Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Notices 63559

11Supra, note 3.

12The conforming changes include terms that

ensure that non-broker-dealer XM market

professional will not be treated as ‘‘customers’’ for

purposes of Rule 15c3–3 under the Act pursuant to

the conditions set forth in the Commission’s noaction letter dated July 31, 1995. Letter from

Michael Macchiaroli, Associate Director, Division

of Market Regulation, Commission, to Jean Cawley,

OCC (July 31, 1995).

13 In addition, pursuant to the amendment filed

on October 11, 1995, OCC proposes to revise the

agreements governing the proprietary XM accounts

in the OCC/KCC XM program to conform the terms

of those agreements to the terms used in the

agreements used in the OCC/ICC/CME and OCC/

ICC XM programs. 14 17 CFR 200.30–3(a)(12) (1994).

Commission’s order and the CFTC’s

order approving non-proprietary XM

provide for such result.

The CFTC has adopted new rules that

provide for a different distributional

framework for funds and property

carried in a non-proprietary XM

account.11 The new revised rules

continue the concept of subordination

for the purpose of ensuring that the

market professionals’ securities

included in a XM account will be

subject to commodity broker liquidation

rules but modify the method for

property distribution in the event of the

liquidation of the firm(s) carrying the

non-propriety XM account. Under the

revised distributional scheme, FCMs

will continue to make separate

calculations for non-XM customers and

XM market professionals, and funds

deposited pursuant to those calculations

will continue to be separately

maintained. However, in the event of

the failure of the firm(s) carrying the

non-proprietary XM accounts, the

respective shortfalls, if any, of the pools

of funds would be determined as a

percentage of the segregation

requirement for each pool.

In the event of (i) No shortfall in

either pool, (ii) an equal percentage of

shortfall in both pools, (iii) a shortfall in

the non-XM pool only, or (iv) a greater

percentage of shortfall in the non-XM

pool than in the XM pool, then the two

pools of segregated funds would be

combined and non-XM customers and

XM market professionals would share

pro rata in the combined pool. In the

event of (i) a shortfall in the XM pool

only or (ii) a greater percentage shortfall

in the XM pool than in the non-XM

pool, then the two pools of segregated

funds would not be combined. Instead,

XM market professionals will share pro

rata in the pool of XM segregated funds

while non-XM customers would share

pro rata in the pool of non-XM

segregated funds.

In order to implement the new

distributional requirements, the clearing

organizations operating non-proprietary

XM programs must submit amended

agreements to the respective regulatory

authorities deleting the subordination

requirement and substituting a reference

to the CFTC’s distribution rules.

Accordingly, OCC is proposing to make

those and other conforming changes 12

to the agreements governing nonproprietary XM accounts for the XM

program among OCC, CME, and ICC, the

XM program between OCC and ICC, and

the XM program between OCC and

KCC.13

OCC believes the proposed rule

change is consistent with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder because the rule proposal

will facilitate the prompt and accurate

clearance and settlement of securities

transactions and will assure the

safeguarding of securities and funds

which are in the custody or control of

the clearing agency or for which it is

responsible.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

OCC does not believe that the

proposed rule change will impact or

impose a burden on competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

No written comments relating to the

proposed rule change have been

solicited or received. OCC will notify

the Commission of any written

comments received by OCC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

As the Commission may designate up to

ninety days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which OCC consents, the

Commission will:

(a) By order approve such proposed

rule change or

(b) Institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. § 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of OCC. All submissions should

refer to the file number SR–OCC–95–12

and should be submitted by January 2,

1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30070 Filed 12–8–95; 8:45 am]

BILLING CODE 8010–01–M

[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’’).

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
63560 Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Notices

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
Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Notices 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. § 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.

§ 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 passthrough 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 passthrough 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
63562 Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Notices

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 passthrough 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 participantdirected 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
Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Notices 63563

1Applicants 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.’’

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, noaction 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.

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
63564 Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Notices

2Applicants 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.

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 passthrough 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.

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

SMALL BUSINESS ADMINISTRATION

Specialized Small Business Investment

Company (SSBIC) Advisory Council

Public Meeting

The U.S. Small Business

Administration, Investment Division

(SSBIC) Advisory Council will hold a

public meeting on Wednesday,

December 13, 1995, at 9:00 a.m. The

meeting will be held at the Law Office

of Reid and Priest, 701 Pennsylvania

Avenue, N.W., Eighth Floor,

Washington Conference Room,

Washington, D.C. This meeting was

previously scheduled for Friday,

November 17, 1995 but was cancelled

due to the shutdown of the Federal

government. The purpose of the meeting

is to discuss matters as may be

presented by Council members, staff of

the U.S. Small Business Administration,

or others present.

For further information, write or call

Mr. Darryl K. Hairston, Deputy

Associate Administrator for Investment,

U.S. Small Business Administration,

409 Third Street, S.W., Suite 6300,

Washington, D.C. 20416 (202) 205–6510.

Dated: December 5, 1995.

Art DeCoursey,

Director, Office of Advisory Council.

[FR Doc. 95–30022 Filed 12–8–95; 8:45 am]

BILLING CODE 8025–01–M

DEPARTMENT OF STATE

[Public Notice No. 2297]

Overseas Schools Advisory Council;

Notice of Meeting

The Overseas Schools Advisory

Council, Department of State, will hold

its Executive Committee Meeting on

Thursday, January 18, 1996 at 9:30 a.m.

in Conference Room 1205, Department

of State Building, 2201 C Street, N.W.,

Washington, D.C. The meeting is open

to the public.

The Overseas Schools Advisory

Council works closely with the U.S.

business community in improving those

American-sponsored schools overseas

which are assisted by the Department of