[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Notices]
[Pages 63559-63564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30071]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21565; File No. 812-9698]


CIGNA Variable Products Group, et al.

December 4, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: CIGNA Variable products Group (the ``Trust''), CIGNA 
Investments, Inc. (``CIGNA'') and certain life insurance companies and 
their separate accounts investing now or in the future in the Trust.

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) 
of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.

SUMMARY OF APPLICATION: Applicants seek an order to the extent 
necessary to permit shares of the Trust and shares of any other 
investment company that is designed to fund insurance products and for 
which CIGNA, or any of its affiliates, may serve as investment advisor, 
administrator, manager, principal underwriter or sponsor (collectively, 
with the Trust, the ``Funds'') to be sold to and held by: (a) Variable 
annuity and variable life insurance separate accounts of both 

[[Page 63560]]
affiliated and unaffiliated life insurance companies (the 
``Participating Insurance Companies''); and (b) qualified pension and 
retirement plans outside of the separate account context (the 
``Plans'').

FILING DATE: The application was filed on July 31, 1995 and amended on 
August 28, 1995. Applicants represent that an amendment to the 
application will be filed during the notice period.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 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 December 27, 1995, and accompanied by proof of service on Applicants 
in the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the 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, Jeffrey S. Winer, Esq., CIGNA Variable Products 
Groups, 900 Cottage Grove Road, S-215, Hartford, Connecticut 06152-
2215.

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. The Trust is an open-end, management investment company 
organized as a Massachusetts business trust. Currently, the Trust has 
one series of shares, the Companion Fund.
    2. CIGNA serves as the investment advisor for the Trust. CIGNA is a 
Delaware corporation registered as an investment advisor under the 
Investment Advisers Act of 1940.
    3. The Trust currently offers its shares to and its shares are held 
by CG Variable Annuity Account I (``Account I'') and CG Variable 
Annuity Account II (``Account II'') of Connecticut General Life 
Insurance Company (``Connecticut General''). Account I and Account II 
are separate accounts registered with the Commission under the 1940 Act 
as unit investment trusts. The Trust serves as the investment vehicle 
for variable annuity contracts issued by Connecticut General. Shares of 
the Trust are also sold to and held by Connecticut General on behalf of 
the Connecticut General Field Individual Deferred Compensation Plan.
    4. Applicants state that, upon the granting of the order requested 
in this application, the Trust intends to offer shares of its existing 
and future portfolios to separate accounts, registered as investment 
companies under the 1940 Act, of Connecticut General and of other 
unaffiliated insurance companies (collectively, the ``Accounts''), to 
serve as an investment vehicle for various types of insurance products. 
These products may include variable annuity contracts, single premium 
variable life insurance contracts, scheduled premium variable life 
insurance contracts and flexible premium variable life insurance 
contracts (collectively, the ``Contracts''). The Trust also may offer 
shares of its portfolios directly to the Plans outside of the separate 
account context.
    5. In connection with any Contract issued by a Participating 
Insurance Company, Applicants state that each such company will have 
the legal obligation of satisfying all applicable requirements under 
the federal securities laws. Applicants further state that the role of 
the Funds under this arrangement, insofar as the federal securities 
laws are applicable, will consist of offering shares to the Accounts 
and to the Plans and fulfilling any conditions that the Commission may 
impose upon granting the order requested in the application.
    6. Applicants state that, due to the applicable tax law, the Funds 
wish to avail themselves of the opportunity to increase their asset 
base through the sale of shares of the Funds to the Plans. The Plans 
may choose any of the Funds as the sole investment option under the 
Plan or as one of several investment options. Participants may be given 
an investment choice depending upon the Plan. Shares of any of the 
Funds sold to Plans will be held by the trustees of the Plans as 
mandated by Section 403(a) of the Employee Retirement income Security 
Act (``ERISA''). CIGNA will not act as investment advisor to any of the 
Plans that will purchase shares of the Funds. Applicants note that, 
pursuant to ERISA, pass-through voting is not required to be provided 
to participants in the Plans. Thus, Applicants state that there will be 
no pass-through voting provided to the participants in the Plans.

