FR Doc E7-16959

[Federal Register: August 28, 2007 (Volume 72, Number 166)]
[Notices]
[Page 49324-49335]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28au07-151]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27933; File No. 812-13267]

Hartford Life Insurance Company, et al.; Notice of Application

August 22, 2007.
AGENCY: U.S. Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of application for an order under the Investment Company
Act of 1940, as amended (the ``Act'').

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APPLICANTS: Hartford Life Insurance Company (``Hartford Life''),
Hartford Life Insurance Company Separate Account DC-I (``Account DC-
I''), Hartford Life Insurance Company Separate Account Two (``Account
Two''), Hartford Life Insurance Company Separate Account Eleven
(``Account Eleven'') (together with Account DC-I and Account Two, the
``Registered Accounts''), and Hartford Securities Distribution Company,
Inc. (``HSD'').

SUMMARY: Applicants request an order of the Commission pursuant to
section 11(a) of the Act approving the terms of the proposed offers of
exchange described in this application. Applicants propose to make the
following exchange offers: (1) Group variable annuity contracts issued
by Hartford Life offering interests in Account Eleven (the ``New
Contracts'') for certain group variable annuity contracts issued by
Hartford Life (the ``Modified Old Contracts'') offering interests in
both Account DC-I and Account Two as well as certain other separate
accounts not registered as investment companies under the Act; (2)
interests in Account DC-I and Account Two, as originally offered to
contract owners, (``Original Old Contracts'') for interests in the

[[Page 49325]]

Unregistered DC Accounts under Modified Old Contracts; (3) New
Contracts for certain group variable annuity contracts issued by
Hartford Life (``457 Contracts'') offering interests in Hartford Life
Insurance Company Separate Account 457 (``Account 457''); and (4)
Original Old Contracts offering interests in Account DC-I and Account
Two for 457 Contracts offering interests in Account 457.

DATES: The application was filed on March 2, 2006, and amended on
August 21, 2007.

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 Commission's Secretary
and serving Applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on September 17, 2007, and should be accompanied by proof of
service on the 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 Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090. Applicants, 200 Hopmeadow Street,
Simsbury, Connecticut 06089; copies to David S. Goldstein, Sutherland
Asbill & Brennan LLP, 1275 Pennsylvania Avenue, NW., Washington, DC
20004-2415.

FOR FURTHER INFORMATION CONTACT: Michael L. Kosoff, Staff Attorney, at
(202) 551-6754, or Harry Eisenstein, Branch Chief, at (202) 551-6795,
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
SEC's Public Reference Branch, 100 F Street, NE., Washington, DC 20549
((202) 551-8090).

Applicants' Representations

1. Hartford Life is a stock life insurance company originally
incorporated under the laws of the Commonwealth of Massachusetts on
June 5, 1902, and subsequently re-domiciled to the state of
Connecticut. Hartford Life is engaged in the business of writing
individual and group life insurance and annuity contracts in the
District of Columbia and all States. As of December 31, 2006, Hartford
Life had assets of approximately $214 billion. For purposes of the Act,
Hartford Life is the depositor and sponsor of Account DC-I, Account Two
and Account Eleven, as those terms have been interpreted by the
Commission with respect to variable annuity separate accounts
registered under the Act as unit investment trusts.
2. Hartford Life established Account DC-I on or about March 31,
1988, Account Two on June 2, 1986 and Account Eleven on December 1,
2000, as segregated asset accounts under Connecticut law. Under
Connecticut law, the assets of Account DC-I and Account Two, including
assets attributable to the Original Old Contracts and the Modified Old
Contracts, are owned by Hartford Life, but are held separately from all
other assets of Hartford Life for the benefit of the owners of, and the
persons entitled to payment under, variable annuity contracts issued by
Hartford Life through Account DC-I and Account Two, including the
Original Old Contracts and Modified Old Contracts. Likewise, the assets
of Account Eleven, including assets attributable to the New Contracts,
are owned by Hartford Life, but are held separately from all other
assets of Hartford Life for the benefit of the owners of, and the
persons entitled to payment under variable annuity contracts issued by
Hartford Life through Account Eleven, including the New Contracts.
Consequently, assets in each Account are not chargeable with
liabilities arising out of any other business that Hartford Life may
conduct. Income, gains and loses, realized and unrealized, from the
assets of each Account are credited to or charged against that Account
without regard to the income, gains or loses arising out of any other
business that Hartford Life may conduct. Each Registered Account is a
``separate account'' as defined by Rule 0-1(e) under the Act, and is
registered with the Commission as a unit investment trust.
3. The assets of Account DC-I and Account Two support Original Old
Contracts as well as Modified Old Contracts. Hartford Life issued the
Original Old Contracts to, among other parties, (a) Sponsors of non-
qualified deferred compensation plans established by certain tax-exempt
organizations (``tax-exempt plan sponsors'') pursuant to section 457(b)
and section 457(e)(1)(B) of the Internal Revenue Code of 1986, as
amended (the ``IRC''), as well as (b) trustees of trusts created to
hold assets for non-qualified deferred compensation plans established
by state and municipal governments, or instrumentalities thereof,
pursuant to section 457(b) and section 457(e)(1)(A) of the IRC
(``government plan trustees''). Interests in Account DC-I and Account
Two offered through Original Old Contracts have been registered under
the Securities Act of 1933 (the ``1933 Act'') on Form N-4.\1\
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\1\ See 1933 Act File Nos. 33-19944, 33-19946, 33-19947 and 33-
19949.
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4. The New Contracts will be issued through Account Eleven.
Hartford Life currently issues other group variable annuity contracts
similar to the New Contracts through Account Eleven to a variety of
applicants including tax-exempt plan sponsors, government plan
trustees, retirement plans qualified under sections 401(a) and 403(a)
of the IRC, and annuity purchase plans adopted by public school systems
and certain tax-exempt organizations pursuant to section 403(b) of the
IRC. Interests in Account Eleven offered through such group variable
annuity contracts have been registered under the 1933 Act on Form N-
4.\2\ Likewise, interests in Account Eleven to be issued through the
New Contracts will be registered under the 1933 Act on a Form N-4
registration statement to be filed shortly with the Commission.
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\2\ See 1933 Act File No. 333-72042.
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5. HSD is a Connecticut corporation registered with the Commission
as a broker-dealer under the Securities Exchange Act of 1934 and is a
member of the Financial Industry Regulatory Authority, Inc. HSD is the
principal underwriter for the Original Old Contracts, Modified Old
Contracts, 457 Contracts and New Contracts and for other Hartford Life
variable annuity contracts. HSD is an affiliated person of Hartford
Life.
6. Hartford Life established Separate Account DC-III, Separate
Account DC-IV, Separate Account DC-V and Separate Account DC-VI, as
segregated asset accounts under Connecticut law (``Unregistered DC
Accounts''). Each of the Unregistered DC Accounts is divided into
several sub-accounts. Hartford Life added endorsements to the Original
Old Contracts to make available to owners of such contracts one or more
sub-accounts of the Unregistered DC Accounts as investment options. The
Modified Old Contracts are those Original Old Contracts issued to tax-
exempt plan sponsors to which the endorsements were added.
7. Under Connecticut law, the assets of each Unregistered DC
Account attributable to Modified Old Contracts are owned by Hartford
Life, but are held separately from all other assets of

[[Page 49326]]

