[Federal Register Volume 59, Number 229 (Wednesday, November 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29419]


[[Page Unknown]]

[Federal Register: November 30, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20727; 812-8906]

 

Investors Life Insurance Company of North America, et al.

November 22, 1994.
AGENCY: U.S. Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

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

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APPLICANTS: Investors Life Insurance Company of North America 
(``Investors'') and its two separate accounts, Investors Life Insurance 
Company of North America--CIGNA Separate Account I (``Account I'') and 
Investors Life Insurance Company of North America--INA/Putnam Separate 
Account (``INA/Putnam Account''). (Investors, Account I, and INA/Putnam 
Account shall be referred to herein collectively as the 
``Applicants'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 26(b) of the 
1940 Act approving proposed substitution of portfolio shares; order 
requested under Sections 6(c) and 17(b) of the 1940 Act to the extent 
that the proposed substitution may involve transactions prohibited by 
Section 17(a) of the 1940 Act.

SUMMARY OF APPLICATION: The Applicants seek an order permitting the 
substitution (the ``Substitution'') of shares of each of the portfolios 
of the CIGNA Annuity Funds Group for shares of corresponding portfolios 
of Putnam Capital Manager Trust. The Applicants also seek an order 
permitting the purchase and sale of securities between affiliates in 
connection with the Substitution.

FILING DATES: The Application was filed initially on March 22, 1994. An 
amended and restated application was filed on October 24, 1994.

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 the Secretary of the 
Commission and serving the Applicants with copies of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on December 19, 1994, and should be accompanied 
by proof of service on the Applicants in the form of an affidavit or, 
for lawyers, a certificate of service. Hearing requests should state 
the nature of the writer's interest, the reason for the request, and 
the issues contested. Persons may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants, Investors Life 
Insurance Company of North America, 701 Brazos Street, Austin, Texas 
78701, Attention: Theodore A. Fleron, General Counsel.

FOR FURTHER INFORMATION CONTACT: Patrice M. Pitts, Attorney, at (202) 
942-0670, Office of Insurance Products (Division of Investment 
Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
SEC's Public Reference Branch.