Applicants' Legal Analysis

    1. In connection with the funding of scheduled premium variable 
life insurance contracts issued through a separate account registered 
under the 1940 Act as a unit investment trust (``UIT''), Rule 6e-
2(b)(15) provides partial exemptions from Sections 9(a), 13(a), 15(a) 
and 15(b) of the 1940 Act. The relief provided by Rule 6e-2 is 
available to a separate account's investment advisor, principal 
underwriter, and sponsor or depositor. The exemptions granted by Rule 
6e-2(b)(15) are available only where the management investment company 
underlying the UIT offers its shares, ``exclusively to variable life 
insurance separate accounts of the life insurer, or of any affiliated 
life insurance company.'' The use of a common management investment 
company as the underlying investment medium for both variable annuity 
and variable life insurance separate accounts of a single insurance 
company (or of two or more affiliated insurance companies) is referred 
to as ``mixed funding.'' The use of a common management investment 
company as the underlying investment medium for variable annuity and 
variable life insurance separate accounts of unaffiliated insurance 
companies is referred to as ``shared funding.'' ``Mixed and shared 
funding'' denotes the use of a common management investment company to 
fund the variable annuity and variable life insurance separate accounts 
of affiliated and unaffiliated insurance companies. The relief granted 
by Rule 6e-2(b)(15) is not available with respect to a scheduled 
premium variable life insurance separate account that owns shares of an 
underlying fund that offers its shares to a variable annuity separate 
account of the same company or of any other affiliated or unaffiliated 
life insurance company. Therefore, Rule 6e-2(b)(15) precludes mixed 
funding as well as shared funding.
    2. Applicants state that because the relief under Rule 6e-2(b)(15) 
is available only where shares are offered exclusively to separate 
accounts of insurance companies, additional exemptive relief is 
necessary if shares of the Funds are also to be sold to Plans.
    3. In connection with flexible premium variable life insurance 
contracts issued through a separate account registered under the 1940 
Act as a UIT, Rule 6e-3(T)(b) (15) provides partial exemptions from 
Sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act. The exemptions 
granted to a separate account by Rule 6e-3(T)(b)(15) are available only 
where all of the assets of the separate account consist of the 

