[Federal Register Volume 61, Number 236 (Friday, December 6, 1996)]
[Notices]
[Pages 64768-64771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31017]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22358; 812-10296]
CIGNA Funds Group, et al.; Notice of Application
November 27, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: CIGNA Funds Group, CIGNA Institutional Funds Group, CIGNA
High Income Shares, INA Investment Securities, Inc., CIGNA Variable
Products Group (collectively, the ``Trusts''), all existing and future
series of the Trusts, any other registered investment companies or
series thereof that are now or in the future advised by CIGNA
Investments, Inc. (``CII'') or any other registered investment adviser
controlling, controlled by or under common control with CII
(collectively, the ``Funds''), and CII.
RELEVANT ACT SECTION: Order requested under section 17(d) of the Act
and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit the
series of certain investment companies and certain private accounts to
deposit their uninvested cash balances in one or more joint accounts to
be used to enter into short-term investments.
FILING DATES: The application was filed on August 8, 1996, and amended
on October 28, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing in writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on December 23,
1996, and should be 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 writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants, c/o CIGNA Investments, Inc., 900 Cottage Grove Road,
Hartford, CT 06152.
FOR FURTHER INFORMATION CONTACT: Christine Y. Greenless, Senior
Counsel, at (202) 942-0581, or Alison E. Baur, Branch Chief, (202) 942-
0564 (Office of Investment Company Regulation, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. CIGNA Funds Group, CIGNA Institutional Funds Group, CIGNA High
Income Shares, and CIGNA Variable Products Group are organized as
Massachusetts business trusts. INA Investment Securities, Inc. is
organized as a Delaware corporation. The Trusts are registered under
the Act as management investment companies. The Trusts that intended to
rely on the requested order are named as applicants; Funds established
hereafter will not rely on the requested relief except upon the terms
and conditions contained in the application.
2. CII is incorporated under the laws of Delaware and is registered
as an investment adviser under the Investment Advisers Act of 1940. CII
is an indirect, wholly-owned subsidiary of CIGNA Corporation, and
serves as investment adviser to each existing Fund.\1\ In addition, CII
provides investment advisory services to other affiliated and
unaffiliated companies, including employee benefit plans and accounts
investing in mortgages, real estate, public bonds, private
[[Page 64769]]
placements, and other types of investments (collectively, and together
with any such account advised by another registered investment adviser
controlling, controlled by, or under common control with CII, the
``Private Accounts'').
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\1\ Applicants request that any relief granted to CII pursuant
to the application also apply to any successor of CII. The term
``successor'' is limited to entities that result from a
reorganization into another jurisdiction or a change in the type of
business organization of CII.
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3. CII has discretion to purchase and sell securities for the
existing Funds in accordance with the investment objectives, policies,
and restrictions of each Fund and subject to the general oversight of
the Trustees of each Trust. All of the existing Funds are authorized by
their investment policies and restrictions to invest at least a portion
of their uninvested cash balances in short-term liquid assets,
including repurchase agreements, high-grade commercial paper, U.S.
government securities and other short-term debt obligations.
4. CII also has discretion to purchase and sell securities for the
Private Accounts in accordance with the investment objectives,
policies, and restrictions of each Private Account. In order for a
Private Account to participate in the proposed joint account (each, a
``Qualifying Private Account''), those persons with authority to act on
behalf of such Private Account would have to determine that: (a)
Participation in the Joint Account (as defined below); and (b) the
proposed investments of the Joint Account are consistent with such
Private Account's investment policies and with any state or other law
applicable to the Private Account. No existing Private Account
qualifies as a Qualifying Private Account. To the extent, however, that
any future Private Account qualifies as a Qualifying Private Account or
any current Private Account amends its investment policies such that it
would so qualify, applicants request that any relief granted hereby
also apply to any such Private Account.
5. The assets of the existing Funds and Qualifying Private Accounts
are held by various bank custodians, none of which controls, is
controlled by or is under common control with any of the Participants
(as defined below), or CII. At the end of each trading day, the Funds
and Qualifying Private Accounts may have uninvested cash balances in
their accounts at their respective custodian banks that would not
otherwise be invested in portfolio securities by CII. Generally, such
cash balances are, or would be, invested in short-term liquid assets
such as commercial paper or U.S. Treasury bills.
6. Applicants propose that the Participants (as defined below)
deposit these uninvested cash balances into one or more joint accounts
(the ``Joint Accounts'') and that the daily balances of the Joint
Accounts be invested in: (a) Repurchase agreements ``collateralized
fully'' as defined in rule 2a-7 under the Act; and (b) other short-term
money market instruments that constitute ``Eligible Securities'' (as
defined in rule 2a-7 under the Act), including interest-bearing or
discounted commercial paper, and dollar denominated commercial paper of
foreign issuers (collectively, ``Short-Term Investments''). Funds and
Qualifying Private Accounts that are eligible to participate in any of
the Joint Accounts and that elect to participate in one or more of such
Accounts are collectively referred to as ``Participants.'' Each
Participant would invest through a Joint Account only to the extent
that it intends to invest in short-term liquid investments consistent
with its investment objectives, policies, and restrictions.
