[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

[[Page 64770]]

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

[[Page 64771]]

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