22420 Federal Register / Vol. 60, No. 87 / Friday, May 5, 1995 / Notices

[FR Doc. 95–11076 Filed 5–4–95; 8:45 am]

BILLING CODE 6325–01–C
Federal Register / Vol. 60, No. 87 / Friday, May 5, 1995 / Notices 22421

1Applicants represent that they will file an

amendment to the application during the notice

period and that such amendment will reflect the

Applicants.

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–21035; File No. 812–9276]

Connecticut General Life Insurance

Company, et al.

April 28, 1995.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’ or the

‘‘Commission’’).

ACTION: Notice of Application for

Exemption under the Investment

Company Act of 1940 (the ‘‘1940 Act’’).

APPLICANTS: Connecticut General Life

Insurance Company (‘‘CG Life’’), CG

Variable Annuity Separate Account II

(the ‘‘Account’’), certain separate

accounts that may be established by CG

Life in the future to support certain

variable annuity contracts issued by CG

Life (the ‘‘Other Accounts’’, collectively,

with the Account, the ‘‘Accounts’’) and

Cigna Financial Advisors, Inc.

(‘‘Cigna’’).1

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) of the 1940

Act for exemptions from Sections

2(a)(32), 26(a)(2)(C), 27(c)(1) and

27(c)(2) of the 1940 Act and Rule 22c–

1 thereunder.

SUMMARY OF APPLICATION: Applicants

seek an order permitting CG Life to

deduct from the assets of the Accounts

the mortality and expense risk charge

imposed under certain variable annuity

contracts issued by CG Life (the

‘‘Existing Contracts’’) and under any

other variable annuity contracts issued

by CG Life which are materially similar

to the Existing Contracts and are offered

through any of the Accounts (the ‘‘Other

Contracts’’, together, with the Existing

Contracts, the ‘‘Contracts’’).

Additionally, where the Contract owner

has selected an optional death benefit,

the order would permit applicants to

deduct from the value of the Contract an

age and gender based charge for the

benefits selected. The charge would be

deducted upon the occurrence of one of

the following events: upon the Contract

anniversary; upon annuitization of the

Contract; upon surrender of the

Contract; or upon payment of the death

benefit.

FILING DATE: The application was filed

on October 11, 1994, and amended on

December 19, 1994 and February 28,

1995.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the Commission orders a

hearing. Interested persons may request

a hearing on this application by writing

to the Secretary of the SEC and serving

applicants with a copy of the request,

personally or by mail. Hearing requests

must be received by the Commission by

5:30 p.m. on May 23, 1995 and should

be accompanied by proof of service on

applicants in the form of an affidavit or,

for lawyers, by certificate of service.

Hearing requests should state the nature

of the interest, the reason for the request

and the issues contested. Persons may

request notification of the date of a

hearing by writing to the Secretary of

the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, N.W., Washington, D.C. 20549.

Applicants: Robert A. Picarello, Esq., S–

321, Connecticut General life Insurance

Company, 900 Cottage Grove Road,

Hartford, Connecticut 06152.

FOR FURTHER INFORMATION CONTACT:

Barbara J. Whisler, Senior Counsel, or

Wendy Friedlander, Deputy Chief, both

at (202) 942–0670, Office of Insurance

Products, Division of Investment

Management.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application, the

complete application is available for a

fee from the public Reference Branch of

the SEC.

Applicants’ Representations

1. CG Life, a stock life insurance

company domiciled in Connecticut, is a

wholly owned subsidiary of CIGNA

Holdings, Inc., which is, in turn, wholly

owned by CIGNA Corporation. The

Account, established January 25, 1994

under Connecticut law, is registered

with the Commission as a unit

investment trust. The Account will fund

the Existing Contracts issued by CG Life.

2. Cigna will serve as the distributor

of and the principal underwriter for the

Existing Contracts. The application

states that Cigna is also expected to

serve as the distributor of and the

principal underwriter for the other

Contracts. Cigna is a wholly owned

subsidiary of Connecticut General

Corporation which, in turn, is a wholly

owned subsidiary of CIGNA

Corporation. Cigna is a broker dealer

registered under the Securities

Exchange Act of 1934, an investment

advisor registered under the Investment

Advisers Act of 1940, and a member of

the National Association of Securities

Dealers, Inc.

3. The Accounts are comprised of

subaccounts (the ‘‘Subaccounts’’). The

assets of each Subaccount of an Account

will be invested in a corresponding

portfolio of one of five investment

companies (the ‘‘Funds’’). Currently, the

Funds have seventeen portfolios

available for investment. Applicants

state that each of the Funds is a

diversified, open-end management

investment company. Applicants also

state that the number and identity of

available Funds and investment

portfolios may change.

4. The Existing Contracts are

combination fixed and variable annuity

contracts issued on an individual basis.