7. The decision to employ a Joint Account for each Participant
would be based on the same factors as the decision to make any other
short-term liquid investment. Currently, CII purchases repurchase
agreements and other money market instruments separately on behalf of
each Fund or Qualifying Private Account. This requires CII to monitor
multiple sources of cash availability so that it can allocate
opportunities among Funds and Qualifying Private Accounts, execute
multiple trades in similar securities on any given day, and settle
trades in a number of separate accounts. The sole purpose of the Joint
Accounts would be to provide a convenient means of aggregating what
otherwise would be one or more daily transactions for some or all
Participants as necessary to manage their respective daily account
balances.
8. CII will be responsible for investing funds held by the Joint
Accounts, establishing accounting and control procedures, and ensuring
fair treatment of Participants. All purchases through a Joint Account
will be subject to the same systems and standards for acquiring
investments for individual Funds. CII will not charge any additional or
separate fees for operating or advising the Joint Accounts and would
have no monetary participation in the Joint Accounts.
9. Any repurchase agreements entered into through any Joint Account
will comply with the terms of Investment Company Act Release No. 13005
(Feb. 2, 1983). Applicants acknowledge that they have a continuing
obligation to monitor the SEC's published statements on repurchase
agreements, and represent that repurchase agreement transactions will
comply with future positions of the SEC to the extent that such
positions set forth different or additional requirements regarding
repurchase agreements. In the event that the SEC sets forth guidelines
with respect to other Short-Term Investments, all such investments made
through the Joint Account will comply with those guidelines.
10. Applicants propose to enter into hold-in-custody repurchase
agreements, i.e. repurchase agreements where the counterparty or one of
its affiliated persons may have possession of, or control over, the
collateral subject to the agreement, only where cash is received very
late in the business day and otherwise would be unavailable for
investment.
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 thereunder prohibit an
affiliated person of a registered investment company, or an affiliated
person of such a person, from participating in any joint enterprise or
arrangement in which such investment company is a participant, without
an SEC order.
2. The Participants, by participating in the Joint Accounts, and
CII, by managing the Joint Accounts, could be deemed to be ``joint
participants'' in a transaction within the meaning of section 17(d) of
the Act. In addition, each Joint Account could be deemed to be a
``joint enterprise or other joint arrangement'' within the meaning of
rule 17d-1.
3. Participants may earn a higher rate of return on investments
through the Joint Accounts relative to the returns they could earn
individually. Under most market conditions, it is generally possible to
negotiate a rate of return on larger repurchase agreements and other
Short-Term Investments that is higher than the rate available on
smaller repurchase agreements and other Short-Term Investments. The
Joint Accounts also may increase the number of dealers and issuers
willing to enter into Short-Term Investments with the participants and
may reduce the possibility that their cash balances remain uninvested.
4. The Joint Accounts may result in certain administrative
efficiencies and a reduction of the potential for errors by reducing
the number of trade tickets and cash wires that must be processed by
the sellers of Short-Term Investments, the Participants' custodians,
and CII's accounting and trading departments.
5. Applicants assert that no Participant will be in a less
favorable position as a result of the Joint Accounts. Applicants
believe that each Participant's investment in a Joint Account would not
be subject to the
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claims of creditors, whether brought in bankruptcy, insolvency, or
other legal proceeding, of any other Participant. Each Participant's
liability on any Short-Term Investment will be limited to its interest
in such investment; no Participant will be jointly liable for the
investments of any other Participant.
6. Although CII will realize some benefits through administrative
convenience and some possible reduction in clerical costs, the
Participants will be the primary beneficiaries of the Joint Accounts
because the Joint Accounts may result in higher returns and would be a
more efficient means of administering daily cash investments.
7. In passing upon applications under section 17(d) and rule 17d-1,
the SEC is required to consider whether each party's participation in
the proposed joint arrangement is consistent with the provisions,
policies and purposes of the Act, and the extent to which such
participation is on a basis different from or less advantageous than
that of other participants. Applicants submit that the Funds would
participate in the Joint Accounts on a basis no different from or less
advantageous than that of any other Participant. They further submit
that no Participant will receive fewer benefits than any other
Participant. For the reasons set forth above, applicants believe that
granting the requested order is consistent with the provisions,
policies, and purposes of the Act and the intention of rule 17d-1.
Applicants' Conditions
Applicants will comply with the following as conditions to any
order granted by the SEC:
1. The Joint Accounts will not be distinguishable from any other
accounts maintained by Participants at their custodians except that
monies from Participants will be deposited in the Joint Account on a
commingled basis. The Joint Accounts will not have a separate existence
and will not have indicia of a separate legal entity. The sole function
of the Joint Accounts will be to provide a convenient way of
aggregating individual transactions which would otherwise require daily
management by CII of uninvested cash balances.