Applicants' Representations and Statements

    1. Investors is a stock life insurance company which was organized 
under the laws of the Commonwealth of Pennsylvania in 1963. Investors 
changed its state of domicile to the State of Washington in 1992.
    2. In September 1982, Investors established Account I as a separate 
investment account to fund certain flexible premium and single premium 
variable annuity policies (the ``Account I Policies''). Account I is 
organized and registered under the 1940 Act as a unit investment trust. 
Account I currently has five divisions, each of which invests 
exclusively in shares of a designated portfolio of the CIGNA Annuity 
Funds Group (the ``CIGNA Funds'').\1\ Each such division contains two 
subdivisions, one for the allocation of tax qualified and one for non-
tax qualified net payments made under variable annuity contracts.
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    \1\Before October 1985, the underlying funding vehicle for 
Account I was the CIGNA Annuity Fund, Inc. On October 16, 1985, the 
CIGNA Funds acquired the assets and liabilities of CIGNA Annuity 
Fund, Inc., pursuant to an Agreement and Plan of Reorganization 
which had been approved by the shareholders of CIGNA Annuity Fund, 
Inc.
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    3. The underlying investment vehicle for Account I is the CIGNA 
Funds, a Massachusetts business trust organized on April 10, 1985, 
which is registered under the 1940 Act as an open-end management 
company of the series type. The CIGNA Funds currently consist of five 
portfolios, each with its own investment objectives and investment 
portfolio. Before November 29, 1993, the investment adviser to the five 
portfolios of the CIGNA Funds was CIGNA Investments, Inc. (``CII''), a 
subsidiary of CIGNA Corporation.
    4. In June 1980, the Investors established INA/Putnam Account as a 
separate investment account to fund certain single premium variable 
annuity policies (the ``INA/Putnam Policies''). The INA/Putnam Account 
is organized and registered under the 1940 Act as a unit investment 
trust. The INA/Putnam Account initially had five divisions, each of 
which invested exclusively in shares of one of the following mutual 
funds (collectively, the ``Putnam Funds''): Putnam Income Fund; Putnam 
High Yield Trust; Putnam Equity Income Fund (formerly known as Putnam 
Strategic Income Trust and Putnam Option Income Trust); Putnam Daily 
Dividend Trust; and Putnam Investors Fund. Each division of the INA/
Putnam Account contained two subdivisions, one for the allocation of 
tax qualified and one for the allocation of non-tax qualified net 
payments made under variable annuity contracts. Putnam Investment 
Management, Inc. (``Putnam'') currently serves as investment adviser to 
the Putnam Funds.
    5. Following the issuance of Revenue Ruling 81-225 by the Internal 
Revenue Service on September 25, 1981, Investors discontinued offering 
the INA/Putnam Policies.\2\ For owners of INA/Putnam Policies issued 
prior to Revenue Ruling 81-225 who were adversely affected by that 
Revenue Ruling, Investors added an additional division to the INA/
Putnam Account, for which the underlying investment vehicle is the 
CIGNA Funds. Those INA/Putnam Policy owners were able to transfer 
contract values from the Putnam Funds to the CIGNA Funds. The CIGNA 
Funds initially offered a money market option (the ``CIGNA Annuity 
Money Market Fund''); subsequently, the investment options were 
expanded to include the CIGNA Annuity Income Fund and the CIGNA Annuity 
Equity Fund as well.\3\ The Putnam Funds have remained available under 
INA/Putnam Contracts issued prior to the cut-off dates described in 
Revenue Ruling 81-225. Accordingly, there currently are eight divisions 
of the INA/Putnam Account.
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    \2\Revenue Ruling 81-225 pertains to variable annuity contracts 
offered through insurance company separate accounts holding shares 
of mutual funds which also offer their shares to the public. Revenue 
Ruling 81-225 questioned the tax treatment of variable annuity 
contracts when the underlying mutual funds are not managed by the 
issuing company or an affiliate, or when the policyholder may 
initially allocate, and subsequently reallocate, the contract values 
among several underlying funds.
    \3\As indicated above, the CIGNA Funds currently consist of five 
portfolios. However, shares of two of those five portfolios (the 
CIGNA Annuity Growth and Income Fund and the CIGNA Annuity 
Aggressive Equity Fund) have not been made available to owners of 
the INA/Putnam Policies.
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    6. In July 1993, CII advised the Board of Trustees of the CIGNA 
Funds that CIGNA Corporation and its subsidiaries intended to redirect 
resources away from the active management of equity securities and 
concentrate their equity management activities in indexing strategies. 
Accordingly, CII indicated to the Board of Trustees of the CIGNA Funds 
