[Federal Register Volume 65, Number 155 (Thursday, August 10, 2000)]
[Notices]
[Pages 49033-49035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20211]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24592; 812-11932]


CIGNA Funds Group and Times Square Capital Management, Inc.; 
Notice of Application

August 3, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 15(a) 
of the Act and rule 18f-2 under the Act.

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    Summary of the Application: CIGNA Funds Group (the ``Fund'') and 
Times Square Capital Management, Inc. (``Manager'') request an order to 
permit them to enter into and materially amend subadvisory agreements 
without shareholder approval.
    Filing Date: The application was filed on January 7, 2000, and 
amended on August 2, 2000.
    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 Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on August 28, 2000, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants, c/o Jeffrey S. Winter, Esq., CIGNA Corporation, 
S-215, 900 Cottage Grove Road, Hartford, CT 06152.

FOR FURTHER INFORMATION CONTACT: Paula L. Kashtan, Senior Counsel, at 
(202) 942-0615, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Fund, a Massachusetts business trust, is registered under 
the Act as an open-end management investment company. The Fund 
currently is comprised of nine series, each with its own investment 
objectives and policies. The Manager, a Delaware corporation and an 
indirect wholly-owned subsidiary of CIGNA Corporation, is registered as 
an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). The Manager serves as investment adviser to each 
series of the Fund, including those series that utilize the Manager/
subadviser structure described below (``Portfolios'').\1\
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    \1\ Applicants also request relief with respect to future series 
of the Fund and any other registered open-end management investment 
companies that: (a) are advised by the Manager or any entity 
controlling, controlled by, or under common control with the 
Manager; (b) use the Manager/subadviser structure described in the 
application; and (c) comply with the terms and conditions in the 
application (``Future Portfolios''). The Fund is the only existing 
investment company that currently intends to rely on the order.
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    2. The Manager has entered into an investment management agreement 
(``Management Agreement'') with respect to each of the Portfolios that 
was approved by the board of trustees of the Fund (the ``Board''), 
including a majority of the trustees who are not ``interested 
persons,'' as defined in

[[Page 49034]]

