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Our Ref. No. 96-423-CC

RESPONSE OF THE OFFICE OF CHIEF COUNSEL ITT Hartford Mutual Funds

DIVISION OF INVESTMENT MANAGEMENT File No. 811-7589

Your letter of October 25, 1996 requests assurance that the

staff would not recommend enforcement action to the Commission if

certain portfolios (the "Public Funds") of ITT Hartford Mutual

Funds, Inc. ("ITT Hartford"), a newly registered open-end

investment company, include in advertisements or supplemental

sales literature the performance information of other registered

investment companies (the "Insurance Funds") that are managed by

the same adviser and sub-adviser as the Public Funds.

Facts

The Insurance Funds are registéred investment companies that

serve as funding vehicles for ITT Hartford's variable insurance

products. Each Insurance Fund is advised by Hartford Investment

Management Company ("Hartford"), and those Insurance Funds that

retain a sub-adviser are sub-advised by Wellington Management

Company ("Wellington"). You state that the Public Funds were

created because current tax laws preclude ITT Hartford from

offering the Insurance Funds to the public. You represent that

each Public Fund will have substantially similar investment

objectives, policies, and strategies as a corresponding Insurance

Fund, will be advised by Hartford and, when Wellington is the

sub-adviser for the corresponding Insurance Fund, also will be

sub-advised by Wellington.

You state that the prospectus for each Public Fund currently

includes information regarding the performance of the

corresponding Insurance Fund in accordance with the staff's

position in Nicholas-Applegate Mutual Funds ("Nicholas-Applegate

I") (pub. avail. Aug. 6, 1996) and Bramwell Growth Fund

("Bramwell") (pub. avail. Aug. 7, 1996). You request relief so

that each Public Fund may include performance information of the

corresponding Insurance Fund in advertisements complying with the

provisions of Rule 482 under the Securities Act of 1933 (the

"Securities Act") and supplemental sales literature complying

with the provisions of Rule 34b-1 under the Investment Company

Act of 1940 (the "Investment Company Act"). 1/ You assert

that investors may find performance data about an adviser's other

or supplemental sales

literature will present the standardized total return of the

Insurance Funds in .

accordance with the requirements of Form N-1A.

Telephone conversation of January 10, 1997 between Sarah A.

Wagman and Thomas C. Mira, counsel to the Public Funds.

1/ You represent ,that advertisements

.i

-2-

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funds to be useful information when contemplating an investment.

In particular, you make the following representations: (i)

advertisements or supplemental sales literature will prominently

disclose that the Insurance Fund's performance is not the Public

Fund's own.performance, and should not be considered indicative

of the past or future performance of the Public Fund; (ii) .

advertisements or supplemental sales literature will prominently

disclose that Insurance Fund performance should not be considered

a substitute for the Public Fund's performance; (iii) with

respect to a Public Fund that has its own performance history,

the Insurance Fund performance information will be provided in

addition to the performance information of the Public Fund, and

will be presented no more prominently than the Public Fund's

performance; (iv) advertisements or supplemental sales literature

will clearly explain the nature and purpose of the Insurance Fund

performance information; and (v) advertisements or supplemental

sales literature will disclose all material differences between

'the Insurance Fund and the Public Fúnd and will include any other

disclosure that may be necessary to ensure that Insurance Fund

performance information is not presented in a misleading

manner. 2/ .

Analysis

In Nicholas-Applegate I, the staff confirmed that neither

Section 34 (b) of the Investment Company Act nor Section 206 of

the Investment Advisers Act of 1940 would prohibit a fund from

including in its prospectus performance information regarding

private accounts managed by the fund's adviser that had

substantially similar investment objectives, policies, and

strategies, provided that the information was not presented in a

misleading manner and did not obscure or impede understanding of

information that is required to be included in the fund's

prospectus (including the fund's own performance information).

In Bramwell Growth Fund (pub. avail. Aug. 7, 1996), the staff

took the same position with respect to the inclusion in a fund's

prospectus of standardized total return information of another

registered investment company previously managed by the fund's

portfölio manager that had substantially similar investment

obj ecti ves and pol icies. l/ In each of these letters,

2/ Telephone conversation of January 10, 1997 between Sarah' A.