The Existing Contracts may be

purchased on a nonqualified basis or

with the proceeds from certain plans

qualifying for favorable tax treatment

under the Internal Revenue Code of

1986, as amended (the ‘‘Code’’). The

minimum initial premium is $2,500 and

the minimum for subsequent premiums

is $100. A minimum initial premium of

$2,000 will be permitted for an

Individual Retirement Annuity under

Section 408 of the Code.

5. The Existing Contracts provide for

certain guaranteed death benefits at no

charge if an optional death benefit is not

selected. The guaranteed death benefit

is the value of the Account plus the

value of the fixed account as of the date

CG Life receives due proof of death and

a payment election. If the owner of a

Contract dies prior to the annuity date,

the death benefit will be paid to the

beneficiary.

6. CG Life imposes an annual

administrative fee of $35 on Contracts

having a Contract value of less than

$100,000. Until the earlier of the

annuity date or a surrender of the

Contract, the fee will be deducted pro

rata from all of the Subaccounts of the

Account in which the owner of the

Contract invests. Where a variable

payout has been selected after the

annuity date, the fee will be deducted

proportionately and in installments

from the annuity payments. Applicants

state that the annual administrative fee

partially compensates CG Life for

administrative services associated with

the Contracts and the Account.

7. CG Life also deducts a daily

administrative expense charge equal

annually to .10% of the average daily

net asset value of the Account.

Applicants represent that CG Life does

not anticipate a profit from either the

annual administrative charge or from

the daily administrative charge.

Applicants also state that the charges

are guaranteed not to increase for a

Contract once that Contract has been

issued. Finally, Applicants state that CG

Life will rely upon and comply with

Rule 26a–1 under the 1940 Act in

deducting both administrative charges.

8. A contingent deferred sales charge

(the ‘‘Sales Charge’’) of up to 7% may

be assessed by CG Life upon withdrawal
22422 Federal Register / Vol. 60, No. 87 / Friday, May 5, 1995 / Notices

of a portion of the Account’s value or

upon surrender of the Contract within

the first seven years of the Contract. The

Sales Charge is a percentage of the

amount withdrawn and is assessed

against the balance remaining in the

Account after withdrawal. The

percentage declines depending upon

how many years have passed since the

withdrawn premium was originally

made by the Contract owner. Applicants

state that CG Life guarantees that

aggregate withdrawal charges under a

Contract will not exceed 8.5% of total

premiums paid.

9. CG Life will impose a daily charge

equal to an annual effective rate of

1.20% of the value of the net assets of

the Account to compensate CG Life for

assuming certain mortality and expense

risks in connection with the Contracts.

Applicants state that approximately

.70% of the 1.20% charge is attributable

to mortality risk while approximately

.50% is attributable to expense risk. The

mortality and expense risk charge is

guaranteed not to increase for a Contract

once that Contract has been issued. If

the mortality and expense risk charge is

insufficient to cover actual costs of the

risks assumed, CG Life will bear the

loss. Conversely, if the charge exceeds

costs, this excess will be profit to CG

Life and will be available for any

corporate purpose, including payment

of expenses relating to the distribution

of the Contracts. Applicants state that

CG Life expects a profit from the

mortality and expense risk charge.

10. Applicants state that the mortality

risk borne by CG Life arises from: (a) the

contractual obligation of CG Life to

make annuity payments regardless of

how long all annuitants or any

individual annuitant may live; and (b)

the guarantee of a death benefit.

Applicants state that the expense risk

assumed by CG Life under the Contracts

is the risk that the administrative

charges assessed under the Contracts

may be insufficient to cover actual

administrative expenses incurred by CG

Life.

11. When an application for a

Contract is made, one or more optional

death benefits may be selected by the

Contract owner. The morality and

expense risks charge does not

compensate for the anticipated costs of

providing the optional death benefits.

There is, therefore, an additional charge

for these benefits. Applicants describe

four optional death benefits. Once

election is completed, the optional

death benefits chosen remain in effect

for the life of the Contract absent a

written request by the owner of the

Contract for termination. Only one

request for termination may be given.

Optional death benefits must be selected

at the time of application, and can not

be added at a later date. The optional

death benefits provide for the payment

of a certain amount as the death benefit

if the value of the contract is less than

that amount when the death benefit is

paid.

12. On each anniversary of a Contract,

a charge will be made for any optional

death benefit in effect for the Contract

year just ended. If the charge is

applicable, it will be computed in

accordance with mortality tables which

are made a part of the Contract and

reflect the age and the gender of the

owner of the Contract. The charge is

based upon the ‘‘amount at risk.’’ The

amount at risk is the excess of the death

benefit which would be payable at the

end of a Contract month over the

Account value. There is no deduction

made from the Account value until the

Contract anniversary. At the Contract

anniversary, the sum of any charges

accrued at the end of each Contract

month during the previous year is

deducted. If the owner or the annuitant,

as applicable, were to die on other than

a Contract anniversary, all charges

accrued will be deducted from the death

benefit payable, the surrender proceeds

or from the amount applied to provide

annuity benefits.