Hartford Life for the benefit of the owners of, and the persons
entitled to payment under the Modified Old Contracts. Consequently,
such assets in each Unregistered DC Account are not chargeable with
liabilities arising out of any other business that Hartford Life may
conduct. Income, gains and loses, realized and unrealized, from the
assets of each Unregistered DC Account are credited to or charged
against that Account without regard to the income, gains or loses
arising out of any other business that Hartford Life may conduct.
Hartford Life has not registered any Unregistered DC Account as an
investment company under the Act in reliance upon the exclusion from
the definition of investment company found in section 3(c)(11) of the
Act.
8. Hartford Life established Account 457 on December 1, 1998, as a
segregated asset account under Connecticut law. Under Connecticut law,
the assets of Account 457, including assets attributable to the 457
Contracts, are owned by Hartford Life, but are held separately from all
other assets of Hartford Life for the benefit of the owners of, and the
persons entitled to payment under variable annuity contracts issued by
Hartford Life through Account 457, including the 457 Contracts.
Consequently, such assets in Account 457 are not chargeable with
liabilities arising out of any other business that Hartford Life may
conduct. Income, gains and loses, realized and unrealized, from the
assets of Account 457 are credited to or charged against the separate
account without regard to the income, gains or loses arising out of any
other business that Hartford Life may conduct. Hartford Life has not
registered Account 457 as an investment company under the Act in
reliance upon the exclusion from the definition of investment company
found in section 3(c)(11) of the Act.
9. Hartford Life has not registered interests in the Unregistered
DC Accounts offered through Modified Old Contracts as securities under
the 1933 Act in reliance upon the exemption from registration found in
section 3(a)(2) of the 1933 Act. Likewise, Hartford life has not
registered interests in Account 457 offered through the 457 Contracts
as securities under the 1933 Act.

Description of the Contracts

10. During the accumulation period, the Original Old Contracts,
Modified Old Contracts, 457 Contracts, and New Contracts (together, the
``Contracts'') each provides for the allocation of purchase payments
and transfer of Contract values between and among various sub-accounts
of the separate account through which each is issued. Each sub-account
invests in shares of a particular open-end management investment
company (a ``mutual fund'') which serves as an investment option under
the Contract. The Contracts also offer a ``fixed'' interest investment
option supported by Hartford Life's general account. During the annuity
payment period, the Contracts all provide a variety of settlement or
annuity payment options on a variable basis, fixed basis, or both.
Owners of Contracts may withdraw some or all of their Contract's value
at any time during the accumulation period or apply such values to the
``purchase'' of a settlement or annuity payment option. The Contracts
incorporate many other features, including ``death benefits'' payable
upon the death of a plan participant (or beneficiary) and certain fees
and charges.
11. The Original Old Contracts, Modified Old Contracts and New
Contracts do not impose any fees or charges in connection with purchase
payments. The tables below describe the fees and charges deducted from
separate account assets on an ongoing basis during both the
accumulation and annuity payment periods, and the fees and charges
payable by a Contract owner upon the withdrawal or surrender of
Contract value during the accumulation period. The tables also indicate
the annual rate of interest guaranteed for the ``fixed'' option under
each Contract and identify the number of sub-accounts available as
investment options under the Contract, along with the minimum and
maximum total annual operating expenses for the mutual funds in which
such sub-accounts invest as of December 31, 2006. The letter
designation in the left-hand column represents different Contract
variations.

Original Old Contracts
[Account DC-I and Account Two]
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M&E risk and
administrative M&E risk and Minimum total Maximum total
charge administrative Minimum annual annual
Number of (payout charge (pay-in guaranteed CDSC (% of amount portfolio portfolio
Type of contract mutual period) (% of period) (% of annual surrendered) expenses (% expenses (%
funds average daily average daily sub- interest rate of average of average
sub-account account assets) daily net daily net
assets) asset value) asset value)
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A............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
B............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
C............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
D............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
E............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
F............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
G............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
H............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
I............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
J............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
K............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
L............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
M............................... 10 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 0.91
N............................... 10 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 0.91
O............................... 10 1.25 0.75 to 0.90........ 3 7 YR............... 0.34 0.91
P............................... 10 1.25 0.75 to 0.90........ 4 7 YR............... 0.34 0.91
Q............................... 10 1.25 0.75 to 0.90........ 4 N/A................ 0.34 0.91
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[[Page 49327]]

Modified Old Contracts
[Account DC-I, Account Two and Unregistered DC Accounts]
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M&E risk and
administrative M&E risk and Minimum total Maximum total
charge administrative Minimum annual annual
Number of (payout charge (pay-in guaranteed CDSC (% of amount portfolio portfolio
Type of contract mutual period) (% of period) (% of annual surrendered) expenses (% expenses (%
funds average daily average daily sub- interest rate of average of average
sub-account account assets) daily net daily net
assets) asset value) asset value)
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A............................... 23 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
B............................... 24 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
C............................... 24 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
D............................... 24 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
E............................... 25 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
F............................... 25 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
G............................... 25 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
H............................... 25 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
I............................... 26 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
J............................... 26 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
K............................... 26 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
L............................... 27 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
M............................... 23 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 1.73
N............................... 26 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 1.73
O............................... 23 1.25 0.75 to 0.90........ 3 7 YR............... 0.34 1.73
P............................... 23 1.25 0.75 to 0.90........ 4 7 YR............... 0.34 1.73
Q............................... 24 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
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New Contracts
[Account Eleven]
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M&E risk and
administrative M&E risk and Minimum total Maximum total
charge administrative Minimum annual annual
Number of (payout charge (pay-in guaranteed CDSC (% of amount portfolio portfolio
Type of contract mutual period) (% of period) (% of annual surrendered) expenses (% expenses (%
funds average daily average daily sub- interest rate of average of average
sub-account account assets) daily net daily net
assets) asset value) asset value)
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New Contract.................... 48 0.70 0.70................ 4 N/A................ 0.34 1.49
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12. Hartford Life does not assess a CDSC under Modified Old
Contracts A, B, C, D, E, F, G, H, I, J, K, L and Q and corresponding
Original Old Contracts A, B, C, D, E, F, G, H, I, J, K, L and Q. Under
Modified Old Contracts M, N, O and P and corresponding Original Old
Contracts M, N, O and P, a contingent deferred sales charge (``CDSC'')
may be assessed against the amount withdrawn or surrendered by a
Contract owner. However, those who will be moved to the Original Old
Contracts or from the Modified Old Contracts will not be subject to a
CDSC.
13. As the tables indicate, the mortality and expense risk and
administrative charge during the accumulation period under the New
Contracts is less than that imposed under the Original Old Contracts
and the Modified Old Contracts. The mortality and expense risk and
administrative charge during the annuity payment period under the New
Contracts is substantially less than that imposed under the Original
Old Contracts and the Modified Old Contracts.
14. Hartford Life may deduct a charge corresponding to any
applicable state or municipal premium taxes under each Contract.
Hartford Life may deduct the charge for premium taxes at the time of
payment of such taxes to the appropriate taxing authority, surrender of
the Contract, upon payment of a death benefit or upon the commencement
of annuity payments to a participant (or beneficiary).
15. Under the Original Old Contracts and the Modified Old
Contracts, Hartford Life reserves the right to deduct a $5 fee for each
transfer of Contract value between or among sub-accounts in a Contract
year. Under New Contracts, Hartford Life reserves the right to deduct a
$5 fee for each transfer in excess of twelve transfers of Contract
value within a participant account by a participant between or among
the sub-accounts in any participant account year. Currently, the
Company does not assess a transfer fee under any Contract.
16. The sub-accounts of Account Eleven offered by the New Contracts
invest in all of the mutual funds in which the sub-accounts of Account
DC-I and Account Two offered by the Original Old Contracts and the
Modified Old Contracts invest, and many of the mutual funds (or
variable insurance fund counterpart) in which sub-accounts of the
Unregistered DC Accounts offered by the Modified Old Contracts invest.
In most cases, where a particular mutual fund available under a
Modified Old Contract (or its variable insurance fund counterpart) is
not available as an investment option under the New Contract, a mutual
fund with substantially identical or closely comparable investment
objectives and principal strategies would be available under the New
Contract. In all but four