and to Investors that it would be unwilling to continue to serve as 
investment adviser to any of the CIGNA Funds on a long-term basis. CII 
also indicated that it would work with Investors to identify and 
implement a successor arrangement.
    7. Following discussions with several major mutual fund groups, 
Investors and CII determined that Putnam Capital Manager Trust (the 
``PCM Funds'') and Putnam would provide a means for the orderly 
withdrawal of CII's investment advisory services in light of: (i) The 
willingness of Putnam to provide interim advisory services to the CIGNA 
Equity Funds; (ii) the availability of funds which offer investment 
objectives similar to those provided by each series of the CIGNA funds; 
and (iii) the availability of a current PCM Funds registration for 
funds which could be substituted for the CIGNA Funds as the underlying 
investment vehicle for variable annuity contracts sponsored by 
Investors.\4\
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    \4\Putnam currently serves as investment advisor to the Putnam 
Funds (which serve as underlying investment options for the INA/
Putnam Account) as well as the investment advisor to the PCM Funds. 
The PCM Funds are structured to satisfy the requirements of Section 
817(h) of the Internal Revenue Code. Since the Putnam Funds are not 
so structured, they are not appropriate for the purposes of the 
Substitution.
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    8. On November 29, 1993, the board of trustees of the CIGNA Funds, 
acting on the advice of CII, terminated the appointment of CII as 
investment adviser to the CIGNA Annuity Equity Fund, the CIGNA Annuity 
Growth and Income Fund and the CIGNA Annuity Aggressive Equity Fund 
(the ``CIGNA Equity Funds''). Concurrently, the board of trustees 
appointed Putnam as the investment adviser to the CIGNA Equity Funds, 
effective as of November 30, 1993. The investment advisory agreement 
between the CIGNA Funds and Putnam is substantially the same as the 
agreement between the CIGNA funds and CII, except with respect to the 
provisions of certain administrative services.\5\ On March 8, 1994, the 
shareholders of the CIGNA Equity Funds approved the investment advisory 
agreement between Putnam and the CIGNA Equity Funds.
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    \5\CII was retained to provide administrative services to the 
CIGNA Equity Funds, pending the effectiveness of the proposed 
substitution. CII continues to act as investment advisor to the 
CIGNA Annuity Money Market Fund and the CIGNA Annuity Income Fund. 
Putnam receives an investment advisory fee calculated at the same 
annual rate as the fee previously paid to CII for the CIGNA Equity 
Funds. CII continues to receive reimbursement for a portion of its 
expenses associated with the administration of the CIGNA Equity 
Funds. These fees remain subject to reduction under expense waiver 
or reimbursement arrangements.
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    9. The PCM Funds are registered under the 1940 Act as an open-end 
management company of the series type. The PCM Funds currently consist 
of nine portfolios, each with its own investment objectives and 
investment portfolio. The proposed substitution would utilize four of 
the portfolios of the PCM Funds with respect to Account I Policies and 
three of the portfolios with respect to the INA/Putnam Policies.
    10. Investors proposes to substitute shares of the CIGNA Funds for 
shares of the PCM Funds on the following basis.
     As of the effective date of the Substitution, shares of 
CIGNA Annuity Money Market Fund would be redeemed by Investors. On the 
same day, Investors would use the proceeds to purchase the appropriate 
number of shares of the PCM Money Market Fund.
     As of the effective date of the Substitution, shares of 
CIGNA Annuity Income Fund would be redeemed by Investors. On the same 
day, Investors would use the proceeds to purchase the appropriate 
number of shares of PCM U.S. Government and High Quality Bond Fund.
     As of the effective date of the Substitution, shares of 
CIGNA Annuity Equity Fund would be redeemed by Investors. On the same 
day, Investors would use the proceeds to purchase the appropriate 
number of shares of the PCM Growth and Income Fund.
     As of the effective date of the Substitution, shares of 
CIGNA Annuity Growth and Income Fund would be redeemed by Investors. On 
the same day, Investors would use the proceeds to purchase the 
appropriate number of shares of PCM Growth and Income Fund.
     As of the effective date of the Substitution, shares of 
CIGNA Annuity Aggressive Equity Fund would be redeemed by Investors. On 
the same day, Investors would use the proceeds to purchase the 
appropriate number of shares of PCM Voyager Fund.
    11. The Substitution would take place at relative net asset values 
of the CIGNA Funds and the PCM Funds, with no change in the amount of 
any policyholder's account value under either the Account I or the INA/
Putnam Policies.