13. Applicants state that CG Life

expects to derive a profit from the

optional death benefit charge.

Applicants also represent that the table

of charges in the application, which sets

forth the charges for the optional death

benefits, is guaranteed not to change for

any Contract once that Contract is

issued.

14. CG Life may incur premium taxes

relating to the Contracts and CG Life

will deduct these taxes upon

withdrawal, annuitization or payment of

the death benefit. CG Life reserves the

right to deduct charges made for federal,

state or local taxes incurred by CG Life

in the future.

Applicants’ Legal Analysis and

Conditions

1. Applicants request that the

Commission, pursuant to Section 6(c) of

the 1940 Act, grant exemptions from

Sections 26(a)(2)(C) and 27(c)(2) of the

1940 Act in connection with

Applicants’ assessment of the daily

charge for the mortality and expense

risks under the Contracts and for

Applicants’ assessment, where

applicable, of the optional death benefit

charge. Applicants state that the

requested extension of relief to the

Other Accounts and the Other Contracts

is appropriate in the public interest.

Applicants assert that the relief would

promote competitiveness in the variable

annuity market by eliminating the need

to file redundant exemptive

applications and would, therefore,

reduce administrative expenses and

maximize efficient use of resources.

Applicants argue that the delay and

expense involved in having to

repeatedly seek exemptive relief would

impair the ability of CG Life to take

advantage effectively of business

opportunities as those opportunities

arise. Applicants assert that the

requested relief is consistent with the

purposes of the 1940 Act and the

protection of investors for the same

reasons. Finally, Applicants state that

were CG Life required to seek repeated

exemptive relief with respect to the

issues addressed in the application, no

additional benefit or protection would

be provided to investors through the

redundant filings.

2. Sections 26(a)(2)(C) and 27(c)(2) of

the 1940 Act, in pertinent part, prohibit

a registered unit investment trust and

any depositor thereof or underwriter

therefor from selling periodic payment

plan certificates unless the proceeds of

all payments (other than sales load) are

deposited with a qualified bank as

trustee or custodian and held under

arrangements which prohibit any

payment to the depositor or principal

underwriter except a fee, not exceeding

such reasonable amount as the

Commission may prescribe, for

performing bookkeeping and other

administrative services of a character

normally performed by the bank itself.

3. Applicants assert that the charge for

morality and expense risks and the

charge for the optional death benefit are

reasonable in elation to the risks

assumed by CG Life under the

Contracts.

4. Applicants represent that the

morality and expense risk charge is

within the range of industry practice

with respect to comparable annuity

products. Applicants state that this

representation is based upon

Applicants’ analysis of a survey of

comparable contracts issued by a large

number of insurance companies taking

into consideration such factors as:

current charge levels; benefits provided;

charge level guarantees; and guaranteed

annuity rates. Applicants represent that

CG Life will maintain at its home office,

available to the Commission, a

memorandum setting forth in detail the

methodology and the results of the

comparative survey analyzed by

Applicants.

5. Applicants represent that the

charge for the optional death benefit is

determined by multiplying, at the end of

each Contract month, the actual
Federal Register / Vol. 60, No. 87 / Friday, May 5, 1995 / Notices 22423

1 15 U.S.C. § 78s(b)(1) (1988).

2Securities Exchange Act Release No. 35513

(March 17, 1995), 60 FR 15614.

3Securities Exchange Act Release No. 33958

(April 22, 1994), 59 FR 22878 [File No. SR–DTC–

93–12] (order temporarily approving proposed rule

change expanding DTC’s MMI program).

amounts at risk under the benefit or

benefits selected by the cost per $1,000

of the amount at risk. Applicants also

represent that the amounts at risk used

will be actual figures, and that the

determination of the figures on a

monthly basis is reasonable. Applicants

state that the cost per $1,000 of amount

at risk, i.e., the cost of insurance charge,

was determined using assumptions

regarding the expected mortality of the

Contract owners. Applicants state that

these assumptions reflect that the

Contracts are both insurance and

investment vehicles and could appeal to

a different group than would a

traditional annuity. CG Life represents

that there could be less self selection of

this product by healthy individuals than

a traditional annuity. Applicants further

state that, because of the optional death

benefits provided under the Contracts

without health underwriting, there

could be self selection by unhealthy

individuals who would not ordinarily

quality for traditional life insurance. CG

Life asserts that the foregoing mortality

assumptions are reasonable. Applicants

state the CG Life undertakes to

maintain, at its home office and

available to the Commission, a

memorandum detailing the

methodology used in determining that

the optional death benefit charge is

reasonable in relation to the risks

assumed by CG Life under the

Contracts.

