction, or any class or classes of 
persons, securities or transactions, from any provision or provisions 
of the 1940 Act or from any rule or regulation thereunder, if and to 
the extent that such exemption 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.
    2. Section 27(a)(3) of the 1940 Act provides, in effect, that the 
amount of sales charge deducted from any of the first twelve monthly 
payments on a periodic payment plan certificate by any registered 
investment company issuing such certificates or any depositor or 
underwriter for such company may not exceed proportionately the amount 
deducted from any other such payment and that the amount deducted from 
any subsequent payment may not exceed proportionately the amount 
deducted from any other subsequent payment (``stair-step'' provisions).

[[Page 40260]]

    3. Rules 6e-3(T)(b)(13)(ii) and 6e-3(T)(d)(1)(ii) provide 
exemptions from Section 27(a)(3), provided that the proportionate 
amount of sales charge deducted from any payment does not exceed the 
proportionate amount deducted from any prior payment, unless an 
increase is caused by reductions in the annual cost of insurance or 
reductions in sales load for amounts transferred to a variable life 
insurance contract from another plan of insurance.
    4. Under the sales load structure of the Contracts, in any given 
year no front-end sales load will be deducted from premiums paid in 
excess of the Maximum Sales Load Premium. Thus, a Contract owner could 
pay a premium in any given Contract year from which no front-end sales 
load deduction is made (because cumulative premiums paid that year 
exceeded the Maximum Sales Load Premium), then pay the initial premium 
in the next Contract year from which a front-end sales load will be 
deducted. The exemptions from Section 27(a)(3) of the 1940 Act provided 
by Rules 6e-3(T)(b)(13)(ii) and 6e-3(T)(d)(1)(ii) do not appear to 
provide relief under these circumstances. Accordingly, pursuant to 
Section 6(c), Applicants request an exemption from the provisions of 
Section 27(a)(3) of the 1940 Act and Rules 6e-3(T)(b)(13)(ii) and 6e-
3(T)(d)(1)(ii) thereunder to the extent necessary to permit them to 
deduct sales charges from premiums paid pursuant to the Contracts in 
the manner described above.
    5. Applicants assert that the sales load structure in the Contracts 
is designed to give Contract owners flexibility with respect to premium 
payments while permitting ITT Hartford to deduct only those charges 
deemed necessary to support the benefit guarantees under the Contracts. 
The sales load structure was designed to reflect ITT Hartford's 
operating expenses in connection with sales of the Contracts. 
Applicants submit that the deduction of a front-end sales load on only 
the premiums paid up to the Maximum Sales Load Premium does not 
implicate the policy concerns that underlie the stair-step provisions 
of Section 27(a)(3).
    6. Applicants submit that ITT Hartford could avoid the stair-step 
issue simply by imposing the higher front-end sales load equally on 
premium payments up to the Maximum Sales Load Premium and on Excess 
Premiums, subject to the maximum permissible limits. Applicants assert 
that, while this sales load structure would qualify under the Rule 6e-
3(T)(b)(13)(ii) exemption from Section 27(a)(3), it would be to the 
detriment of Contract owners, who benefit from the absence of a front-
end sales load in connection with Excess Premiums.
    7. Applicants assert that, in two letters responding to requests 
for no-action assurance, the Commission staff concluded that Section 
27(a)(3), in conjunction with the other sales charge limitations in the 
1940 Act, was designed to address the perceived abuse of periodic 
payment plan certificates that deducted large amounts of front-end 
sales charges so early in the life of the plan that investors redeeming 
in the early periods would recoup little of their investments. 
Applicants submit that the sales charge structure for the Contracts 
would not have this effect. On the contrary, by not imposing a front-
end sales load on premiums paid in any Contract year in excess of the 
Maximum Sales Load Premium, Applicants assert that a greater proportion 
of the sales load charges will be deducted later than otherwise would 
be the case.
    8. Applicants submit that one purpose behind Section 27(h)(3) of 
the 1940 Act, a provision similar to Section 27(a)(3), is to discourage 
unduly complicated sales charges. This may also be deemed to be a 
purpose of Section 27(a)(3) and Rule 6e-3(T)(b)(13)(ii). By limiting 
front-end sales charges to premiums up to the Maximum Sales Load 
Premium, Applicants submit that the sales charge structure under the 
Contracts is not unduly complicated.
    9. Applicants also request exemptive relief to permit ITT Hartford, 
through separate accounts it establishes in the future, to issue 
flexible premium variable life insurance contracts that are materially 
similar to the Contracts. Applicants believe that, without such relief, 
they would have to apply for and obtain orders granting exemptive 
relief in connection with future contracts that are materially similar 
to the Contracts under similar circumstances.
    10. Applicants submit that their request for exemptive relief for 
future separate accounts established by ITT Hartford would promote 
competitiveness in the variable life insurance contract market by 
eliminating the need for redundant exemptive applications, thereby 
reducing Applicants' administrative expenses and maximizing the 
efficient use of their resources. Applicants further submit that the 
delay and expense involved in having repeatedly to seek exemptive 
relief would impair their ability effectively to take advantage of 
business opportunities as they arise. Further, if Applicants were 
required repeatedly to seek exemptive relief with respect to the same 
issues addressed in this application, investors would not receive any 
benefit or additional protection.

Conclusion

    For the reasons summarized above, Applicants represent that the 
exemptions requested 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. 96-19565 Filed 7-31-96; 8:45 am]
BILLING CODE 8010-01-M