    12. It is expected that the CIGNA Funds will incur brokerage fees 
and expenses in connection with the redemption by Investors of the 
shares of the CIGNA Funds. These expenses would be charged to the 
applicable portfolio of the CIGNA Funds. To alleviate the potential 
impact of such brokerage fees and expenses upon the CIGNA Funds, CII 
and the CIGNA Funds have proposed to Investors that the redemption of 
the shares of the CIGNA Funds be accomplished, in part, by ``in kind'' 
payments. Under the proposal, the CIGNA Funds would transfer to 
Investors cash and/or securities held by the CIGNA Funds at the 
effective date of the Substitution, and Investors would use such cash 
and/or securities to purchase shares of the applicable portfolio of the 
PCM Funds. Investors has indicated that it would be agreeable to the 
``in kind'' aspect of the proposal, on the conditions that: (i) The 
CIGNA Funds identify prior to the effective date of the Substitution 
the securities to be included in the ``in kind'' transfer; and (ii) the 
PCM Funds and Putnam, in its capacity as investment adviser to the PCM 
Funds, agree to accept the securities so identified in payment for the 
purchase by Investors of shares of PCM Funds to effectuate the 
Substitution. The valuation of any ``in kind'' transfers will be on a 
basis consistent with the valuation of the assets of the CIGNA Funds 
and the normal valuation procedures of the PCM Funds.
    13. Following the Substitution, the fees and expenses imposed by 
Investors under the Account I Policies and the INA/Putnam Policies 
would remain the same as currently in effect. In addition, the 
Substitution would not impose any federal income tax liability on 
owners of Account I Policies or INA/Putnam Policies.
    14. Following the Substitution, Account I Policy owners would have 
the right to transfer account values among the divisions of Account I 
for which the four PCM Funds described above serve as the underlying 
investment vehicle. INA/Putnam Policy owners would have the right to 
transfer account values among the divisions of the INA/Putnam Account 
for which three PCM funds (the PCM Money Market Fund, the PCM U.S. 
Government High Quality Bond Fund, and the PCM Growth and Income Fund) 
serve as the underlying investment vehicles. In addition, INA/Putnam 
Policy owners who currently utilize one or more of the Putnam Funds as 
their underlying investment vehicle(s) would be able to transfer such 
values amongst the PCM Money Market Fund, the PCM U.S. Government and 
High Quality Bond Fund, and the PCM Growth and Income Fund. The current 
provisions of the INA/Putnam Policies which prevent a policyholder who 
transfers values from the Putnam Funds to the CIGNA Funds from 
subsequently transferring such values back to the Putnam Funds would 
continue in effect, with the restriction applying to PCM Funds in place 
of the CIGNA Funds.
    15. Following the Substitution, Investors intends to redeem its 
investment of seed money. However, the timing of such withdrawal has 
not been established and will be at the discretion of Investors. By 
making this withdrawal after the Substitution, Investors anticipates 
that the brokerage and related expenses incurred by the underlying fund 
would have a substantially reduced impact, if any, upon Policy owners, 
as a result of the larger overall size of the applicable PCM Funds.
    16. Investors has been advised by CII that, following the 
Substitution and the redemption of CIGNA Funds shares by Investors, the 
CIGNA Funds intends to file an application under Section 8(f) of the 
1940 Act, requesting an order that it has ceased to be an investment 
company. Following the issuance of such an order, the CIGNA Funds will 
dissolve, pursuant to the applicable provisions of Massachusetts law.
    17. If the Commission approves the Substitution, Policy holders 
will receive notice of the intended substitution and will have the 
opportunity to vote on the matter. The Account I Policies and the INA/
Putnam Policies provide that a substitution of the shares of one 
registered investment company for those of another registered 
investment company may be implemented with respect to a particular 
division of the applicable separate account only if it (i.e., the 
substitution) has been previously approved by a majority of the votes 
to be cast be persons having a voting interest in the fund shares 
allocated to the applicable separate account division.\6\
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    \6\With respect to the INA/Putnam Policies, Investors will 
request that the SEC staff confirm that the Substitution will not 
affect adversely the no-action positions previously issued to 
Investors and the INA/Putnam Account.
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    18. The historical expense ratios for the CIGNA Funds generally 
have been higher than the historical expense ratios for the PCM Funds. 
The difference is attributable, in part, to the larger asset size of 
the PCM Funds, as compared to the asset size of the CIGNA Funds.