[[Page 49328]]

cases, these alternative mutual funds had the same or lower total
expenses during their most recent fiscal year. Notwithstanding this,
for each sub-account available under the New Contract that has a
counterpart under an Original Old Contract or a Modified Old Contract,
the annual mortality and expense risk and administrative charge when
combined with the annual expense ratio of the mutual in which such sub-
account invests, is less under the New Contract than under either the
Original Old Contract or the Modified Old Contract.
17. The Original Old Contracts, 457 Contracts and New Contracts do
not impose any fees or charges in connection with purchase payments.
The tables below describe the fees and charges deducted from separate
account assets on an ongoing basis during both the accumulation and
annuity payment periods, and the fees and charges payable by a Contract
owner upon the withdrawal or surrender of Contract value during the
accumulation period. The tables also indicate the annual rate of
interest guaranteed for the ``fixed'' option under each Contract and
identify the number of sub-accounts available as investment options
under the Contract, along with the minimum and maximum total annual
operating expenses for the mutual funds in which such sub-accounts
invest as of December 31, 2006. The letter designation in the left-hand
column represents different Contract variations, with type A
corresponding to type U and type B corresponding to type V, etc.

457 Contracts
[Account 457]
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M&E risk and
administrative M&E risk and Minimum total Maximum total
charge administrative Minimum annual annual
Number of (payout charge (pay-in guaranteed CDSC (% of amount portfolio portfolio
Type of contract mutual period) (% of period) (% of annual surrendered) expenses (% expenses (%
funds average daily average daily sub- interest rate of average of average
sub-account account assets) daily net daily net
assets) asset value) asset value)
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A............................... 27 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
B............................... 24 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 1.73
C............................... 47 1.25 0.75 to 0.90........ 4 12 YR.............. 0.34 1.73
D............................... 47 1.25 0.75 to 0.90........ 4 7 YR............... 0.34 1.73
E............................... 51 1.25 0.45................ 4 N/A................ 0.34 1.73
F............................... 47 1.25 0.75 to 0.90........ 4 N/A................ 0.34 1.73
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18. Hartford Life does not assess a CDSC under Original Old
Contracts U, Y and Z and 457 Contracts A, E and F. Likewise, Hartford
Life does not assess a CDSC under the New Contract. Under the Original
Old Contracts V, W and X,

[[Page 49329]]

and the 457 Contracts B, C and D, a CDSC may be assessed against the
amount withdrawn or surrendered by a Contract owner. However, those who
will be moved to the Original Old Contracts or from the Modified Old
Contracts will not be subject to a CDSC.
19. As the tables indicate, with two exceptions, the mortality and
expense risk and administrative charge during the accumulation period
under the New Contracts is less than that imposed under the Original
Old Contracts and the 457 Contracts. The mortality and expense risk and
administrative charge during the annuity payment period under the New
Contracts is substantially less than that imposed under the Original
Old Contracts and the 457 Contracts.
20. Hartford Life may deduct a charge corresponding to any
applicable state or municipal premium taxes under each Contract.
Hartford Life may deduct the charge for premium taxes at the time of
payment of such taxes to the appropriate taxing authority, surrender of
the Contract, upon payment of a death benefit or upon the commencement
of annuity payments to a participant (or beneficiary).
21. Under the Original Old Contracts and the 457 Contracts,
Hartford Life reserves the right to deduct a $5 fee for each transfer
Contract value between or among sub-accounts in a Contract year. Under
New Contracts, Hartford Life reserves the right to deduct a $5 fee for
each transfer in excess of twelve transfers of Contract value within a
participant account by a participant between or among the sub-accounts
in any participant account year. Currently, the Company does not assess
a transfer fee under any Contract.
22. The sub-accounts of Account Eleven offered by the New Contracts
invest in all but a few of the mutual funds (or variable insurance fund
counterparts) in which the sub-accounts of Account 457 invest. In most
cases, where a particular mutual fund available under a 457 Contract
(or its variable insurance fund counterpart) is not available as an
investment option under the New Contract, a mutual fund with
substantially identical or closely comparable investment objectives and
principal strategies would be available under the New Contract. In all
but five cases, these alternative mutual funds had the same or lower
total expenses during their most recent fiscal year. In all but four
cases, these alternative mutual funds have the same investment adviser
as the fund they would ``replace.'' Notwithstanding this, with two
exceptions, for each sub-account available under the New Contract that
has a counterpart under an Original Old Contract or a 457 Contract, the
annual mortality and expense risk and administrative charge when
combined with the annual expense ratio of the mutual fund in which such
sub-account invests, is less under the New Contract than under either
the Original Old Contract or the 457 Contract.
23. As explained in more detail immediately below, this Application
relates to Modified Old Contracts and 457 Contracts sold to tax-exempt
plan sponsors. In each case, a tax-exempt plan sponsor purchased a
Contract to fund its obligations to participants in a non-qualified
deferred compensation plan established by it pursuant to IRC sections
457(b) and 457(e)(1)(B).\3\ Also, in each case, the plan participants
are employees, past employees, or beneficiaries of employees or past
employees of the tax-exempt plan sponsor.
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\3\ In contrast, issuers may rely on section 3(a)(2) of the 1933
Act in connection with the offer and sale of unregistered securities
to government plan trustees, because non-qualified deferred
compensation plans established by state and municipal governments,
or instrumentalities thereof, pursuant to IRC sections 457(b) and
457(e)(1)(A) come within the definition of a ``governmental plan''
in section 3(a)(2)(C) of the 1933 Act. See Mass Mutual Life
Insurance Company, et al., (Aug. 10, 1998).
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24. Taken together, IRC sections 457(b) and 457(e)(1)(B) permit a
tax-exempt employer to enter into an agreement with one or more of its
employees pursuant to which compensation otherwise payable to the
employee is withheld by the employer and paid to the employee at a
future time. By this mechanism, the employee defers receipt of the
compensation for federal income tax purposes until such time as the
employer actually pays the compensation to the employee. Typically,
deferred compensation agreements between tax-exempt employers and their
employees provide for the employer to pay the deferred amount plus
interest at a specified rate to the employee at specific date in the
future or, subject to certain limitations, within a specified period
time after the employee requests payment. In lieu of paying interest on
the deferred amount, the agreement may call for payment of the deferred
amount plus or minus the performance of a specified measure, such as a
securities index or a mutual fund. Under sections 457(b) and
457(e)(1)(B), the employer is fully responsible for making the payments
required by the deferred compensation agreement. In this regard, the
deferred compensation agreements are, in effect, promissory notes
issued by the employer, and the employees to whom the deferred
compensation is owed are general creditors of the employer. Employees
having deferred compensation agreements with a tax-exempt employer are
not preferred creditors of the employer and have no security interest
in the deferred amounts held by the employer.
25. Tax-exempt plan sponsors are not required to invest the
compensation deferred by their employees pursuant to deferred
compensation agreements. They are free to bear the risk that they will
not have sufficient assets to make payment of the deferred amounts plus
earnings (or minus losses) owed to employees under the deferred
compensation agreements. Many tax-exempt employers, however, choose to
invest the deferred amounts in a manner that will ensure that they can
make payment under deferred compensation agreements which they have
entered into. The Original Old Contracts, Modified Old Contracts and
the 457 Contracts were designed as investment vehicles for this purpose
and the tax-exempt plan sponsors use their Original Old Contract,
Modified Old Contract or 457 Contract to fund their obligations to
their employees (or employees' beneficiaries) or to past employees (or
beneficiaries of past employees) under the sponsors' non-qualified
deferred compensation plans.
26. Consistent with the foregoing, the Modified Old Contracts and
the 457 Contracts provide the owner with all the rights and privileges
of ownership and do not reserve any such rights and privileges to the
employees with whom the employer has deferred compensation agreements
(i.e., the participants in the non-qualified deferred compensation
plan).
27. During the period from the early 1980s through April 2001,
Hartford Life issued the Original Old Contracts to both tax-exempt plan
sponsors and government plan trustees. Beginning in May 1992, Hartford
Life began offering endorsements to the Original Old Contracts to make
available to owners of such Contracts sub-accounts of one or more of
the Unregistered DC Accounts as investment options. At that time and
thereafter, Hartford Life intended only to issue the Unregistered DC
Account endorsements to Original Old Contracts held by government plan
trustees and not to Contracts held by tax-exempt plan sponsors.
Unfortunately, Hartford Life inadvertently issued endorsements offering
the sub-accounts of one or more of the Unregistered DC Accounts as
investment options to certain tax-exempt plan sponsors in connection
with their Original Old Contracts. In most cases, tax-exempt plan
sponsors