[[Page 63561]]
shares of one or more registered management investment companies which 
offer their shares ``exclusively to separate accounts of the life 
insurer, or of any affiliated life insurance company, offering either 
scheduled or flexible contracts, or both; or which also offer their 
shares to variable annuity separate accounts of the life insurer or of 
an affiliated life insurance company.'' Thus, Rule 6e-3(T) permits 
mixed funding, but does not permit shared funding.
    4. Applicants state that because the relief under Rule 6e-3(T) is 
available only where shares are offered exclusively to separate 
accounts, additional exemptive relief is necessary if shares of the 
Funds also are to be sold to Plans.
    5. Applicants state that changes in the tax law have created the 
opportunity for the Funds to increase their asset base through the sale 
of Fund shares to the Plans. Applicants state that Section 817(h) of 
the Internal Revenue Code of 1986, as amended (the ``Code''), imposes 
certain diversification standards on the underlying assets of the 
Contracts held in the Funds. The Code provides that such Contracts 
shall not be treated as an annuity contract or life insurance contract 
for any period in which the underlying assets are not, in accordance 
with regulations prescribed by the Treasury Department, adequately 
diversified. On March 2, 1989, the Treasury Department issued 
regulations which established diversification requirements for the 
investment portfolios underlying variable contracts. Treas. Reg. 
Sec. 1.817-5 (1989). The regulations provide that, to meet the 
diversification requirements, all of the beneficial interests in the 
investment company must be held by the segregated asset accounts of one 
or more insurance companies. The regulations do, however, contain 
certain exceptions to this requirement, one of which allows shares in 
an investment company to be held by the trustee of a qualified pension 
or retirement plan without adversely affecting the ability of shares in 
the same investment company to also be held by the separate accounts of 
insurance companies in connection with their variable contracts. Treas. 
Reg. Sec. 1.817-5(f)(3)(iii).
    6. Applicants state that the promulgation of Rules 6e-2 and 6e-3(T) 
under the 1940 Act preceded the issuance of these Treasury regulations. 
Applicants assert that, given the then current tax law, the sale of 
shares of the same investment company to both separate accounts and 
Plans could not have been envisioned at the time of the adoption of 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15).
    7. Applicants therefore request relief from Sections 9(a), 13(a), 
15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder to the extent necessary to permit shares of the 
Funds to be offered and sold in connection with both mixed and shared 
funding.
    8. Section 9(a) of the 1940 Act provides that it is unlawful for 
any company to serve as investment advisor to or principal underwriter 
for any registered open-end investment company if an affiliated person 
of that company is subject to a disqualification enumerated in Section 
9(a)(1) or (2). Rules 6e-2(b) and 6e-3(T)(b)(15) provide exemptions 
from Section 9(a) under certain circumstances, subject to the 
limitations on mixed and shared funding. The relief provided by Rules 
6e-2(b)(15)(i) and 6e-3(T)(b)(15)(i) permits a person disqualified 
under Section 9(a) to serve as an officer, director, or employee of the 
life insurer, or any of its affiliates, so long as that person does not 
participate directly in the management or administration of the 
underlying fund. The relief provided by Rules 6e-2(b)(15)(ii) and 6e-
3(T)(b)(15)(ii) permits the life insurer to serve as the underlying 
fund's investment advisor or principal underwriter, provided that none 
of the insurer's personnel who are ineligible pursuant to Section 9(a) 
participate in the management or administration of the fund.
    9. Applicants state that the partial relief from Section 9(a) found 
in Rules 6e-2(b)(15) and 6e-3(T)(b)(15), in effect, limits the amount 
of monitoring necessary to ensure compliance with Section 9 to that 
which is appropriate in light of the policy and purposes of the 
Section. Applicants state that those 1940 Act rules recognize that it 
is not necessary for the protection of investors or the purposes fairly 
intended by the policy and provisions of the 1940 Act to apply the 
provisions of Section 9(a) to the many individuals in a large insurance 
company complex, most of whom will have no involvement in matters 
pertaining to investment companies within that organization. Applicants 
note that the Participating Insurance Companies are not expected to 
play any role in the management or administration of the Funds. 
Therefore, Applicants assert, applying the restrictions of Section 9(a) 
serves no regulatory purpose. The application states that the relief 
requested should not be affected by the proposed sale of shares of the 
Funds to the Plans because the Plans are not investment companies and 
are not, therefore, subject to Section 9(a).
    10. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 
Act assume the existence of a pass-through voting requirement with 
respect to management investment company shares held by a separate 
account. The application states that the Participating Insurance 
Companies will provide pass-through voting privileges to all Contract 
owners so long as the Commission interprets the 1940 Act to require 
such privileges.
    11. Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) under the 1940 
Act provide exemptions from the pass-through voting requirement with 
respect to several significant matters, assuming observance of the 
limitations on mixed and shared funding imposed by the 1940 Act and the 
rules thereunder.
    Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that 
the insurance company may disregard voting instructions of its contract 
owners with respect to the investments of an underlying fund, or any 
contract between a fund and its investment advisor, when required to do 
so by an insurance regulatory authority.
    Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(B) provide that 
the insurance company may disregard voting instructions of its contract 
owners if the contract owners initiate any change in the company's 
investment policies, principal underwriter, or any investment advisor, 
provided that disregarding such voting instructions is reasonable and 
subject to the other provisions of paragraphs (b)(15)(ii) and 
(b)(7)(ii) (B) and (C) of each rule.
    12. Applicants further represent that the Funds' sale of shares to 
the Plans does not impact the relief requested in this regard. As noted 
previously by Applicants, shares of the Funds sold to Plans would be 
held by the trustees of such Plans as required by Section 403(a) of 
ERISA. Section 403(a) also provides that the trustee(s) must have 
exclusive authority and discretion to manage and control the Plan with 
two exceptions: (a) When the Plan expressly provides that the 
trustee(s) is (are) subject to the direction of a named fiduciary who 
is not a trustee, in which case the trustee(s) is (are) subject to 
proper directions made in accordance with the terms of the Plan and not 
contrary to ERISA; and (b) when the authority to manage, acquire or 
dispose of assets of the Plan is delegated to one or more investment 
managers pursuant to Section 402(c)(3) of ERISA. Unless one of the two 
exceptions stated in Section 403(a) applies, Plan trustees have the 

