[Federal Register Volume 61, Number 96 (Thursday, May 16, 1996)]
[Notices]
[Pages 24840-24842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12238]



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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-21948; File No. 812-10046]


Connecticut General Life Insurance Company, et al.

May 9, 1996.
AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

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

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APPLICANTS: Connecticut General Life Insurance Company (``CG Life''), 
CG Variable Annuity Separate Account II (the ``Variable Account''), and 
Cigna Financial Advisors, Inc. (``CFA'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act for exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 
1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order permitting CG Life to 
deduct a mortality and expense risk charge from: (i) the assets of the 
Variable Account, in connection with the offer and sale of certain 
flexible premium deferred annuity contracts (the ``Existing 
Contracts'') and any contracts (``Future Contracts'') offered in the 
future by CG Life which are substantially similar in all material 
respects to the Existing Contracts; and (ii) the assets of any separate 
account (``Future Account'') established in the future by CG Life, in 
connection with the offer and sale of Future Contracts. Applicants 
propose that the order extend to any broker-dealer (``Other Broker-
Dealers'') which may serve in the future as principal underwriter with 
respect to the Contracts or Future Contracts, and which is or will be 
registered with the Commission as a broker-dealer under the Securities 
Exchange Act of 1934 (the ``1934 Act''), and a member of the National 
Association of Securities Dealers (the ``NASD'').

FILING DATE: The application was filed March 15, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on this application by writing to the 
Secretary of the SEC and serving applicants with a copy of the request, 
personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on June 3, 1996, and should be accompanied by 
proof of service on applicants in the form of an affidavit or, for 
lawyers, by certificate of service. Hearing requests should state the 
nature of the interest, the reason for the request, and the issues 
contested. Persons may request notification of the date of a hearing by 
writing to the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549. 
Applicants: Robert A. Picarello, Esq., S-321, Connecticut General Life 
Insurance Company, 900 Cottage Grove Road, Hartford, CT 06152, with 
copies to George N. Gingold, Esq., 197 King Phillip Drive, West 
Hartford, CT 06117-1409 and Michael Berenson, Esq., Jorden Burt 
Berenson & Johnson LLP, 1025 Thomas Jefferson Street NW., Suite 400 
East, Washington, DC 20007-0805.

FOR FURTHER INFORMATION CONTACT: Peter R. Marcin, Law Clerk, or Patrice 
M. Pitts, Special Counsel, Office of Insurance Products, Division of 
Investment Management, at (202) 942-0670.

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

Applicants' Representations

    1. CG Life, a stock life insurance company domiciled in 
Connecticut, is a wholly-owned subsidiary of CIGNA Holdings, Inc., 
which is wholly owned by CIGNA Corporation.
    2. CG Life established the Variable Account under Connecticut law 
on January 25, 1994. The Variable Account is a unit investment trust 
registered under the 1940 Act. The Variable Account will fund the 
Existing Contracts.\1\
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    \1\ The Commission issued an order pursuant to Section 6(c) of 
the 1940 Act granting exemptions from the provisions of Sections 
26(a)(2)(C) and 27(c)(2) of the 1940 Act to permit CG Life to impose 
on Existing Contracts issued through the Variable Account a 
mortality and expense risk charge at an annual rate of 1.20 percent. 
Investment Company Act Release Nos. 21096 (May 25, 1995) (order) and 
21035 (Apr. 28, 1995) (notice). CG Life will waive the collection of 
the additional 0.05% mortality and expense risk charge on Existing 
Contracts issued on or after May 1, 1996, until the Commission 
issues an order approving the 1.25% mortality and expense risk 
charge proposed herein. A 1.20% mortality and expense risk charge 
will continue to apply to all Existing Contracts issued before May 
1, 1996, even if the requested relief is granted.
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    3. CFA will serve as the distributor of and the principal 
underwriter for the Existing Contracts, and is expected to serve as the 
distributor of and the principal underwriter for Future Contracts. CFA 
is a wholly-owned subsidiary of Connecticut General Corporation, which 
is wholly owned by CIGNA Corporation. CFA is a broker-dealer registered 
under the 1934 Act, an investment adviser registered under the 
Investment Advisers Act of 1940, and a member of the NASD. Broker-
dealers other than CFA may serve as distributors of, and principal 
underwriters for, the Existing Contracts and Future Contracts. Such 
Other Broker-Dealers shall be registered under the 1934 Act, and 
members of the NASD.
    4. The Variable Account consists of subaccounts (the 
``Subaccounts''). The assets of each Subaccount will be invested in a 
corresponding portfolio of one of five investment companies (the 
``Funds''). Each of the Funds is a registered, diversified, open-end 
management investment company consisting of one or more investment 
portfolios which pursue different investment objectives and policies. 
Currently, seventeen investment portfolios of the Funds are available 
as investment options under the Existing Contracts; the number and 
identity of available Funds and investment portfolios may change.
    5. The Existing Contracts are combination fixed and variable 
annuity contracts issued on a group basis in the State of New York.\2\ 
The Existing Contracts may be purchased on a non-tax qualified basis or 
with the proceeds from certain plans qualifying for favorable tax 
treatment under the Internal Revenue Code of 1986, as amended (the 
``Code''). The minimum initial premium for a Contract used in 
connection with a non-tax qualified plan is $2,500; a minimum initial 
premium of $2,000 will be permitted for an individual retirement 
annuity under Section 408 of the Code. Subsequent premium payments must 
equal at least $100.
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    \2\ As used herein, the term ``Contract owner'' refers to a 
certificate owner under a group contract (i.e., each of the Existing 
Contracts) having all ownership rights regarding his or her 
participation in that Existing Contract. The term ``Contract,'' when 
used in the singular, shall refer to the certificate evidencing 
participation in an Existing Contract.
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    6. The Existing Contracts also provide for a guaranteed death 
benefit. If the Existing Contract owner dies before the annuity date, 
CG Life will pay a death benefit to the beneficiary, upon receipt of 
due proof of death and a payment election. The death benefit will be 
the greatest of: (a) the sum of all premium