Applicants' Legal Analysis

A. Request for Order Pursuant to Section 26(b) of the 1940 Act

    1. Section 26(b) of the 1940 Act provides:
    It shall be unlawful for any depositor or trustee of a registered 
unit investment trust holding the security of a single issuer to 
substitute another security for such security unless the Commission 
shall have approved such substitution. The Commission shall issue an 
order approving such substitution if the evidence establishes that it 
is consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of this title.\7\
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    \7\The Applicants represent that the Commission has interpreted 
Section 26(b) to apply to a ``substitution of securities in any sub-
account of a registered separate account.'' See Investment Company 
Act Rel. No. 12678 (Sept. 21, 1982) at 13.
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    2. The purpose of Section 26(b) is to protect the expectation of 
investors in a unit investment trust that the unit investment trust 
will accumulate the shares of a particular issuer, and to prevent 
unscrutinized substitutions which might, in effect, force shareholders 
dissatisfied with the substituted security to redeem their shares, 
thereby incurring either a loss of the sales load deducted from initial 
proceeds, an additional sales load upon reinvestment of the redemption 
proceeds, or both. Section 26(b) affords this protection to investors 
by preventing a depositor or trustee of a unit investment trust holding 
the shares of one issuer from substituting the shares of another issuer 
for those shares, unless the Commission approves the substitution.
    3. The Applicants represent that, for the following reasons, the 
purposes, terms, and conditions of the Substitution will not entail any 
of the abuses that Section 26(b) is designed to prevent.
     The Substitution is being proposed because the investment 
adviser to CIGNA Funds has indicated that it would be unwilling to 
serve as investment adviser to any of the CIGNA Funds on a long-term 
basis. This decision, which is beyond the control of Investors, has 
necessitated the proposal of an alternative funding vehicle for 
variable annuity contracts offered by Investors.
     The Substitution is for shares of PCM Funds with 
investment objectives which are sufficiently similar to the objectives 
of the corresponding portfolios of the CIGNA Funds to provide a means 
for Policy holders to continue their current investment goals and risk 
expectations.
     The transactions effecting the Substitution, including the 
redemption of the shares of the CIGNA Funds and the purchase of shares 
of PCM Funds, will be effected at net asset value of the respective 
shares, in conformity with Section 22(c) of the 1940 Act and Rule 22c-1 
thereunder.
     Utilization of ``in kind'' redemptions by the CIGNA Funds, 
to the extent appropriate, followed by the use by Investors of the 
shares received to purchase shares of PCM Funds, would reduce the 
expenses and transaction costs involved in the Substitution.
     The Substitution will not alter or affect the insurance 
benefits provided by Investors to Policy holders under the terms of the 
contracts.
     The Substitution will not affect adversely the tax 
benefits available to Policy holders. The Substitution will not give 
rise to any current federal income tax to Policy holders.
     The Substitution provides Policy holders with an 
underlying investment vehicle with enhanced asset size.
    4. The Account I Policies and the INA/Putnam Policies reserve to 
Investors the right--subject to prior approval of affected Policy 
holders, as well as approval by the SEC--to substitute shares of 
another management investment company for shares of an investment 
company held by a division of Account I or the INA/Putnam Account, or 
to add or eliminate one or more such divisions.
    5. Investors reserved this right of substitution in order to 
protect itself and its Policy holders in several adverse situations. 
This includes the present situation where the investment adviser to the 
underlying investment vehicles has stated that it intends to withdraw 
from the equity advisory business, with the related implication that a 
dissolution of the CIGNA Funds would result in a forced liquidation of 
Account I and that portion of the INA/Putnam Account for which the 
CIGNA Funds serves as the underlying investment vehicle.
    6. The Applicants submit that, under the circumstances, it is in 
the best interests of Account I and INA/Putnam Policy owners to proceed 
with the Substitution. The Applicants represent that the overall 
investment objectives of the portfolio of PCM Funds which would be 
substituted for the corresponding portfolio of the CIGNA Funds are 
sufficiently similar for the Substitution to be appropriate. The 
Applicants believe that the investment objectives are compatible.
    7. The Applicants further represent that total fees and expenses, 
as a percentage of net assets, for the portfolios of PCM Funds which 
would be so substituted are not expected to increase as a result of the 
Substitution. The Applicants acknowledge that, with the exception of 
the PCM Money Market Fund, the advisory fee for each of the PCM Funds 
is higher than the advisory fee for the corresponding CIGNA Fund. 
However, the Applicants submit that since the PCM Funds are 
substantially larger in asset size than the CIGNA Funds, the operating 
expenses are spread over a larger base, thereby producing total expense 
ratios for the PCM Funds which, on a historical basis, have been lower 
than the ratios for the CIGNA Funds.

B. Request for Order Pursuant to Sections 6(c) and 17(b) of the 1940 
Act

    1. Under certain circumstances, Section 17(a)(1) of the 1940 Act 
prohibits any affiliated person of a registered investment company, or 
an affiliated person of an affiliated person, from selling any security 
or other property to such registered investment company. Section 
17(a)(2) of the 1940 Act prohibits any of the persons described above 
from purchasing any security or other property from such registered 
investment company.
    2. The Applicants submit that because the Substitution may be 
deemed to involve one or more purchases or sales of securities between 
and among affiliated persons as a result of the purchase by Account I 
and the INA/Putnam Account of shares of PCM Funds with proceeds 
(including ``in kind'' distributions of securities in lieu of cash) 
from the redemption of shares of the CIGNA Funds, the Substitution may 
involve transactions prohibited by Section 17(a) of the 1940 Act. The 
Applicants further submit that the Substitution would not be exempt 
from Section 17 of the 1940 Act pursuant to Rule 17a-7 thereunder, 
since the affiliations among the parties do not arise solely by reason 
of having common investment advisers, common directors and/or common 
officers.
    3. Section 17(b) of the 1940 Act provides that:
    Notwithstanding subsection (a), any person may file with the 
Commission an application for an order exempting a proposed transaction 
of the applicant from one or more provisions of that subsection. The 
Commission shall grant such application and issue such order of 
exemption if evidence establishes that--

    (1) The terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned;
    (2) The proposed transaction is consistent with the policy of 
each registered investment company concerned, as recited in its 
registration statement and reports filed under this title; and
    (3) The proposed transaction is consistent with the general 
purposes of this title.