[[Page 63562]]
exclusive authority and responsibility for voting proxies. Where a 
named fiduciary appoints an investment manager, the investment manager 
has the responsibility to vote the shares held unless the right to vote 
such shares is reserved to the trustees or to the named fiduciary. In 
any event, there is no pass-through voting to the participants in such 
Plans. Accordingly, Applicants note that, unlike the case with 
insurance company separate accounts, the issue of the resolution of 
material irreconcilable conflicts with respect to voting is not present 
with Plans.
    13. Applicants state that no increased conflicts of interest would 
be present by the granting of the requested relief. Applicants assert 
that shared funding does not present any issues that do not already 
exist where a single insurance company is licensed to do business in 
several, or all, states. Applicants note that where insurers are 
domiciled in different states, it is possible that the state insurance 
regulatory body in a state in which one insurance company is domiciled 
could require action that is inconsistent with the requirements of 
insurance regulators in one or more other states in which other 
insurance companies are domiciled. Applicants submit that this 
possibility is no different and no greater than exists where a single 
insurer and its affiliates offer their insurance products in several 
states.
    14. Applicants further submit that affiliation does not reduce the 
potential, if any exists, for differences among state regulatory 
requirements. In any event, the conditions (adapted from the conditions 
included in Rule 6e-3(T)(b)(15)) discussed below are designed to 
safeguard against any adverse effects that these differences may 
produce. If a particular state insurance regulator's decision conflicts 
with the majority of other state regulators, the affected insurer may 
be required to withdraw its separate account's investment in the 
relevant Fund.
    15. Applicants also argue that affiliation does not eliminate the 
potential, if any exists, for divergent judgments as to the 
advisability or legality of a change in investment policies, principal 
underwriter, or investment advisor initiated by owners of the 
Contracts. Potential disagreement is limited by the requirement that 
the Participating Insurance Company's disregard of voting instructions 
be both reasonable and based on specified good faith determinations. 
However, if a Participating Insurance Company's decision to disregard 
Contract owner instructions represents a minority position or would 
preclude a majority vote approving a particular change, such 
Participating Insurance Company may be required, at the election of the 
relevant Fund, to withdraw its investment in that Fund. No charge or 
penalty will be imposed as a result of such withdrawal.
    16. Applicants state that there is no reason why the investment 
policies of a Fund with mixed funding would or should be materially 
different from what those policies would or should be if such 
investment company or series thereof funded only variable annuity or 
variable life insurance contracts. Applicants therefore argue that 
there is no reason to believe that conflicts of interest would result 
from mixed funding. Moreover, Applicants represent that the Funds will 
not be managed to favor or disfavor any Participating Insurance 
Company, type of Contract, or Plan.
    17. Section 817(h) imposes certain diversification standards on the 
underlying assets of variable annuity contracts and variable life 
insurance contracts held in the portfolios of management investment 
companies. Treasury Regulation 1.817-5(f)(3)(iii), which established 
diversification requirements for such portfolios, specifically permits 
``qualified pension or retirement plans'' and separate accounts to 
share the same underlying management investment company. Therefore, 
Applicants have concluded that neither the Code, the Treasury 
regulations, nor the revenue rulings thereunder, present any inherent 
conflicts of interest if Plans, variable annuity separate accounts and 
variable life insurance separate accounts all invest in the same 
management investment company.
    18. Applicants note that while there are differences in the manner 
in which distributions are taxed for variable annuity contracts, 
variable life insurance contracts and Plans, Applicants state that 
these tax consequences do not raise any conflicts of interest. When 
distributions are to be made, and the Account or the Plan is unable to 
net purchase payments to make the distributions, the Account or the 
Plan will redeem shares of the Funds at their respective net asset 
value. The Plan will then make distributions in accordance with the 
terms of the Plan. A Participating Insurance Company will surrender 
values from the Account into the general account to make distributions 
in accordance with the terms of the Contract.
    19. With respect to voting rights, Applicants state that it is 
possible to provide an equitable means of giving such voting rights to 
Contract owners and to Plans. Applicants represent that the Funds will 
inform each shareholder, including each Account and Plan, of its 
respective share of ownership in the respective Funds. Each 
Participating Insurance Company will then solicit voting instructions 
in accordance with the ``pass-through'' voting requirement.
    20. Applicants argue that the ability of the Funds to sell their 
respective shares directly to Plans does not create a ``senior 
security'', as such term is defined under Section 18(g) of the 1940 
Act, with respect to any Contract owner as opposed to a participant 
under a Plan. Regardless of the rights and benefits of participants and 
Contract owners under the respective Plans and Contracts, the Plans and 
the Accounts have rights only with respect to their shares of the 
Funds. Such shares may be redeemed only at net asset value. No 
shareholder of any of the Funds has any preference over any other 
shareholder with respect to distribution of assets or payments of 
dividends.
    21. Finally, Applicants state that there are no conflicts between 
Contract owners and participants under the Plans with respect to the 
state insurance commissioners' veto powers (direct with respect to 
variable life insurance and indirect with respect to variable 
annuities) over investment objectives. The basic premise of corporate 
democracy and shareholder voting is that not all shareholders may agree 
with a particular proposal. The state insurance commissioners have been 
given the veto power in recognition of the fact that insurance 
companies usually are unable to simply redeem their separate accounts 
out of one fund and invest those monies in another fund. Generally, to 
accomplish such redemption and transfers, complex and time consuming 
transactions must be undertaken. Conversely, trustees of Plans or the 
participants in participant-directed Plans can make the decision 
quickly and implement redemption of shares from a Fund and reinvest the 
monies in another funding vehicle without the same regulatory 
impediments or, as is the case with most Plans, even hold cash pending 
suitable investment. Based on the foregoing, Applicants represent that 
even should there arise issues where the interests of Contract owners 
and the interests of Plans conflict, the issues can be almost 
immediately resolved in that trustees of the Plans can, independenty, 
redeem shares out of the Funds.
    22. Applicants state that they do not see any greater potential for 
material irreconcilable conflicts arising between the interests of 
participants under the 