Wagman and Thomas C. Mira, counsel to the Public Funds.

~ We note that the facts presented here, and in NicholasApplegate I and Bramwell, differ from those in MassMutual'

Institutional Funds ("MassMutual") (pub. avail. Sept. 28, 1995).

MassMutual addressed the case in which an unregistered account is

converted into a registered fund with substantially similar

(continued. . .)

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however, the staff declined to express any view regarding the

inclusion in a fund's Rule 482 advertisements or supplemental

sales literature of performance information of other accounts

managed by the fund's adviser.

Rule 482 under the Securities Act requires, among other

things, that if .an open-end management investment company (other.

than a money market fund) includes fund performance information

in an advertisement, it must include standardized total return

information in accordance with paragraph (e) (3) of the rule.

Rule 34b-1 under the Investment Company Act provides that sales

literature containing fund performance information will be deemed

misleading unless it includes, among other things, the total

return calculations required by paragraph (e) (3) of Rule 482.

Rule 482 and Rule 34b-1 are intended to standardize the

calculation and presentation of fund performance information in

advertisements or supplemental sales literature to prevent the

use of misleading information, and to facilitate the comparison

of funds by investors. ~/ ~

Neither Rule 482 nor Rule 34b-1 by its terms prohibits a

fund from including in its advertisements or sales literature

performance information relating to other accounts managed by the

fund's adviser, so long as the information is not presented in a

misleading manner. The Commission has expressed the view that

Rule 482 should be read as precluding "performance information

about any related entity to the fund such as its adviser . . .

where the use of such performance is intended as a substitute for

the performance of the fund." fl/

You maintain that, because a Public Fund may, in accordance

with Nicholas-Applegate I and Bramwell, present the performance

information of an Insurance Fund in the Public Fund's prospectus

in a manner that is not misleading, the identical information

3/ (.. . continued)

investment obj ecti ves, policies, and strategies. In MassMutual,

the staff granted no-action relief to a registered fund that

sought to include, as part of the fund's own performance

information, the performance information of the unregistered

account for the period prior to the effectiveness of the fund's

registration statement. Here, the Insurance Funds are not the

predecessors of the Public Funds, so the performance information

of the Insurance Funds can be presented only in addition to, and

not as part of, the Public Funds' own performance information.'

4/ See Investment Company Act Release No. 16245 (Feb. 2, 1988)

(release adopting amendments to Rule 482 and adopting Rule 34b-1)

(the "Adopting Release") .

2/ Id. at n.31 (emphasis added).

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would be no more likely to mislead investors when presented in

the Public Fund's advertisements or sales literature. You also

maintain that your proposal is consistent with Rule 482 because

the Insurance Funds' performance information would be presented

in addition to, rather than as a substitute for, the Public

Funds' own. performance information, and would be accompanied by

prominent disclosure stating that the performance is not the

Public Funds' own performance.

We believe that neither Rule 482, Section 34 (b), nor Rule

34b-1 prohibits a Public Fund from including in its

advertisements or supplemental sales literature the performance

information of an Insurance Fund that has substantially similar

investment obj ecti ves, policies, and strategies, provided that

the performance is not presented in a misleading manner and is

not presented as a substitute for the Public Fund's own

performance. Accordingly, we would not recommend enforcement

action to the Commission if the Public Funds include performance

information of the Insurance Funds ln advertisements or

supplemental sales literature in accordance with your

representations. Our conclusion is based particularly on the

following facts ,and representations, each of which is designed to

ensure that the Insurance Fund performance information would not

be presented as a substitute for the Public Fund's performance

inf or.ma t ion:

(i) advertisements or supplemental sales literature will

prominently disclose that the Insurance Fund performance is

not the Public Fund's own performance, and should not be

considered indicative of the past or future performance of

the Public Fund;

(ii) advertisements or supplemental sales literature will

prominently disclose that Insurance Fund performance should

not be considered a substitute for the Public Fund's

performance;

(iii) with respect to a Public Fund that has its own

performance history, the Insurance Fund performance

information will be provided in addition to the performance

information of the Public Fund, and will be presented no

more prominently than the Public Fund's performance;

(iv) advertisements or supplemental sales literature will

clearly explain the nature and purpose of the Insurance Fund

performance information; and

(v) advertisements or supplemental sales literature will

disclose all material differences between an Insurance Fund

and a Public Fund and will include any other disclosure that

may be necessary to ensure that Insurance Fund performance

information is not presented in a misleading manner.