section 2(a)(19) of the Act (``Independent Trustees''), and the 
shareholders of each Portfolio. Under the terms of the Management 
Agreement, the Manager supervises the general business, administrative, 
investment advisory and portfolio management operations of the 
Portfolios. For its services, the Manager receives a management fee at 
an annual rate based on a percentage of the applicable Portfolio's 
average net assets.
    3. The Manager seeks to achieve the investment objective of the 
Portfolios by selecting, subject to the oversight and approval of the 
Board, one or more subadvisers (each a ``Subadviser'' and collectively 
``Subadvisers'') to manage the assets of the Portfolios (``Manager/
Subadviser Structure''). Under the Manager/Subadviser Structure, the 
specific investment decisions for the Portfolios are made by one or 
more Subadvisers, each of which has discretionary authority to invest 
all or a portion of the assets of a particular Portfolio, subject to 
the general supervision of the Manager and the Board. The Subadvisers 
are investment advisers registered under the Advisers Act. Future 
Subadvisers also will be registered or exempt from registration under 
the Advisers Act. Each Portfolio that currently uses Subadvisers has a 
single Subadviser.
    4. The Manager selects Subadvisers based on a process that includes 
reviewing each Subadviser's investment performance record, conformity 
to investment objectives and policies, organizational structure, 
management team, compliance and operational capabilities, and assets 
under management. Subadvisers are recommended to the Board by the 
Manager and selected and approved by the Board, including a majority of 
the Independent Trustees. The Manager monitors the Portfolios and the 
Subadvisers and makes recommendations to the Board regarding the 
allocation, and reallocation, of assets among Subadvisers and is 
responsible for recommending the hiring, termination and replacement of 
Subadvisers. Each Subadviser performs services pursuant to a written 
agreement with the Manager (the ``Subadvisory Agreement''). 
Subadvisers' fees are paid by the Manager out of the management fees 
received by the Manager from the respective Portfolio.
    5. Applicants request relief to permit the Manager, subject to the 
oversight of the Board, to enter into and materially amend Subadvisory 
agreements without shareholder approval.\2\ The requested relief will 
not extend to a Subadviser that is an affiliated person, as defined in 
section 2(a)(3) of the Act, of the Fund or the Manager, other than by 
reason of serving as a Subadviser to one or more of the Portfolios (an 
``Affiliated Subadviser'').
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    \2\ The Fund's prospectus had disclosed, since the effective 
date of its registration statement, that the Fund would seek an 
exemptive order from the Commission permitting changes in 
Subadvisers without submitting the Subadvisory Agreements to a vote 
of the applicable Portfolio's shareholders.
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Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of the company's outstanding voting securities. 
Rule 18f-2 under the Act provides that each series or class of stock in 
a series company affected by a matter must approve such matter if the 
Act requires shareholder approval.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities, or transactions from any provision of the Act, or 
from any rule thereunder, if 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 
Act. Applicants believe that the requested relief meets this standard 
for the reasons discussed below.
    3. Applicants assert that the investors are relying on the 
Manager's experience to select one or more Subadvisers best suited to 
achieve a Portfolio's desired investment objectives. Applicants assert 
that, from the perspective of the investor, the role of the Subadvisers 
is comparable to that of individual portfolio managers employed by 
other investment advisory firms. Applicants contend that requiring 
shareholder approval of Subadvisory Agreements may impose unnecessary 
costs and delays on the Portfolios, and may preclude the Manager from 
acting promptly in a manner considered advisable by the Board. 
Applicants note that the Management Agreement will remain subject to 
section 15(a) of the act and rule 18f-2 under the Act, including the 
requirements for shareholder approval.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Future Portfolio, that does not presently have an 
effective registration statement and whose public shareholders will 
purchase shares on the basis of a prospectus containing the disclosures 
contemplated by condition 2 below, may rely on the order requested 
herein, the operation of the Future Portfolio in the manner described 
in the application will be approved by the initial shareholder(s) 
before shares of such Future Portfolio are offered to the public.
    2. The prospectus of each Portfolio relying on the requested relief 
will disclose the existence, substance and effect of any order granted 
pursuant to the application. In addition, each Portfolio will hold 
itself out to the public as employing the Manager/Subadviser Structure 
described in the application. The prospectus will prominently disclose 
that the Manager has the ultimate responsibility to oversee the 
Subadvisers and recommend their hiring, termination, and replacement.
    3. The Manager will provide management and administrative services 
to each of the Portfolios, including overall supervisory responsibility 
for the general management and investment of each Portfolio, and, 
subject to review and approval by the Board, will: (a) Set each 
Portfolio's overall investment strategies; (b) evaluate, select and 
recommend Subadvisers to manage all or a part of a Portfolio's assets; 
(c) when appropriate, allocate and reallocate a Portfolio's assets 
among multiple Subadvisers; (d) monitor and evaluate the investment 
performance of Subadvisers; and (e) implement procedures reasonably 
designed to ensure that the Subadvisers comply with the relevant 
Portfolio's investment objectives, policies, and restrictions.
    4. At all times, a majority of the Board will be Independent 
Trustees, and the nomination of new or additional Independent Trustees 
will be at the discretion of the then-existing Independent Trustees.
    5. The Manager will not enter into a Subadvisory Agreement on 
behalf of a Portfolio with any Affiliated Subadviser unless such 
agreement, including the compensation to be paid thereunder, has been 
approved by the shareholders of the applicable Portfolio.
    6. When a Subadviser change is proposed for a Portfolio with an 
Affiliated Subadviser, the Board, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
minutes of meetings of the Board, that the change is in the best 
interests of the Portfolio and its

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shareholders and does not involve a conflict of interest from which the 
Manager or the Affiliated Subadviser derives an inappropriate 
advantage.
    7. No trustee or officer of the Fund, or director or officer of the 
Manager will own directly or indirectly (other than through a pooled 
investment vehicle that is not controlled by the director, trustee or 
officer) any interest in a Subadviser except for (a) ownership of 
interests in the Manager or an entity that controls, is controlled by, 
or is under common control with the Manager; or (b) ownership of less 
than 1% of the outstanding securities of any class of equity or debt of 
a publicly-traded company that is either a Subadviser or an entity that 
controls, is controlled by, or is under common control with a 
Subadviser.
    8. Within 90 days of the hiring of any new Subadviser, the Manager 
will furnish the shareholder of the applicable Portfolio all the 
information about the new Subadviser that would be included in a proxy 
statement. The disclosure will include any changes in such information 
caused by the addition of a new Subadviser. To meet this obligation, 
the Manager will provide the shareholders of the applicable Portfolios 
with an information statement meeting the requirements of Regulation 
14C, Schedule 14C, and Item 22 of Schedule 14A under the Securities 
Exchange Act of 1934.
    For the Commission, by the Division of Investment Management, under 
delegated authority.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-20211 Filed 8-9-00; 8:45 am]
BILLING CODE 8010-01-M