6. Applicants acknowledge that the

Sales Charge will likely be insufficient

to cover all costs relating to the

distribution of the Contracts. To the

extent distribution costs are not covered

by the Sales Charge, CG Life will

recover its distribution costs from the

assets of the general account. These

assets may include that portion of the

mortality and expense risk charge which

is profit to CG Life, and that portion of

the optional death benefit charge that is

profit. Applicants represent that CG Life

has concluded that there is a reasonable

likelihood that the proposed

distribution financing arrangement will

benefit the Account, the Other Accounts

and the owners of the Contracts. The

basis for this conclusion is set forth in

a memorandum which will be

maintained by CG Life at its home office

and will be made available to the

Commission.

7. CG Life also represents that the

Accounts will invest only in open-end

management investment companies

which undertake, in the event such

company adopts a plan under Rule 12b–

1 of the 1940 Act to finance distribution

expenses, to have such plan formulated

and approved by either the company’s

board of directors or the board of

trustees, as applicable, a majority of

whom are not interested persons of such

company within the meaning of the

1940 Act.

8. Applicants also request an order

under Section 6(c) granting exemptions

from Sections 2(a)(32) and 27(c)(1) of

the 1940 Act and Rule 22c–1 thereunder

to the extent necessary to permit the

deduction from Account values of the

optional death benefit charges at the

following times: upon surrender; upon

anuitization; and upon payment of a

death benefit.

9. Section 27(c)(1) requires that

periodic payment plan certificates, such

as the Contracts, be redeemable

securities. Section 2(a)(32) defines a

‘‘redeemable security’’ as one which,

upon presentation to the issuer, entitles

the holder to receive ‘‘approximately his

proportionate share of the issuer’s

current net assets, or the cash equivalent

thereof.’’ Rule 22c–1 under the 1940 Act

prohibits redemptions ‘‘except at a price

based on the current net asset value of

such security which is next computed

* * *.’’ Applicants concede that where

the optional death benefit charge is

imposed upon annuitization, surrender

or payment of the death benefit, the net

dollar amount paid upon surrender or in

the form of a death benefit, or applied

to the purchase of annuity units under

the Contract, will be less than the full

accumulation unit value of the variable

portion of the Contract. Applicants

state, however, that the gross proceeds

will equal the full net asset value of the

variable portion of the Contract.

Applicants represent that the difference

between the gross proceeds and the net

dollar amount paid or applied will be

equal to the unpaid aggregate charges

for the optional death benefit that have

accrued since the most recent Contract

anniversary, Applicants state that if the

cost for the optional death benefit were

deducted from the value of the Contract

upon accrual, there would be no

difference between the gross proceeds

and the net amount paid or applied.

Applicants argue that payment of the

accrued but unpaid charges out of the

gross proceeds of redemption,

annuitization or a death benefit should

be viewed as a delayed deduction of

otherwise permitted charges. Applicants

assert that the prohibitions of Sections

2(a)(32) and 27(c)(1) and Rule 22c–1 are

designed to prevent diminution or

dilution of investment company assets

and should not, therefore, be applied to

a transaction that, but for its timing,

would be otherwise permissible.

Conclusion

Applicants assert that the resons and

upon the facts set forth above, the

requested exemptions from Sections

2(a)(32), 26(a)(2)(C) and 27(c)(2) of the

1940 Act and Rule 22c–1 thereunder are

unnecessary and appropriate in the

public interest and consistent with the

protection of investors and the purposes

fairly intended by the policy and

provisions of the 1940 Act.

For the Commission, by the Division

Investment Management, pursuant to

delegated authority.

[FR Doc. 95–11131 Filed 5–4–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35655; File No. SR–DTC–

95–05]

Self-Regulatory Organizations; The

Depository Trust Company; Order

Extending Temporary Approval of a

Proposed Rule Change Expanding the

Money Market Instrument Settlement

Program

April 28, 1995.

On March 7, 1995, The Depository

Trust Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

(File No. SR–DTC–95–05) pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’).1 Notice

of the proposal was published in the

Federal Register on March 24, 1995.2

No comment letters were received. For

the reasons discussed below, the

Commission is extending its temporary

approval of the proposed rule change

through April 30, 1996.

I. Description of the Proposal

A. Generally

On April 22, 1994, the Commission

approved, on a temporary basis until

April 30, 1995, DTC’s proposed rule

change making its existing Money

Market Instrument (‘‘MMI’’) settlement

services available for transactions in

additional types of MMIs.3 The current

proposed rule change seeks permanent

approval of the new and expanded MMI

settlement program. The expanded MMI

settlement program includes

institutional certificates of deposit

(‘‘CD’’), municipal commercial paper,

and bankers’ acceptances. Prior to the

April 1994 enhancement, the MMI

program included corporate commercial