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~

. You should note that any different facts or representations

might requ~re a different conclusion. ~/

This response supersedes positions taken by the Division of

Investment. Management i~ 1993 that presenting performance

information regarding an adviser's other accounts is inconsistent

with the requirements of Rule 482, and that other account

performance information may be used in supplemental sales

literature only when the fund itself does not have any

performance history. 2/ Upon reconsideration, we believe that

this earlier position is inconsistent with both the Commission's

statement in the 1988 release adopting amendments to Rule

482 ~/ and the Commission's long-standing position that

whether information in a fund's advertisements or sales

literature is misleading, for purposes of the federal securities

laws, depends on the totality of the circumstances, including the

manner in which it is presented. ~/

~Wa~ .

Sarah A. wagma~

Attorney

~ This response should not be construed as providing no-action

assurance with respect to any particular presentation of the

performance of the Insurance Funds.

In addition, we note that the National Assòciation of

Securities Dealers, Inc. (the "NASD") has taken the position that

the use of advertisements and sales literature that include

performance information regarding an adviser's other accounts may

be a violation of its Conduct Rules. NASD Regulatory and

Compliance Alert at 7-8 (June 1992). Our response does not

address the status of your proposal under the NASD Conduct Rules.

7/ See Letter from Carolyn B. Lewis, Assistant Director,'

Securities and Exchange Commission, Division of Investment

Management, to Registrants (Feb. 22', 1993) (citing footnote 31 of

the Adopting Release) .

~ See supra notes 4 - 5 and accompanying text.

~/ See,~, Investment Company Act Release No. 10621 (Mar. 8,

1979) (withdrawing the Commission's Statement of Policy on

investment company sales literature) (n (w) hat is or is not

misleading in sales literature may depend greatly on the totality

of the circumstances, including the context in which it is used

and the sophistication of the investor. n) .

.,

JORDEN BURT BERENSON & JOHNSON LLP

SUITE 400 EAST

1025 THOMAS .JEFFERSON STREET, N.W.

WASHINGTON. D.C. 20007-0805

ì

(202) 1l615-8100

TELECOPIER (202) 11615.8104

AFFILIATED COUNSEL:

October 25, 1996

IN WASHINGTON. D.C.

.JONES 8: BLOUCH L.L.P.

SUITE !SOO

777 BRICKELL AVENUE

MIAMI, FL.ORIDA33131-280S

IN MIAMI, FLORIDA

CANTOR 8: MORANTE, P.A.

(3QS) 371-2600

VIA FACSIMILE AND HAND DELIVERY

Jack W. Murphy, Esq.

Chief Counsel

Division of Investment Management

Room 10070, Mail Stop 10-6

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, DC 20549

Rule 482 under the Securities

Act of1933

Rule 34b- 1 under the Investment

Company Act of 1940

Re: ITT Hartford Mutual Funds, Inc.

Dear Mr~ Murphy:

We are writing on behalf of ITT Hartford Mutual Funds, Inc. (the "Company") a newly

registered open-end investment company under the Investment Company Act of 1940 (" 1 940 Act")

presently comprised of eight portfolios. We are writing to request the assurance of the Staff of the

Securities and Exchange Commission (the "Commission") that it will not recommend enforcement

action to the Commission if, in advertisements and supplemental sales literature relating to six of

the Company, the Company uses

the Company's portfolios for periods prior to the establishment of

the historical performance of six corresponding investment companies which serve as funding media

for lIT Hartford's variable insurance products (the "Insurance Funds").