[[Page 24841]]

payments made, minus the sum of all partial withdrawals; (b) the 
annuity account value as of the time the death benefit election is 
effective or deemed to become effective; or (c) the annuity account 
value on the seven-year anniversary of the Existing Contract (and each 
succeeding contract anniversary occurring at any seven-year interval 
thereafter) immediately preceding the date the death benefit election 
is effective or is deemed to become effective, adjusted for any 
subsequent premium payments, partial withdrawals and charges. If the 
death benefit becomes payable after the Existing Contract owner's 85th 
birthday (or the annuitant's 85th birthday, if the Existing Contract 
owner is not a natural person), the amount payable will be the greater 
of (a) or (b) above. If the beneficiary designated in the Existing 
Contract has predeceased the Existing Contract owner, CG Life will pay 
the death benefit in one lump sum to the estate of the beneficiary, 
upon receipt of due proof of death of the Existing Contract owner and 
beneficiary.
    7. CG Life will deduct an annual administrative fee of $35 on 
Existing Contracts having a contract value of less than $100,000. Until 
the earlier of the annuity date or surrender of the Contract, this fee 
will be deducted pro rata from all of the Subaccounts in which the 
Contract owner invests. If a variable payout has been selected after 
the annuity date, the fee will be deducted proportionately and in 
installments from the annuity payments. The annual administrative fee 
partially compensates CG Life for administrative services associated 
with the Existing Contracts and the Variable Account. CG Life also 
proposes to deduct a daily administrative expense charge equal annually 
to 0.15% of the average daily net asset value of the Variable Account.
    8. CG Life will rely upon and comply with Rule 26a-1 under the 1940 
Act in deducting both the annual administrative fee and the daily 
administrative charge. CG Life does not anticipate a profit from either 
administrative charge. These administrative charges are guaranteed not 
to increase for a Contract once that Contract has been issued.
    9. Upon partial withdrawal or full surrender of Contract value, a 
contingent deferred sales charge (the ``CDSC'') may be deducted from 
purchase payments which have been credited to a Contract for fewer than 
seven years. Each Contract year, however, a Contract owner may withdraw 
up to 15% of the premium payments paid to date without imposition of a 
CDSC. CG Life guarantees that the aggregate CDSC under a Contract will 
not exceed 8.5% of total premiums paid by a Contract owner.
    10. CG Life proposes to impose a daily charge equal to an annual 
effective rate of 1.25% of the value of the net assets of the Variable 
Account to compensate CG Life for assuming certain mortality and 
expense risks in connection with the Existing Contracts. Applicants 
state that approximately 0.75% of the 1.25% charge is attributable to 
mortality risk, and approximately 0.50% is attributable to expense 
risk. The mortality and expense risk charge is guaranteed not to 
increase for a group contract (i.e., each of the Existing Contracts) 
once that group contract has been issued.
    11. If the mortality and expense risk charge is insufficient to 
cover the actual costs of the risks assumed, CG Life will bear the 
loss. If the charge exceeds actual costs, this excess will be profit to 
CG Life and will be available for any corporate purpose, including 
payment of expenses relating to the distribution of the Existing 
Contracts. CG Life expects a reasonable profit from the mortality and 
expense risk charge.
    12. The mortality risk borne by CG Life arises from the contractual 
obligation of CG Life to make annuity payments regardless of how long 
all annuitants or any individual annuitant may live, and the guarantee 
of a death benefit. The expense risk assumed by CG Life under the 
Existing Contracts is that the administrative charges assessed under 
the Existing Contracts may be insufficient to cover actual 
administrative expenses incurred by CG Life.
    13. CG Life may incur premium taxes relating to the Existing 
Contracts, and will deduct these taxes upon withdrawal, annuitization 
or payment of the death benefit. CG Life reserves the right to deduct 
charges made for federal, state and local taxes incurred by CG Life in 
the future.