[[Page 49330]]

holding Modified Old Contracts have (usually pursuant to participant
instructions) invested some or all of their tax-exempt plan's assets in
one or more sub-accounts of the Unregistered DC Accounts. As of the
date of this Application, seventy-one Modified Old Contracts held by
tax-exempt plan sponsors have Contract value allocated to sub-accounts
of one or more of the Unregistered DC Accounts.
28. Unfortunately, issuers, such as insurance companies and their
separate accounts, may not rely on the exemption from registration
provisions of the 1933 Act provided by section 3(a)(2) of the 1933 Act
when offering and selling securities to tax-exempt plan sponsors as
funding vehicles for such sponsors' non-qualified deferred compensation
plans established pursuant to IRC sections 457(b) and 457(e)(1)(B). As
a result, through the seventy-one Modified Old Contracts, Separate
Account DC-III, Separate Account DC-IV, Separate Account DC-V and
Separate Account DC-VI issued interests to the tax-exempt plan sponsors
holding such Contracts that should have been registered under the 1933
Act, but were not.
29. In addition, from the time Hartford Life invested the first
purchase payment under a Modified Original Contract held by a tax-
exempt plan sponsor in an Unregistered DC Account, that Account has
failed to meet the requirements for relying on section 3(c)(11) of the
Act. This is because reliance on section 3(c)(11) requires, among other
things, that the assets of the separate account be derived solely from:
Contributions from pension and profit sharing plans
meeting the requirements of IRC section 401, or the requirements for
the deduction of the employer's contribution under IRC section
404(a)(2);
Contributions under government plans in connection with
which interests, participations, or securities are exempted from the
registration provisions of the 1933 Act by section 3(a)(2)(C) thereof;
and
Advances made by the insurance company in connection with
the operation of the separate account.

Some of each Unregistered DC Account's assets were derived from
contributions from tax-exempt plans rather than the specified pension
and profit-sharing plans or government plans. As a result, each of the
Unregistered DC Accounts should have been registered as an investment
company under the Act, but was not.
30. Applicant's state that in order to restore the ability of the
Unregistered DC Accounts to rely on section 3(c)(11) of the Act, as
well as to mitigate any potential liability under the 1933 Act and the
Act, Hartford Life proposes to remove from each Unregistered DC Account
all assets attributable to purchase payments under Modified Old
Contracts held by tax-exempt plan sponsors via the rescission offer
described below.
31. From August 11, 2001 through November 15, 2003, Hartford Life
inadvertently issued fourteen 457 Contracts to tax-exempt plan sponsors
that owned Original Old Contracts or Modified Old Contracts. The 457
Contracts were new contracts and not endorsements to either an Original
Old Contract or a Modified Old Contract. During the period that
Hartford Life issued the 457 Contracts, it was undergoing a conversion
from one electronic data processing system used to administer its group
variable annuity contracts business to a new and better system. Among
other things, the conversion involved the replacement of most Original
Old Contracts and Modified Old Contracts held by government plan
trustees with 457 Contracts. The replacement of Original Old Contracts
and Modified Old Contracts with 457 Contracts entailed the transfer of
Contract value from sub-accounts of Account DC-I, Account Two, and one
or more of the Unregistered DC Accounts, to corresponding sub-accounts
of Account 457. The replacement of Original Old Contracts and Modified
Old Contracts with the 457 Contracts also entailed the investment of
subsequent purchase payments in sub-accounts of Account 457 rather than
sub-accounts of Account DC-I, Account Two, and one or more of the
Unregistered DC Accounts.
32. Hartford Life did not intend to permit, in connection with the
system conversion, tax-exempt plan sponsors to replace their Original
Old Contracts or Modified Old Contracts with 457 Contracts.
Nevertheless, during the period when approximately 1,000 government
plan trustees replaced their Old Original Contracts and Modified Old
Contracts with 457 Contracts, fourteen tax-exempt plan sponsors did
likewise. As in the case of interests in the Unregistered DC Accounts
made available to tax-exempt plan sponsors under Modified Old
Contracts, Account 457 issued interests to tax-exempt plan sponsors
through 457 Contracts that should have been registered as securities
under the 1933 Act but were not. Similarly, from the time Hartford Life
invested the first purchase payment under a 457 Contract held by a tax-
exempt plan sponsor in Account 457, that Account has failed to meet the
requirements for relying on section 3(c)(11) of the Act. As a result,
Account 457 should have been registered as an investment company under
the Act, but was not.
33. Applicants believe that in order to restore the ability of
Account 457 to rely on section 3(c)(11) of the Act, as well as to
mitigate any potential liability under the 1933 Act and the Act,
Hartford Life proposes to remove from the Account 457 all assets
attributable to purchase payments under the 457 Contracts held by tax-
exempt plan sponsors via the rescission offer described below.