[[Page 63563]]
Plans and owners of the Contracts issued by the Accounts from possible 
future changes in the federal tax laws than that which already exists 
between variable annuity contract owners and variable life insurance 
contract owners.
    23. Applicants state that various factors have kept certain 
insurance companies from offering variable annuity and variable life 
insurance contracts. According to Applicants, these factors include: 
the cost of organizing and operating an investment funding medium; the 
lack of expertise with respect to investment management; and the lack 
of name recognition by the public of certain insurers as investment 
professionals. Applicants argue that use of the Funds as common 
investment media for the Contracts would ease these concerns. 
Participating Insurance Companies would benefit not only from the 
investment and administrative expertise of the Funds' investment 
advisor, but also from the cost efficiencies and investment flexibility 
afforded by a large pool of funds. Applicants state that making the 
Funds available for mixed and shared funding may encourage more 
insurance companies to offer variable contracts such as the Contracts 
which may then increase competition with respect to both the design and 
the pricing of variable contracts. Applicants submit that this can be 
expected to result in greater product variation and lower charges. 
Thus, Applicants argue that Contract owners would benefit because mixed 
and shared funding will eliminate a significant portion of the costs of 
establishing and administering separate funds. Moreover, Applicants 
assert that sales of shares of the Funds to Plans should increase the 
amount of assets available for investment by the Funds. This should, in 
turn, promote economies of scale, permit increased safety of 
investments through greater diversification, and make the addition of 
new portfolios more feasible.
    24. Applicants believe that there is no significant legal 
impediment to permitting mixed and shared funding. Additionally, 
Applicants note the previous issuance of orders permitting mixed and 
sharing funding where shares of a fund were sold directly to qualified 
plans such as the Plans.