Each Insurance Fund is available only as an investment option in connection with variable

annuity and variable life insurance contracts issued by ITT Hartford and its affiliates. The Company

has a currently effective registration statement under the 1940 Act and the Securities Act of 1933

("1933 Act") puI'~uant to which it offers shares of its portfolios to the public. Six of the eight

substantially similar investment objectives, policies

portfolios currently being offered will each have

and strategies as a corresponding Insurance Fund (those six public funds are hereinafter referred to

as tlie "Public Funds") and each such Public Fund \\ill have the same investment adviser (Hartford

Investment Management Company) and sub-adviser (Wellington Management Company, which is

the only entity that serves as sub-adviser to the Insurance Funds or the Public Funds) as a

corresponding Insurance Fund. The creation of the Public Funds was necessitated by current tax

law~ and related interpretations

which preclude ITT Hartford from offering the Insurance Funds to

JORDEN BURT BERENSON & JOHNSON LLP

\,

Jack W. Murphy, Esq.

October 25,1996

Page

2

the public; otherwise, lIT Hartford would simply offer the Insurance Funds in a public offering and

would not have been required to create new funds.

Since the Public Funds have no prior operating history, the Company believes that the

performance history of the Insurance Funds (after which the Public Funds have been modeled) is an

extremely important piece of information that should be made known to prospective investors. In

the Companfs view, the use of this performance information would greatly enhance investors'

ability to assess the desirability of an investment in one or more of the Public Funds. While past

performance cannot, of course, guarantee future performance, it can hardly be gainsaid that an

investment adviser's performance record is nonetheless of critical importance to prospective

investors. In fact, the performance history of the Insurance Funds is presently set forth in the

Company~s currently effective prospectusl! in reliaÍice on Growth Stock Outlook Trust, ¡nc.'l!

Obviously, the Growth Stock Outlook letter and related Staff interpretations indicate an

,

)

acknowledgment that this type of performance information is important to prospective investors.

However, while it is clear that such performance data may be used in a prospectus, it is unclear

whether this information can be used in advertisements and sales literature. A limitation to the effect

that the Insurance Funds' performance history may not be used in advertisements and sales literature

would mean that such data could be used only in the body of a prospectus thereby creating an

unnecessary obstacle to investors' ability to easily locate and understand this significant information.

As the Company believes this performance data to be one of the single most important disclosure

items regarding the Public Funds that can be made to prospective investors at this time, the Company

further believes that such data should be entitled to a fair degree of prominence. Thus, the Company

proposes to use the Insurance Funds' performance history in advertisements and supplemental sales

literature for the Public Funds, as discussed herein.

With respect to advertisements subject to Rule 482, we believe that an anomalous result is

reached when information contained in an effective prospectus cannot be set forth in an

advertisement subject to Rule 482 where the basic requirement applicable to such advertisements

is that the substance of the information contained therein be set forth in the relevant prospectus. We

are mindful of footnote 31 to the release adopting amendments to Rule 482it wherein the

Commission stated that it would not be appropriate to use performance information of any "related

entity" where the use of such performance is intended as a "substitute" for the performance of the

J! See File No. 333-2381. .

'J! (pub. avaiL. April 15, 1986).

"J! IC ReI. No. i 6245 (Feb. 2, 1988).

JORDEN BURT BERENSON & JOHNSON LLP

ì

Jack W. Murphy, Esq.

October 25, 1996 .

Page

3

fimd to which an advertisement relates. While we are not aware of any published interpretations on

the issue of what would constitute substitute performance in this context, we propose to use the

Insurance Funds' performance data only in Rule 482 advertisements containing sufficient narrative

disclosure to fully explain the ,nature and purpose of the performance shown. In other words, there

would be sufficient narrative disclosure (or a legend) in sufficiently prominent print to make clear

that the performance shown is the Insurance Funds' performance and not the performance of the

Public Funds or performance that investors can expect to enjoy. As such, we do not believe that the

Insurance Funds' performance should or would be viewed as intending to "substitute" for the

the Public Funds, but rather, merely as meaningful information which an investor

performance of

ought to know about the demonstrated ability of an investment adviser in substantially comparable

situations when considering whether to buy shares of a

)

Public Fund. In addition, the Company will

ensure that the Insurance Funds' performance will be 'given no greater prominence than the Public

Funds' performance. Further, as to the Company's prospectus which will form the foundation for

advertisements pertaining to the Public Funds, the Company will comply with all requirements of

performance data and will otherwise comply with Section 34(b)