Proposed Rescission Offers

34. Hartford Life believes that it must take all action reasonably
practicable to mitigate or reverse any adverse consequences to tax-
exempt plan sponsors and their participants arising from investment in
the Unregistered DC Accounts under Modified Old Contracts. Therefore,
Hartford Life proposes to offer each affected tax-exempt plan sponsor
the opportunity to (1) Exchange its Modified Old Contract for a New
Contract, or (2) surrender the endorsement attached to the Modified Old
Contracts and either (a) exchange its interests in the Unregistered DC
Accounts for interests in Account DC-I and/or Account Two by
transferring all contract value from the sub-accounts of the
Unregistered DC Accounts to the sub-accounts of Account DC-I and/or
Account Two, or (b) exchange its interests in the Unregistered DC
Accounts for interests in Account DC-I and/or Account two by accepting
a new contract value equal to the contract value as of a stated
reinstatement date plus interest invested in Account DC-I and/or
Account two, as described below. The second option would have the
effect, more or less, of ``restoring'' the Original Old Contract.
Alternatively, each tax-exempt plan sponsor may elect to surrender its
Modified Old Contract. Expressed in more detail, the options are:
To exchange their Modified Old Contract for a New Contract
(``Option 1'');
To transfer contract values under their Modified Old
Contract that are invested in Separate Account DC-III, Separate Account
DC-IV, Separate Account DC-V and Separate Account DC-VI to
corresponding or sponsor-designated investment options under their
Modified Old Contract in Account DC-I and/or Account Two or, if it
would result in a greater contract value, to ``reinstate'' all contract
values as they were under their Original Old Contract at the time
contract values were first

[[Page 49331]]

invested in Separate Account DC-III, Separate Account DC-IV, Separate
Account DC-V or Separate Account DC-VI (the ``Option 2 reinstatement
date'') and crediting such contract values with interest for the period
from the Option 2 reinstatement date until the date a plan sponsor
elects Option 2 at an annual rate of 3%, as described below (``Option
2''); or
To surrender their Modified Old Contract for its full
contract value without the imposition of any surrender or withdrawal
charges (``Option 3'').

If a sponsor does not elect one of the foregoing options, Hartford Life
would consider Option 1 as the default option.
35. Hartford Life would credit interest under Option 2 in a manner
that makes appropriate adjustments to take into account purchase
payments and withdrawals made after the Option 2 reinstatement date by
crediting interest each month at a rate of 0.247% (the monthly
equivalent of an annual rate of 3%) on the amount equal to the total
contract value under a Modified Old Contract as of the Option 2
reinstatement date, and for each subsequent month until the date on
which the sponsor elects an Option:
Plus purchase payments allocated to the contract during
the prior month;
Less withdrawals from the contract during the prior month.

Purchase payments made under the contract and withdrawals from the
contract would be treated as if each occurred in the middle of the
month and will be credited with interest for one-half of the month in
which the transaction occurs.
36. As in the case of the Modified Old Contracts, Hartford Life
believes that it must take all action reasonably practicable to
mitigate or reverse any adverse consequences to tax-exempt plan
sponsors and their participants arising from investment in Account 457
under the 457 Contracts. Therefore, Hartford Life proposes to offer
each affected tax-exempt plan sponsor the opportunity to (1) Exchange
its 457 Contract for a New Contract, (2) exchange its 457 Contract for
its Original Old Contract and transfer all contract value from sub-
accounts of Account 457 under its 457 Contract to sub-accounts of
Account DC-I and/or Account Two, or (3) exchange its 457 Contract for
its Original Old Contract with contract value equal to the contract
value under the Original Old Contract at the time it was first invested
in (a) an Unregistered DC Account, or (b) Account 457, plus interest,
as described below. The second option would have the effect, more or
less, of reinstating the Original Old Contract. Alternatively, each
tax-exempt plan sponsor may elect to surrender its 457 Contract.
Expressed in more detail, the options are:
To exchange their 457 Contract for a New Contract
(``Option 1'');
To exchange their 457 Contract for (or ``reinstate'')
their Original Old Contract by having their 457 Contract values
transferred to corresponding or sponsor-designated investment options
under their Original Old Contract in Account DC-I and/or Account Two
or, if it would result in a greater contract value, to ``reinstate''
all contract values under their Original Old Contract by reinstating
such values as they were at the time that contract values were first
invested in Separate Account DC-III, Separate Account DC-IV, Separate
Account DC-V, Separate Account DC-VI, or Account 457 (the ``Option 2
reinstatement date'') and crediting such contract values with interest
for the period from the Option 2 reinstatement date until the date a
plan sponsor elects Option 2 at an annual rate of 3%, as described
below (``Option 2''); or
To surrender their 457 Contract for its full contract
value without the imposition of any surrender or withdrawal charges
(``Option 3'').

If a sponsor does not elect one of the foregoing options, Hartford Life
would consider Option 1 as the default option.
37. Hartford Life would credit interest under Option 2 in a manner
that makes appropriate adjustments to take into account purchase
payments and withdrawals made under the 457 Contracts (or under the
Modified Old Contracts and the 457 Contracts) after the Option 2
reinstatement date by crediting interest each month at a rate of 0.247%
(the monthly equivalent of an annual rate of 3%) on the amount equal to
the contract value as of the Option 2 reinstatement date, and for each
subsequent month until the date on which the sponsor elects an Option:
Plus purchase payments made during the prior month;
Less withdrawals of contract value from during the prior
month.

Purchase payments and withdrawals would be treated as if each occurred
in the middle of the month and will be credited with interest for one-
half of the month in which the transaction occurs.
38. Hartford Life proposes to make each of the above offers to
essentially ``rescind'' the Modified Old Contracts and 457 Contracts
issued to tax-exempt plan sponsors and put each tax-exempt plan sponsor
and plan (including plan participants) in at least as favorable a
position as each would have been had no Modified Old Contract or 457
Contract been issued. Unlike many conventional rescission offers,
Hartford Life would not offer an option whereby the tax-exempt plan
sponsor could elect to retain its current investment (i.e., a Modified
Old Contract or 457 Contract). In this regard, Hartford Life's goal is
to remove from the Unregistered DC Accounts all of the assets
represented by Modified Old Contracts held by tax-exempt plan sponsors
and from Account 457 all of the assets represented by 457 Contracts
held by tax-exempt plan sponsors. Hartford Life believes that the
offers described in this Application are necessary to restore the
status of each Unregistered DC Account and Account 457 as a separate
account excluded from the definition of an investment company pursuant
to section 3(c)(11) of the Act. Similarly, Hartford Life believes that
the offers described in this Application are necessary to mitigate any
potential liability to itself, the Unregistered DC Accounts and Account
457 that may arise under the 1933 Act and/or the Act as a result of the
events described above.
39. Hartford Life proposes to make the exchange offers through a
supplement to the prospectuses for the New Contracts to be included
with such prospectuses in the Form N-4 registration statement for the
New Contracts and Separate Account Eleven. Hartford Life intends to use
two such supplements: One to make an exchange offer to tax-exempt plan
sponsors that currently own Modified Old Contracts, and another to make
an exchange offer to tax-exempt plan sponsors that own 457 Contracts
(including such tax-exempt plan sponsors that previously owned Modified
Old Contracts). The supplements will notify tax-exempt plan sponsors of
the exchange offer being made to them and explain the terms of the
offer in detail. Among other matters, each supplement will describe the
following:
The purpose of the exchange offer;
The material terms of the exchange offer, such as the
expiration date and the specifics of each option a tax-exempt sponsor
may elect;
The material differences between the Contract held by the
tax-exempt plan sponsor and the New Contract or Original Old Contract,
as applicable, including but not limited to, fees and charges, number
of sub-accounts available under each Contract and the mutual funds in
which each invests, and the minimum and maximum total annual operating
expenses for such funds;
Procedures for electing an exchange offer option; and

[[Page 49332]]