Applicants' Conditions

    Applicants have consented to the following conditions if the order 
requested in the application is granted:
    1. A majority of the Board of Trustees or Board of Directors of 
each fund (each, a ``Board'') shall consist of persons who are not 
``interested persons'' of the Funds, as defined by Section 2(a)(19) of 
the 1940 Act and the rules thereunder and as modified by any applicable 
orders of the Commission, except that, if this condition is not met by 
reason of the death, disqualification, or bona fide resignation of any 
trustee or director, then the operation of this condition shall be 
suspended: (a) For a period of 45 days if the vacancy or vacancies may 
be filled by the Board; (b) for a period of 60 days if a vote of 
shareholders is required to fill the vacancy or vacancies; or (c) for 
such longer period as the Commission may prescribe by order upon 
application.
    2. Each Board will monitor its respective Fund for the existence of 
any material irreconcilable conflict among the interests of the 
Contract owners of all of the Accounts investing in the respective 
Funds. A material irreconcilable conflict may arise for a variety of 
reasons, including: (a) An action by any state insurance regulatory 
authority; (b) a change in applicable federal or state insurance, tax, 
or securities laws or regulations, or a public ruling, private letter 
ruling, no-action or interpretative letter, or any similar action by 
insurance, tax, or securities regulatory authorities; (c) an 
administrative or judicial decision in any relevant proceeding; (d) the 
manner in which the investments of the Funds are managed; (e) a 
difference in voting instructions given by owners of variable annuity 
contracts and owners of variable life insurance contracts; or (f) a 
decision by a Participating Insurance Company to disregard the voting 
instructions of Contract owners.
    3. The Participating Insurance Companies, CIGNA (or any other 
investment advisor of the Funds), and any Plan that executes a fund 
participation agreement upon becoming an owner of 10% or more of the 
assets of a Fund (the ``Participants'') will report any potential or 
existing conflicts to the Board.\1\ Participants will be responsible 
for assisting the appropriate Board in carrying out its 
responsibilities under these conditions by providing the Board with all 
information reasonably necessary for the Board to consider any issues 
raised. This responsibility includes, but is not limited to, an 
obligation by each Participant to inform the Board whenever voting 
instructions of Contract owners are disregarded. The responsibility to 
report such information and conflicts and to assist the Board will be a 
contractual obligation of all Participants in the Funds under their 
agreements governing participation in the Funds. These responsibilities 
will be carried out with a view only to the interests of Contract 
owners.

    \1\ Applicants represent that, during the notice period, an 
amendment to the application will be filed and that such amendment 
will extend the obligation set forth in condition three to ``any 
other investment advisor of the Funds.''
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    4. If it is determined by a majority of the Board, or by a majority 
of its disinterested trustees or directors, that an irreconcilable 
material conflict exists, the relevant Participant shall, at its 
expense and to the extent reasonably practicable (as determined by a 
majority of the disinterested trustees or directors), take any steps 
necessary to remedy or eliminate the irreconcilable material conflict, 
including: (a) Withdrawing the assets allocable to some or all of the 
Accounts from the Funds and reinvesting such assets in a different 
investment medium including another portfolio of the relevant Fund or 
another Fund, or submitting the question as to whether such segregation 
should be implemented to a vote of all affected Contract owners; and, 
as appropriate, segregating the assets of any appropriate group (i.e., 
variable annuity contract owners, variable life insurance contract 
owners, or variable contract owners of one or more of the Participants) 
that votes in favor of such segregation, or offering to the affected 
variable contract owners the option of making such a change; and (b) 
establishing a new registered management investment company or managed 
separate account. If a material irreconcilable conflict arises because 
of a Participant's decision to disregard voting instructions of the 
owners of the Contracts, and that decision represents a minority 
position or would preclude a majority vote, the Participant may be 
required, at the election of the relevant Fund, to withdraw its 
Account's investment in the Fund, and no charge or penalty will be 
imposed as a result of such withdrawal.
    The responsibility to take remedial action in the event of a Board 
determination of a material irreconcilable conflict and to bear the 
cost of such remedial action shall be a contractual obligation of all 
Participants under the agreement governing their participation in the 
Funds. The responsibility to take such remedial action shall be carried 
out with a view only to the interests of Contract owners. For purposes 
of this Condition Four, a majority of the disinterested members of the 
applicable Board shall determine whether any proposed action adequately 
remedies any material irreconcilable conflict, but, in no event will 
the relevant Fund or CIGNA (or any other investment advisor of the 
Funds) be required to establish a new funding medium for any Contract. 
Further, no 