Form N-IA relating to the use of

of

the 1940 Act~

As to supplemental sales literature, if sales literature is preceded or accompanied by a

prospectus mid the substance of the information reflected therein is actually extracted from an

effective prospectus (as would be the case here), we do not see how such sales literature could fairly

be deemed to be misleading or otherwise inconsistent with the applicable provisions of

the Federal

securities laws. In this regard, we note that any such sales literature will comply with the provisions

of Rule 34b- 1 under the 1940 Act. Accordingly, we propose that the Public Funds be permitted to

disseminate sales literature showing the performance of the Insurance Funds provided that any such

literature is preceded or accompanied by the Company's effective prospectus and contains sufficient

narrative disclosure (or a legend) to fully explain the nature, purpose and limitations of the

pedormance information shown. And, as with advertisements, the Insurance Funds' performance

the Public Funds that may be shown.

would be given no greater prominence than any performance of

the Insurance Funds' performance in advertisements and sales

literature would siInply provide prospective investors with basic, needed information in a readily

understandable fashion and that such investors would be poorly served by a position that would limit

the Company's ability to make this information readily available to them. Moreover, we do not

We believe that the use of

believe our proposal raises any concerns that an adviser would be able to selectively use the

performance of one or more funds already in existence in order to attract investors to a new fund.

y

See, e.g., Nicholas-Applegate Mutual Funds (pub. avail. Aug. 6, 1996), infra

n. 6 and accompanying text.

.'

JORDEN BURT BERENSON & JOHNSON LLP

ì

Jack W. Murphy, Esq.

October 25, 1996

Page

4

The concern. that an adviser may create and operate funds for the purpose of establishing a selective

"'track" record - also known as creating "incubator" funds - has no application to the facts at hand.

Specifically, we note that the Insurance Funds were created and have been operated for the sole

purpose of funding variable annuity and life insurance contracts issued by ITT Hartford; as noted,

but for existing interpretations of the tax code which preclude the sale of an investment company's

shares to both public shareholders and variable contract owners, ITT Hartford would have simply

offered the Insurance Funds to the public and would not have created the Company. Thus, the

.'need" to use the Insurance Funds' pedormance arises only because current interpretations of the tax

code required ITT Hartford to create new funds in order to make a public offering. We believe this

"'liinitation" - that the funds whose pedormance will be shown could not legally have been offered

to prospective investors of the funds to which the advertisements or sales literature would relate -this no-action rêquest could not be interpreted as allowing the

ensures that a favorable disposition of

use of

the pedormance history of any incubator funds.

We also believe that the granting of

the requested no-action position would be consistent with

recent no-action letters relating to the use of past pedormance of similarly managed accounts in the

to

recently granted no-action relief

registered open-end funds. For example, the Staff

prospectus of

pennit a registered open-end company, the Bramwell Growth Fund, to use the prior pedormance of

another open-end fund in its prospectus where the Bramwell Growth Fund's portfolio manager had

previously served as portfolio manager to the fund whose pedormance was proposed to be used,

notwithstanding that the two funds had different investment advisers.it In connection with this noaction request, it was represented (among other things) that the investment objectives, policies and

the

Directors of

the two funds were similar in all material respects and that the Board of

strategies of

Bramwell Growth Fund would periodically review the continued use of the subject pedormance data

in order to ensure its continued relevance. The requesting letter pointed out that in the Release

adopting the Rule 482 amendments which require a fund to show total return over a 10 year period

(or the life of a fund if shorter), the Commission stated the presentation of such long-term

pedormance data permits investors to evaluate fund pedormance over different phases of business

cycles and to assess fund volatility. In taking the requested no-action position the Staff noted that

the use of an adviser's pedormance in a prospectus with respect to similarly managed accounts is .

not prohibited by the federal securities laws or rules thereunder, provided that such pedormance data

is not presented in a misleading manner and does not obscure or impede understanding of

information that is required to be in the prospectus.

~

Bramwell Growth Fund (pub. a~aii. Aug. 7, 1996).

JORDEN BURT BERENSON & JOHNSON LLP

o

JackW. Murphy, Esq.