The advantages and disadvantages of each of the exchange
offer options.
40. Each supplement will clearly disclose the fact that Option 1
will apply in the event the tax-exempt plan sponsor fails to elect
another option by the expiration date. If an election form is
incomplete, Hartford Life will contact the tax-exempt plan sponsor by
telephone and facsimile for instructions. Included in either the
supplement or an accompanying letter will be each tax-exempt plan
sponsor's Option 2 reinstatement date and Option 2 reinstatement value.
Also included with the accompanying letter will be information
identifying each mutual fund available under the Modified Old Contracts
or the 457 Contracts that is not available under the New Contract along
with an explanation that if a tax-exempt plan sponsor does not provide
instructions as to reallocating contract value in sub-accounts invested
in such funds, then such contract value will be allocated under the New
Contract by default to a sub-account investing in a money market mutual
fund. In addition, the letter will also identify each fund offered
under the New Contract that is a variable insurance product ``clone''
of a fund available under the Modified Old Contracts or the 457
Contracts.
41. Tax-exempt plan sponsors and their plans will not incur any
fees or charges in connection with any of the proposed exchange offer
options. Hartford Life will bear all costs associated with
administering the exchange offers. In addition, tax-exempt plan
sponsors that elect an exchange offer option or have Option 1 imposed
on them by default, will not thereby subject their plans to any adverse
tax consequences. Hartford Life will not compensate any broker-dealer
or agent in connection with the proposed exchange offers.
42. Under each Option 1, the exchange of Modified Old Contracts for
New Contracts or 457 Contracts for New Contracts would occur at the
relative net asset value of the Contracts with no change in aggregate
contract value, the number or size of annuity payments being made under
a Contract, or the amount or value of death benefits available under a
Contract. Hartford Life would waive any CDSC otherwise applicable upon
the exchange of a Modified Old Contract or a 457 Contract for a New
Contract.
43. Upon exchange of a Modified Old Contract or 457 Contract for a
New Contract, Hartford Life would transfer contract value from each
sub-account under a Modified Old Contract or a 457 Contract (``old sub-
account'') to a sub-account under the New Contract that invests in the
same underlying mutual fund as the old sub-account (``corresponding new
sub-account''). If there is no corresponding new sub-account for one or
more old sub-accounts under the Modified Old Contract or 457 Contract,
Hartford Life would transfer Contract value from the old sub-accounts
under the Modified Old Contract or 457 Contract to sub-accounts under
the New Contract upon the direction of the tax-exempt plan sponsor. If
the tax-exempt plan sponsor does not provide such direction, Hartford
Life would transfer contract value from old sub-accounts under the
Modified Old Contract or 457 Contract to a sub-account under the New
Contract that invests in a money market mutual fund.
44. Under Option 2 relating to the Modified Old Contract offers,
the transfer of contract value from sub-accounts of the Unregistered DC
Accounts to sub-accounts of Account DC-I and/or Account Two would occur
at the relative net asset value of the Contracts with no change in
aggregate contract value, the number or size of annuity payments being
made under a Contract, or the amount of death benefits available under
a Contract. Hartford Life also would waive any CDSC remaining under the
Modified Old Contract in the future. Under Option 2 relating to the 457
Contract offers, the exchange of 457 Contracts for reinstated Original
Old Contracts and the related transfer of contract value from sub-
accounts of Account 457 to sub-accounts of Account DC-I and/or Account
Two under Original Old Contracts would occur at the relative net asset
value of the Contracts with no change in aggregate contract value, the
number or size of annuity payments being made under a Contract, or the
amount of death benefits available under a Contract. Hartford Life
would waive any CDSC otherwise applicable upon the exchange of 457
Contracts for reinstated Original Old Contracts and the related
transfer of contract value from sub-accounts of Account 457 to sub-
accounts of Account DC-I and/or Account Two. Likewise, Hartford Life
would waive any CDSC under the reinstated Original Old Contract that
would otherwise apply in the future.
45. Under Option 2 relating to both the Modified Old Contract
offers and the 457 Contract offers, Hartford Life would transfer
contract value from each sub-account under a Modified Old Contract or
457 Contract to a sub-account of Account DC-I and/or Account Two that
invests in the same underlying mutual fund as the sub-account from
which such value was transferred. If there is no corresponding sub-
account for one or more sub-accounts under the Modified Old Contract or
457 Contract, Hartford Life would transfer contract value from the sub-
accounts under the Modified Old Contract or 457 Contract to sub-
accounts of Account DC-I and/or Account Two upon the direction of the
tax-exempt plan sponsor. If the tax-exempt plan sponsor does not
provide such direction, Hartford Life would transfer contract value
from sub-accounts under the Modified Old Contract or 457 Contract to a
sub-account of Account DC-I and/or Account Two that invests in a money
market mutual fund.
46. Alternatively, under Option 2 relating to both the Modified Old
Contract offers and the 457 Contract offers, Hartford Life would
reinstate contract value under the Original Old Contract at the amount
existing in sub-accounts of Account DC-I and/or Account Two immediately
before the tax-exempt plan sponsor first invested contract value in one
of the Unregistered DC Accounts or Account 457 and credit such contract
value with interest at an annual effective rate of 3% for the period
from that date until the date of the tax-exempt plan sponsor's election
of Option 2. As described above, adjustments would be made to reflect
subsequent purchase payments and withdrawals made since the
reinstatement date. With regard to Option 2, Hartford Life would only
implement the interest rate alternative if a tax-exempt plan sponsor
elects Option 2 and the interest rate alternative would result in a
greater reinstated contract value for the tax-exempt plan sponsor than
the primary Option 2 alternative.
47. Under the interest rate alternative for Option 2, Hartford Life
would waive any CDSC otherwise applicable upon the exchange of a 457
Contract for a reinstated Original Old Contract and would waive any
CDSC under the reinstated Original Old Contract that would otherwise
apply in the future.
48. Under Options 1 and 2, for Contracts pursuant to which Hartford
Life maintains individual participant accounts, exercise of the
exchange offer options would not alter the value of such accounts, the
number or size of annuity payments being made in connection with such
accounts, or the amount of death benefits available in connection with
such accounts.
49. For the reasons set forth below, Applicants believe the
proposed exchanges will benefit the tax-exempt plan sponsors and their
plans. Except for: (1) The number of sub-accounts available and the
particular mutual funds in which such sub-accounts

[[Page 49333]]

invest; and (2) small variations in the fees and charges, the Original
Old Contracts, Modified Old Contracts, 457 Contracts and New Contracts
are substantially the same in most material respects. In particular,
all four types of Contracts offer the same surrender, withdrawal,
dollar cost averaging, general account investment option, death benefit
and annuity payment option features. Therefore, except as described
below in connection with mutual fund investment options and fee and
charge variations, the tax-exempt plan sponsors and their plans should
be in at least as favorable a position after electing an exchange offer
option (or defaulting into Option 1) as they were before the proposed
exchange offers. Moreover, for tax-exempt plan sponsors that elect a
New Contract, they and their plans should be better off than they would
have been had they continued to hold their Modified Old Contract or 457
Contract.
50. The mortality and expense risk and administrative charge under
the New Contracts is lower than the mortality and expense risk and
administrative charges assessed under the Modified Old Contracts and,
with one exception, lower than the mortality and expense risk and
administrative charges assessed under the 457 Contracts.\4\ Under
Modified Old Contracts and 457 Contracts, Hartford Life assesses a
mortality and expense risk charge during the accumulation period at
annual rates ranging from .75% to .90% of average daily sub-account net
assets. (The rate for any Modified Old Contract or 457 Contract may
also be a function of reductions due either to experience rating or
reductions negotiated by the tax-exempt plan sponsor with Hartford
Life.) Under Modified Old Contracts and 457 Contracts, the mortality
and expense risk charge during the annuity payment period is at an
annual rate of 1.25% of average daily sub-account net assets. Under New
Contracts, the mortality and expense risk and administrative charge is
a flat annual rate of 0.70% of average daily sub-account net assets
during both the accumulation period and the annuity payment period.\5\
Reductions in the mortality and expense risk and administrative charge
charges due to experience rating and negotiated rates are available
under the New Contracts on the same basis as the same are available
under the Modified Old Contracts and the 457 Contracts.
---------------------------------------------------------------------------