Applicants' Legal Analysis and Conditions

    1. Section 6(c) of the 1940 Act authorizes the commission to exempt 
any person, security or transaction, or any class or classes of 
persons, securities or transactions, from the provisions of the 1940 
Act and the rules promulgated thereunder if and to the extent that such 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.
    2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in pertinent 
part, prohibit a registered unit investment trust and any depositor 
thereof or underwriter therefor from selling periodic payment plan 
certificates unless the proceeds of all payments (other than sales 
load) are deposited with a qualified bank as trustee or custodian and 
held under arrangements which prohibit any payment to the depositor or 
principal underwriter except a fee, not exceeding such reasonable 
amount as the Commission may prescribe, for performing bookkeeping and 
other administrative services of a character normally performed by the 
bank itself.
    3. Applicants request an order of the Commission under Section 6(c) 
of the 1940 Act granting exemptions from Sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to the extent necessary to permit the 
deduction of a mortality and expense risk charge from: (i) the assets 
of the Variable Account in connection with the offer and sale of 
Existing Contracts and Future Contracts; and (ii) the assets of any 
Future Account, in connection with the offer and sale of Future 
Contracts. Applicants propose that the order extend to Other Broker-
Dealers which may serve in the future as principal underwriter for the 
Existing Contracts or Future Contracts. Applicants believe that the 
requested exemptions are appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.
    4. Applicants assert that the relief would promote competitiveness 
in the variable annuity market by eliminating the need to file 
redundant exemptive applications, thereby reducing administrative 
expenses and maximizing efficient use of resources. Applicants submit 
that the delay and expense involved in having to seek exemptive relief 
repeatedly would impair the ability of CG Life to take advantage 
effectively of business opportunities as those opportunities arise, and 
would not provide any additional benefit or protection to Contract 
owners. Indeed, Contract owners may be disadvantaged as a result of 
additional overhead costs incurred by the Applicants, any Future 
Account, or Other Broker-Dealers.
    5. Applicants assert that the 1.25% mortality and expense risks 
charge to be assessed under the Existing Contracts and Future Contracts 
is/will be reasonable in relation to the risks assumed by CG Life under 
the Existing Contracts and the Future Contracts, and that assessment of 
the charge is/will be consistent with the protection of investors 
because it is a reasonable and proper insurance charge for the risks

[[Page 24842]]

assumed and the costs incurred by CG Life.
    6. Applicants assert that the 1.25% mortality and expense risk 
charge to be assessed under the Existing Contracts and Future Contracts 
is/will be within the range of industry practice with respect to 
comparable annuity products. Applicants represent that this 
determination is based upon Applicants' analysis of publicly available 
information about similar industry products, taking into consideration 
such factors as: current charge levels; benefits provided; charge level 
guarantees; and guaranteed annuity rates. Applicants represent that CG 
Life will maintain at its home office, and make available to the 
Commission upon request, a memorandum detailing the methodology used 
in, and the results of, the Applicants' comparative survey.
    7. Applicants acknowledge that the CDSC will likely be insufficient 
to cover all costs relating to the distribution of the Existing 
Contracts. To the extent distribution costs are not covered by the 
CDSC, CG Life will recover its distribution costs from the assets of 
the general account. Those assets may include that portion of the 
mortality and expense risk charge which is profit to CG Life. 
Applicants represent that CG Life has concluded that there is a 
reasonable likelihood that the distribution financing arrangement 
proposed under the Existing Contracts and Future Contracts will benefit 
the Variable Account, the Future Accounts, Contract owners, and Future 
Contract owners. The basis for this conclusion is set forth in a 
memorandum which will be maintained by CG Life at its home office and 
will be made available to the Commission upon request.
    8. CG Life represents that the Variable Account and any Future 
Account will invest only in open-end management investment companies 
which undertake, in the event such companies should adopt a plan for 
financing distribution expenses pursuant to Rule 12b-1 of the 1940 Act, 
to have such plan formulated and approved by the company's board of 
directors/trustees, a majority of whom are not interested persons of 
any such company.

Conclusion

    Applicants assert that for the reasons and upon the facts set forth 
above, the requested exemptions from Sections 26(a)(2)(C) and 27(c)(2) 
of the 1940 Act are necessary and appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12238 Filed 5-15-96; 8:45 am]
BILLING CODE 8010-01-M