October 25, 1996

PageS

In Nicholas-Applegate Mutual Funds, §J the Staff granted no-action relief to permit an openend investment company, with respect to the prospectus for each of its portfolios, to use pedormance

infomiation regarding other accounts managed by such portfolios' investment adviser after the first

. year of each portfolio's operations. The prior position of the Staff had been that pedormance of

similarly managed accounts may be used only in a prospectus during a fund's first year of

operations. The requesting letter argued (among other things) that the inclusion of such pedormance

information beyond a fund's first year of operations would provide investors with more complete

and accurate information on which to base their investment decisions. As with the Bramwell letter,

it was represented that the fund's Board would remain responsible for reviewing the continued use

of

the prior pedormance information in the fund's prospectus. In granting the Nicholas-Applegate

no-action request, the Staff again noted that a fund. may use "non-required" information in its

prospectus as long as such information is not misleading and does not obscure or impede

understanding of required information.

We believe the Bramwell and Nicholas-Applegate no-action letters clearly evidence a Staff

recognition that past pedormance history of an investment adviser with respect to similarly managed

accounts is important information that would be of interest to prospective investors. We further

believe that the same rationale supporting the Staff's decision to extend no-action relief to include

the Bramwell and Nicholas-Applegate situations applies to the facts at hand. If this type of

pedormance data would be of interest to prospective investors in the context of a prospectus, in our

view it follows that the Company should be able to apprise prospective investors of such information

through advertisements and sales literature; particularly since the subject pedormance data will be

set forth in the Company's prospectus in a manner that is not misleading and does not obscure or

impede understanding of any required information. Moreover, as noted in the incoming letters in

Bramwell and Nicholas-Applegate, an investment's adviser's long-term pedormance record with

respect to similarly managed accounts provides prospective investors with more accurate information '

on which to base their investment decisions. Thus, we submit that the Staff should grant no-action

relief

to the extent necessary to permit the Company to use the Insurance Funds' pedormance history

in advertisements and sales literature pertaining to the Public Funds and that such a position would

promote the interests offull and fair disclosure. In connection with the use of

the Insurance Funds'

pedormance history in the Company's prospectus as well as in advertisements and sales literature,

this data for its continued

Directors will periodically review the use of

the Company's Board of

relevance and to ensure that it complies with applicable requirements of

securities laws~

~

(pub. avaiL. Aug. 6, 1996).

Form N-IA and the federal

JORDEN BURT BERENSON & JOHNSON LLP

)

JackW. Murphy, Esq.

October 25, 1 9~6

Page

6

We subiIiit that no useful purpose would be served by precluding the Company from using

the Insurance Funds' performance in advertisements and sales literature and that investors reading

an advertisement or a piece of sales literature pertaining to the Public Funds would very much want

to know (and should be entitled to know) how the investment adviser performed when managing

registered investment compaliies after which such Public Funds have been modeled.v We do not

believe a prospective investor should be required to "find" the performance data in the prospectus

in order to be apprised of this highly relevant information. Simply put, we believe that this

information should be readily available to investors and that a Staff position which impedes the

availability of this data would not serve the interests of the investing public. Accordingly, we

request that the Staff inform us that it will not recommend that the Commission take enforcement

action if advertisements and sales literature of the Public Funds show the performance history of the

Insurance Funds as discussed herein. -

If you have any questions or need any further information, please contact the undersigned

at (202) 965-8158 or Sydney Mendelsohn at (202) 965-8157.

Sincerely,

~(~

Thomas C. Mira

Wdi:#:23D3

11 We note that the Staff appears to have already taken the view that this type of

pedormance data may be used in supplemental sales literature. Specifically, in

noted that "(t)he performance

of related funds and private accounts may only be used in a prospectus or

Statement of Additional Information or accompanying sales literature in the case

where the fund itself does not have any performance history." See Letter from

Carolyn B. Lewis, Assistant Director, SEC Division ofInvestment Management,

to Registrants (Feb. 22, 1993). We are seeking no-action assurance with respect

to sales literature to resolve any uncertainty that may exist in that regard.

the February 22, 1993 Letter to Registrants the Staff