\4\ The exception is the type E 457 Contract, which has a charge
of 0.45% of average daily sub-account net assets. The rate for type
E Contracts was the result of experience ratings or negotiation, or
both. There are two type E 457 Contracts outstanding.
\5\ However, to preserve prior experience ratings and/or
negotiated rates, any New Contract issued to a holder of a type E
457 Contract will have a mortality and expense risk and
administrative charge of 0.45% of average daily sub-account net
assets.
---------------------------------------------------------------------------

51. The vast majority of underlying mutual funds available under
the New Contracts have total operating expenses that are lower (in many
cases, substantially lower) than the total operating expenses of the
corresponding underlying mutual funds available under the Modified Old
Contracts and the 457 Contracts. Most significantly, as a result of the
lower mortality and expense risk and administrative charge rates under
the New Contracts, for any sub-account of Account Eleven available
under the New Contracts, the aggregate of such charges on an annual
basis and the total annual expenses of the mutual fund in which that
sub-account invests, will be less than the same aggregate for the
corresponding sub-account of either Account DC-I or Account Two
available under the Modified Old Contracts or the corresponding sub-
account of Account 457 available under the 457 Contracts.
52. If a tax-exempt plan sponsor elects Option 1 under either the
Modified Old Contract exchange offer or the 457 Contract exchange
offer, it will have available as investment options for itself and
participants in its plan, 48 sub-accounts offering an indirect
investment in 48 mutual funds. This array of mutual funds represents
the most attractive line-up of funds offered by Hartford Life to
government plan trustees, tax-exempt plan sponsors and other retirement
plan sponsors in its latest and most attractive group variable annuity
contracts. In the event that a tax-exempt plan sponsor elects Option 2
under an offer, the sponsor and its plan (including plan participants)
would be in the same position vis-a-vis available sub-account
investment options as they would have been had no 457 Contracts or
Modified Old Contracts been issued.
53. Under Options 1 and 2 relating to the Modified Old Contract
offers, a tax-exempt plan sponsor would replace interests in one or
more of the Unregistered DC Accounts that are not registered as
securities under the 1933 Act with interests in Account DC-I, Account
Two or Account Eleven which would be registered as securities under the
1933 Act. Likewise, under Options 1 and 2 relating to the 457 Contract
offers, a tax-exempt plan sponsor would replace interests in Account
457 that are not registered as securities under the 1933 Act with
interests in Account DC-I, Account Two or Account Eleven which would be
registered as securities under the 1933 Act. As a result, such tax-
exempt plan sponsors would, among other things, receive prospectuses
and other disclosure documents at regular intervals in a prescribed
format and otherwise obtain the protections of the 1933 Act and rules
and regulations thereunder. Similarly, such tax-exempt plan sponsors
would be exchanging interests in one or more of the Unregistered DC
Accounts or Account 457 which are not registered as investment
companies under the Act, for interests in Account DC-I, Account Two or
Account Eleven which are each registered as an investment company under
the Act and thereby obtain for themselves and the participants in their
plans the considerable protections of the Act.

Applicants' Legal Analysis

1. Section 11(a) of the Act makes it unlawful for any registered
open-end investment company, or any principal underwriter for such an
investment company, to make an offer to the holder of a security of
such investment company, or of any other open-end investment company,
to exchange his or her security for a security in the same or another
such company on any basis other than the relative net asset values of
the respective securities, unless the terms of the offer have first
been submitted to and approved by the Commission or are in accordance
with Commission rules adopted under section 11. Section 11(c) of the
Act provides the provisions of section 11(a) are applicable to any
offer of exchange of the securities of a registered unit investment
trust for the securities of any other investment company regardless of
the basis of the exchange. As a result, the Commission must approve any
such offer unless the offer satisfies an applicable rule adopted under
section 11.
2. Applicants state that the primary purpose of section 11 of the
Act is to prevent ``switching''--the practice of inducing security
holders of one investment company to exchange their securities for
those of a different investment company ``solely for the purpose of
exacting additional selling charges.'' In the 1930s prior to adoption
of the Act, Congress found evidence of widespread ``switching''
operations. The legislative history of section 11 makes it clear that
the potential for harm to investors perceived in switching was its use
to extract additional sales charges from those investors. Accordingly,
applications under section 11(a) and orders granting those applications
appropriately have focused on sales loads or sales load differentials
and administrative fees to be imposed for effecting a proposed exchange
and have

[[Page 49334]]