[[Page 63564]]
Participant shall be required by this Condition Four to establish a new 
funding medium for any Contract if any offer to do so has been declined 
by a vote of a majority of the Contract owners materially affected by 
the material irreconcilable conflict.
    5. The Board's determination of the existence of an irreconcilable 
material conflict and its implications shall be made known promptly and 
in writing to all Participants.
    6. Participants will provide pass-through voting privileges to all 
Contract owners so long as the Commission continues to interpret the 
1940 Act as requiring pass-through voting privileges for Contract 
owners. Accordingly, the Participants, where applicable, will vote 
shares of the Fund held in their Accounts in a manner consistent with 
voting instructions timely received from Contract owners. Participants 
will be responsible for assuring that each of their Accounts that 
participates in the Fund calculates voting privileges in a manner 
consistent with other Participants. The obligation to calculate voting 
privileges in a manner consistent with all other Accounts will be a 
contractual obligation of all Participants under the agreements 
governing their participation in the Funds. Each Participant will vote 
shares for which it has not received timely voting instructions as well 
as shares it owns in the same proportion as it votes those shares for 
which it has received voting instructions.
    7. All reports received by the Board of potential or existing 
conflicts, and all Board action with regard to: (a) determining the 
existence of a conflict; (b) notifying Participants of a conflict; and 
(c) determining whether any proposed action adequately remedies a 
conflict, will be properly recorded in the minutes of the appropriate 
Board or other appropriate records. Such minutes or other records shall 
be made available to the Commission upon request.
    8. Each Fund will notify all Participants that separate account 
prospectus disclosure regarding potential risks of mixed and shared 
funding may be appropriate. Each Fund shall disclose in its prospectus 
that: (a) Shares of the Fund may be offered to insurance company 
separate accounts of both annuity and life insurance variable 
contracts, and to qualified plans; \2\ (b) due to differences of tax 
treatment and other considerations, the interests of various contract 
owners participating in the Funds and the interests of Plans investing 
in the Funds may conflict; and (c) the Board will monitor the Funds for 
any material conflicts and determine what action, if any, should be 
taken.

    \2\ Applicants represent that an amendment to the application 
will be filed during the notice period, and that such amendment will 
include the representation regarding disclosure of the sale of 
shares of the Funds to qualified plans.
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    9. Each Fund will comply with all provisions of the 1940 Act 
requiring voting by shareholders (which, for these purposes, shall be 
the persons having a voting interest in the shares of the Funds), and, 
in particular, each Fund will either provide for annual meetings 
(except to the extent that the Commission may interpret Section 16 of 
the 1940 Act not to require such meetings) or comply with Section 16(c) 
of the 1940 Act, (although the Funds are not one of the trusts 
described in Section 16(c) of the 1940 Act) as well as with Section 
16(a), and, if applicable, Section 16(b) of the 1940 Act. Further, each 
Fund will act in accordance with the Commission's interpretation of the 
requirements of Section 16(a) with respect to periodic elections of 
directors (or trustees) and with whatever rules the Commission may 
promulgate with respect thereto.
    10. If and to the extent that Rules 6e-2 and 6e-3(T) are amended 
(or if Rule 6e-3 under the 1940 Act is adopted) to provide exemptive 
relief from any provision of the 1940 Act or the rules thereunder with 
respect to mixed and shared funding on terms and conditions materially 
different from any exemptions granted in the order requested by 
Applicants, then the Funds and/or the Participants, as appropriate, 
shall take such steps as may be necessary to comply with Rules 6e-2 and 
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such 
rules are applicable.
    11. No less than annually, the Participants, and/or CIGNA, and/or 
its affiliates, shall submit to the Boards such reports, materials, or 
data as the Boards may reasonably request so that the Boards may carry 
out fully the obligations imposed upon them by the conditions contained 
in the application. Such reports, materials, and data shall be 
submitted more frequently if deemed appropriate by the Boards. The 
obligations of the Participants to provide these reports, materials, 
and data to the Boards, when the appropriate Board so reasonably 
requests, shall be a contractual obligation of all Participants under 
the agreements governing their participation in the Funds.
    12. If a Plan becomes an owner of 10% or more of the assets of a 
Fund, such Plan will execute a fund participation agreement with the 
applicable Fund. A Plan will execute an investor's application 
containing an knowledgment of this condition upon such Plan's initial 
purchase of the shares of any Fund.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30071 Filed 12-8-95; 8:45 am]
BILLING CODE 8010-01-M