2. Cash in the Joint Accounts will be invested in one or more
Short-Term Investments, as directed by CII. Short-Term Investments that
are repurchase agreements would have a remaining maturity of 60 days or
less and other Short-Term Investments would have a remaining maturity
of 90 days or less, each as calculated in accordance with rule 2a-7
under the Act. No Participant will be permitted to invest in a Joint
Account unless the Short-Term Investments in such Joint Account will
satisfy the investment policies and guidelines of that Participant.
3. All assets held in the Joint Accounts would be valued on an
amortized cost basis to the extent permitted by applicable SEC
releases, rules or orders.
4. Each Participant that is a registered investment company valuing
its net assets in reliance on rule 2a-7 under the Act will use the
average maturity of the instruments in the Joint Account in which such
Participant has an interest (determined on a dollar weighted basis) for
the purpose of computing its average portfolio maturity with respect to
its portion of the assets held in a Joint Account on that day.
5. In order to assure that there will be no opportunity for any
Participant to use any part of a balance of a Joint Account credited to
another Participant, no Participant will be allowed to create a
negative balance in any Joint Account for any reason, although each
Participant would be permitted to draw down its entire balance at any
time. Each Participant's decision to invest in a Joint Account would be
solely at its option, and no Participant will be obligated to invest in
the Joint Account or to maintain any minimum balance in the Joint
Account. In addition, each Participant will retain the sole rights of
ownership to any of its assets invested in the Joint Account, including
interest payable on such assets invested in the Joint Account.
6. CII will administer the investment of cash balances in and
operation of the Joint Accounts as part of the general duties under the
advisory agreements it has (or its control affiliates have) with
Participants and will not collect any additional or separate fees for
advising any Joint Account.
7. The administration of the Joint Accounts will be within the
fidelity bond coverage required by section 17(g) of the Act and rule
17g-1 thereunder.
8. The Boards of Trustees of the Funds and the responsible person
of the Qualifying Private Accounts (each a ``Board'' and collectively,
the ``Boards'') will adopt procedures pursuant to which the Joint
Accounts will operate, which will be reasonably designed to provide
that the requirements of the application will be met. Each of the
Boards will make and approve such changes as it deems necessary to
ensure that such procedures are followed. In addition, the Boards of
each Fund will determine, no less frequently than annually, that the
Joint Accounts have been operated in accordance with such procedures
and will only permit a Fund to continue to participate therein if it
determines that there is a reasonable likelihood that the Fund and its
shareholders (or beneficiaries, as applicable) will benefit from the
Fund's continued participation.
9. Any Short-Term Investments made through a Joint Account will
satisfy the investment criteria of each Participant in that joint
investment.
10. Each Participant in a Joint Account will document daily on its
books and the books of its custodian, its investments through such
Accounts. Each Participant will maintain records (in conformity with
section 31 of the Act and the rules and regulations thereunder)
documenting for any given day its aggregate investment through each
Joint Account and its pro rata share of each Short-Term Investment made
through such Joint Account. Each Participant that is not a registered
investment company or registered investment adviser will make available
to the SEC, upon request, such books and records with respect to its
participation in a Joint Account.
11. Every Participant in a Joint Account will not necessarily have
its cash invested in every Short-Term Investment. However, to the
extent that a Participant's cash is applied to a particular Short-Term
Investment, the Participant will participate in and own its
proportionate share of such Short-Term Investment, and any income
earned or accrued thereon, based upon the percentage of such investment
purchased with monies contributed by the Participant.
12. Short-Term Investments held in a Joint Account generally will
not be sold prior to maturity except if: (a) CII believes the
investment no longer presents minimal credit risks; (b) the investment
no longer satisfies the investment criteria of all Participants in the
investment because of a downgrading or otherwise; or (c) in the case of
a repurchase agreement, the counterparty defaults. CII may, however,
sell any Short-Term Investment (or any fractional portion thereof) on
behalf of some or all Participants prior to the maturity of the
investment if the cost of such transactions will be borne solely by the
selling Participants and the transaction will not adversely affect
other Participants participating in the Joint Account. In no case would
an early termination by less than all Participants be permitted if it
would reduce the principal amount or yield received by other
Participants in a particular Joint Account or otherwise adversely
affect the other Participants. Each Participant
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in a Joint Account will be deemed to have consented to such sale and
partition of the investments in the Joint Account.
13. Short-Term Investments held through a Joint Account with a
remaining maturity of more than seven days, as calculated pursuant to
rule 2a-7 under the Act, will be considered illiquid and, for any
Participant that is an open-end investment company registered under the
Act, subject to the restriction that the Participant may not invest
more than 15% (or such other percentage as set forth by the SEC from
time to time) of its net assets in illiquid securities and any similar
restriction set forth in the Participant's investment restrictions and
policies, if CII cannot sell the instrument, or the Participant's
fractional interest in such instrument, pursuant to the preceding
condition.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-31017 Filed 12-5-96; 8:45 am]
BILLING CODE 8010-01-M