ignored other fees and charges, such as the respective advisory fee
charges of the exchanged and acquired securities.
3. The Applicant states that section 11(c) of the Act requires
Commission approval (by order or by rule) of any exchange, regardless
of its basis, involving securities issued by a unit investment trust,
because Congress found investors in unit investment trusts to be
particularly vulnerable to switching operations. As noted by the
Commission, ``In order to earn another sales commission, a [unit
investment trust] sponsor would often pressure unitholders into
exchanging their units for those of another of the sponsor's trusts.''
4. The Commission adopted Rule 11a-2 under Section 11 of the Act in
1983. By its terms, the Rule permits certain offers of exchange of one
variable annuity contract for another or interests in one registered
separate account through which variable annuity contracts are issued
for interests in another registered separate account. More
specifically, Rule 11a-2 permits exchange offers involving variable
annuity contracts provided that the only variance from a relative net
asset value exchange is an administrative fee disclosed in the
registration statement of the offering separate account and/or a sales
load or sales load differential calculated according to methods
prescribed in the rule.
5. Under Option 1 of the Modified Old Contract offers, a tax-exempt
plan sponsor that exchanges a Modified Old Contract for a New Contract
would effect a transfer of assets held in Account DC-I, Account Two
and/or the Unregistered DC Accounts to Account Eleven. Likewise, under
Option 1 of the 457 Contract offers, a tax-exempt plan sponsor that
exchanges a 457 Contract for a New Contract would effect a transfer of
assets from Account 457 to Account Eleven. Along with the transfer of
assets to Account Eleven, such a tax-exempt plan sponsor would receive
an interest in Account Eleven equal to the contract value in its New
Contract.
6. Election of Option 2 of the Modified Old Contract offers by a
tax-exempt plan sponsor would result in a transfer of assets
representing contract value under the sponsor's Modified Old Contract
from one or more of the Unregistered Accounts to Account DC-I and/or
Account Two. Likewise, election of Option 2 of the 457 Contract offers
by a tax-exempt plan sponsor would result in a transfer of assets
representing contract value under the sponsor's 457 Contract from
Account 457 to Account DC-I and/or Account Two. Along with the transfer
of assets to Account DC-I and/or Account Two, such a tax-exempt plan
sponsor would receive an interest in Account DC-I and/or Account Two
equal to the contract value in its New Contract.
7. Account DC-I, Account Two and Account Eleven is each registered
with the Commission under the Act as a unit investment trust. Each of
the Unregistered Accounts and Account 457, not currently being able to
rely on the section 3(c)(11) exclusion from the definition of an
investment company, are investment companies; though not registered as
such under the Act. Accordingly, Hartford Life's proposed offer to
exchange interests in each for interests held by the tax-exempt plan
sponsors in the Unregistered Accounts or Account 457, would constitute
an offer to exchange securities of a registered unit investment trust
for securities of another investment company. Thus, unless the terms of
each proposed offer are consistent with those permitted by a Commission
rule, Applicants may only make the proposed offers pursuant to a
Commission order under section 11(a) approving the terms of the offers.
8. Applicants assert that the terms of the exchange offers proposed
in this application are such that the offers would not involve any of
the practices section 11 of the Act was designed to prevent and are
otherwise fair and equitable to the tax-exempt plan sponsors and their
plans (including plan participants) because:
Tax-exempt plan sponsors would receive full disclosure of
all material aspects of the proposed exchange offers including:
[cir] Complete discussion of each Option available;
[cir] A complete discussion of their rights in connection with the
offers; and
[cir] Prospectuses for New Contracts and Original Old Contracts;
No charges (including any CDSC) would be imposed in
connection with the proposed exchange offers and therefore the
exchanges would be made on the basis of the relative net asset value;
Tax-exempt plan sponsors and their plans (including plan
participants) would not be subject to a CDSC or any other sales charge
under the New Contracts or Original Old Contracts;
In all material respects, the New Contracts would be at
least as favorable, if not more favorable, to tax-exempt plan sponsors
and their plans (including plan participants) as either the 457
Contracts or the Modified Old Contracts;
Most of the mutual funds available to tax-exempt plan
sponsors and their plans (including plan participants) as investment
options under Modified Old Contracts and 457 Contracts would be
available under the New Contracts (or their variable insurance fund
counterparts would be available), and to the extent that some funds, or
their variable insurance fund counterparts, are not available under the
New Contracts, alternative mutual funds with substantially the same or
similar investment objectives and strategies would be available as
investment options;
Tax-exempt plan sponsors that do not elect another Option,
may elect to surrender their Modified Old Contract or 457 Contract
without the imposition of any surrender or withdrawal charge; and
Based on their review of existing federal income tax laws
and regulations, Applicants believe that tax-exempt plan sponsors and
their plans (including plan participants) would not suffer any adverse
tax consequences as a result of electing any Option in connection with
the proposed exchange offers.
9. Applicants believe that the terms of the exchange offers
proposed in this application meet the standards established by the
Commission for exchange offers to holders of group variable annuity
contracts issued through separate accounts registered as unit
investment trusts under the Act. The conditions of Rule 11a-2 reflect
theses standards and the terms of the proposed exchange offers meet the
conditions of the Rule. In fact, Applicants would be able to rely on
Rule 11a-2 if the Unregistered DC Accounts and Account 457 were
registered with the Commission as investment companies under the Act.
Applicants submit that, in making exchange offers proposed herein, they
should not be subject to conditions more stringent than those found in
Rule 11a-2.
10. Applicants further submit that the specific terms of the
process by which tax-exempt plan sponsors would elect an Option in
response to the proposed offers, including the implementation of Option
1 as a default option in the event that a tax-exempt plan sponsor does
not affirmatively elect any Option, would satisfy the standards of
section 11. The Commission has broad authority to approve the terms of
an exchange offer under Section 11 that is fair and does not result in
switching or the other types of potential abuses at which Section 11 is
directed. There are no statutory standards relating to requirements
for, or the manner of obtaining, elections or approvals from parties in
situations similar to those of the Applicants explained above when

[[Page 49335]]

conducting an exchange subject to section 11. This is supported by Rule
11a-2 which sets forth a number of specific requirements under which
exchanges offers involving variable annuity contracts (and interests in
separate accounts through which such contracts are issued) are
permissible. All of the applicable requirements of the Rule concern the
basis of the exchange and/or the fees that may be imposed, but the Rule
does not regulate the manner by which investors may elect an option
under an exchange offer. Accordingly, the Commission may find, and in
the past has found, that a default election in an exchange offer is
permissible if the application sets forth facts that demonstrate that
the offeror cannot permit an offeree to retain its current investment
and that the overall terms of the offer are otherwise fair and
equitable to investors.
11. Moreover, Applicants state that the Commission staff has
consistently taken ``no-action'' positions under section 22(e) of the
Act with respect to the analogous issue of forced redemptions of mutual
fund shares when certain conditions were met. In these situations, a
basic investment decision (i.e., the decision to redeem) was permitted
to be made on behalf of investors on the basis of informed, implied
consent. These letters, in effect, permit such forced redemptions on
the basis of notice to shareholders and prospectus disclosure of those
events which may trigger such a redemption (i.e., account falling below
a certain value, failure to provide a taxpayer identification number,
negative balances in other accounts, etc.) and the absence of any
action by a shareholder to take an available alternative route within a
specified time period. Applicants submit that the communications which
will be made to tax-exempt plan sponsors with respect to their rights
under all of the Options to provide for timely and extensive disclosure
comparable to that which is required for these automatic redemptions of
mutual fund shares.
12. Applicants believe that the legislative history of section 11
makes it clear that Congress believed the potential harm to investors
from ``switching'' was its use to extract additional sales charges from
those investors. Consequently, prior applications under section 11(a)
(and orders granted in response to those applications) appropriately
focused on sales loads or sales load differentials and administrative
fees to be imposed in connection with a proposed exchange offer. In
granting approval orders requested in prior section 11 applications
involving the exchange of one variable annuity contract for another, or
the exchange of interests in one registered separate account for
another, the Commission staff has considered whether or not the
consummation of the exchange would have inequitable results for
contract owners, and has viewed the absence of duplication of sales
loads and administrative fees in effecting the exchanges as persuasive
evidence that the proposed exchange does not present the abuses section
11 of the Act designed to prevent.
13. Applicants state that in the event that the Commission does not
issue an order under section 11 approving the proposed exchange offers,
Hartford Life will be forced, at great expense, to register the
Unregistered DC Accounts and Account 457 as investment companies under
the Act and to register interests issued in such Accounts issued
through Modified Old Contracts and the Tax-Exempt 457 Contracts as
securities under the 1933 Act. Registration of the Unregistered DC
Accounts and Account 457 as investment companies would be particularly
burdensome because each would have to comply with the extensive
regulatory regime imposed by the Act. Applicants submit that any
benefit to the government plan trustees and their plans (including plan
participants) from such registration could not justify the great
expense and other considerable burdens attendant to such registration.
Because the government plan trustees and their plans make up the
overwhelming majority of investors in each Unregistered DC Account and
Account 457, Applicants believe that the proposed exchange offers
represent a far more efficient, reasonable and balanced response to the
inadvertent issuance of the Modified Old Contracts and the 457
Contracts to tax-exempt plan sponsors.

Conclusion

Applicants submit that, for the reasons discussed above, the terms
of the proposed exchange offers are such that the offers would not
entail any of the practices section 11 was intended to prevent and are
otherwise fair and equitable to the tax-exempt plan sponsors, their
plans and participants in their plans. For these reasons, Applicants
submit that the terms of the proposed offers are consistent with the
protection of investors, the standards that the Commission has applied
to prior applications for orders under section 11(a) of the Act, and
the purposes fairly intended by the public policies underlying section
11 of the Act.

For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-16959 Filed 8-27-07; 8:45 am]

BILLING CODE 8010-01-P