    4. The Applicants seek an exemption from Section 17(a) under both 
Sections 17(b) and 6(c) of the 1940 Act, because Section 17(b) refers 
to a single ``proposed transaction'' while, under Section 6(c), the 
Commission may exempt a series of transactions.
    5. The Applicants represent that the terms of the Substitution meet 
all of the requirements of Section 17(b). The Applicants submit that, 
for the reasons set forth in their request for exemptive relief under 
Section 26(b) of the 1940 Act--particularly those set forth below, the 
terms of the Substitution are reasonable and fair and do not involve 
overreaching on the part of any person concerned.
     The Substitution will be effected pursuant to the 
established net asset values of CIGNA Funds and PCM Funds as of the 
effective date of the Substitution, in conformity with Section 22(c) of 
the 1940 Act and Rule 22c-1 thereunder.
     The Substitution is intended to provide owners of Account 
I Policies and INA/Putnam Policies with underlying investment vehicles 
which correspond to the options currently available under the CIGNA 
Funds.
     The Substitution is intended to provide owners of Account 
I Policies and INA/Putnam Policies with continuity, given the announced 
intention of CII to withdraw as investment adviser to the CIGNA Funds.
     The Substitution is expected to result in lower expense 
ratios.
     The Substitution is not expected to have federal income 
tax consequences for Policy holders.
    6. The Applicants further submit that, with respect to the ``in 
kind'' aspects of the Substitution: (a) Investors has been advised by 
CIGNA Funds and PCM Funds that only those securities which Putnam 
otherwise would select for the applicable portfolios of PCM Funds will 
be included in the ``in kind'' transfer to Investors; (b) Investors has 
been assured by CII and Putnam that the securities to be included in 
the ``in kind'' transfer will be valued at independent current market 
prices on the effective date of the Substitution; and (c) CII and 
Putnam have assured Investors that no brokerage commissions, fees or 
other remuneration would be paid or charged in connection with the in 
kind transfers.
    7. The Applicants represent that because the ``in kind'' transfer 
would occur only once--i.e., on the effective date of the Substitution, 
Account I and INA/Putnam Account have not adopted the written 
procedures described in paragraph (e)(1) of Rule 17a-7. Investors 
submits that the purposes intended to be served by such written 
procedures are not applicable to the current situation. Investors 
submits that the proposed transactions involved in the Substitution 
fall within the intent of Rule 17a-7 securities redeemed in kind and 
that, consequently, there will be no overreaching because all 
securities redeemed in kind and used to purchase shares of the PCM 
Funds will be consistently valued for all purposes. Nonetheless, 
Investors, Account I and INA/Putnam Account will comply with paragraphs 
(b), (c) and (d) of Rule 17a-7.
    8. The Applicants submit that the Substitution is consistent with 
the general purposes of the 1940 Act and does not present any of the 
investor protection concerns that Section 26(b) is designed to address. 
The Applicants note that Policy holder will be informed fully of the 
terms of the Substitution and will have an opportunity to vote on the 
Substitution following the approval of this application by the 
Commission. The variable annuity contracts issued by Account I and the 
INA/Putnam Account provide that, in the event of a substitution of 
underlying fund shares, ``prior approval by the vote of a majority of 
the votes to be cast by persons having their contract values determined 
by the affected [separate account] [d]ivision will be obtained.''

Applicants' Conclusion

    For the reasons discussed above, the Applicants submit that the 
requested order under Section 26(b) meets the standards of that 
section, and that the requested exemption from Section 17(a) meets the 
standards of Sections 6(c) and 17(b).

    For the Commission by the Division of Investment Management 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 94-29419 Filed 11-29-94; 8:45 am]
BILLING CODE 8010-01-M