[Federal Register Volume 59, Number 58 (Friday, March 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7080]


[[Page Unknown]]

[Federal Register: March 25, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20149; 812-8664]

 

Aetna Series Fund Inc., et al.; Application

March 18, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

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

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APPLICANTS: Aetna Series Fund, Inc. (the ``Company''), Aetna Capital 
Management, Inc. (the ``Underwriter'') and Aetna Life Insurance and 
Annuity Company (the ``Adviser'').

RELEVANT ACT SECTION: Order requested under section 6(c) of the Act for 
an exemption from sections 2(a)(32), 2(a)(35), 18(f)(1), 18(g), 18(i), 
22(c), and 22(d) of the Act and rule 22c-1 thereunder.

SUMMARY OF APPLICATION: Applicants request an order that would permit 
certain investment companies to issue multiple classes of securities 
representing interests in the same portfolio and assess and, under 
certain circumstances, waive a contingent deferred sales charge 
(``CDSC'') on certain redemptions of shares.

FILING DATES: The application was filed on November 2, 1993, and 
amended on January 12, 1994. Applicants have agreed to file an 
additional amendment, the substance of which is incorporated herein, 
during the notice period.

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 by 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 April 12, 1994, 
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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549. 
Applicants, Aetna Life Insurance and Annuity Company, 151 Farmington 
Avenue, Hartford, Connecticut 06830.

FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 272-3809, or Robert A. 
Robertson, Branch Chief, at (202) 272-3030 (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 at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. The Company is an open-end management investment company 
registered under the Act and organized as a Maryland corporation. The 
Company's existing and future series are referred to as the ``Funds.'' 
The Adviser provides investment advisory and administrative services to 
each of the Funds.\1\ The Underwriter acts as a principal underwriter 
of the Funds' shares. Each of the Funds has a single class of shares 
that is currently offered to investors at net asset value without a 
sales load.
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    \1\In the case of Aetna International Growth Fund, the Adviser 
has entered into a subadvisory arrangement with the Underwriter. 
Applicants contemplate that certain of the five new series of the 
Funds may enter into sub-advisory arrangements with advisory 
entities affiliated with the Adviser.
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A. Multi Class System

    1. Applicants request relief, on behalf of themselves, any entity 
controlling, under common control with or controlled by the Underwriter 
or the Adviser that may in the future serve as a Fund's underwriter or 
investment adviser, and any registered investment companies that may in 
the future be advised or distributed by the Adviser or Underwriter. 
Applicants propose to establish a multiple class distribution system to 
enable each of the Funds to offer investors the option of purchasing 
classes of shares that would either be subject to: (a) A conventional 
front-end sales load, (b) a non-rule 12b-1 service fee, (c) a rule 12b-
1 distribution fee, (d) a CDSC, (e) a combination of front-end sales 
load, service fee, distribution fee and/or CDSC, or (f) no sales 
charge. Applicants currently contemplate offering only two classes of 
shares.
    2. Under the proposed multi-class distribution system, the Funds 
would continue to offer the current shares as ``Class A shares.'' Class 
A shares would be distributed with no sales charge, distribution fee, 
or service fee to: (i) Certain corporate retirement plans as determined 
by the board of directors, (ii) salaried employees and persons retired 
from salaried positions with the Adviser and its affiliates, (iii) 
insurance companies (including separate accounts), registered 
investment companies, investment advisers and broker-dealers acting for 
their own account and other institutions as determined by the board of 
directors, (iv) current shareholders at the time of first offering of 
Class B shares as long as they maintain a shareholder account (i.e. 
current shareholders would be eligible to make future purchases of 
Class A shares upon the commencement of the Multi-Class Distribution 
System); and (v) any other persons, organization, or affinity groups 
identified by the board of directors, eligible to acquire shares, 
pursuant to which the sale of shares involves minimal sales expense to 
the Company.
    3. The deferred option or ``Class B shares'' will be subject to a 
rule 12b-1 distribution fee, non rule 12b-1 service fee and a CDSC. 
Class B shares of each Fund would pay a service fee and a distribution 
fee pursuant to a shareholder services plan and a 12b-1 plan. Class B 
shares would be sold to all other investors.
    4. The Funds may in the future establish a class of shares that is 
only offered to the following categories of investors (``Institutional 
Class''): (a) Unaffiliated benefit plans; (b) tax-exempt retirement 
plans of the Adviser and its affiliates; (c) unit investment trusts 
sponsored by the Adviser or its affiliates; (d) banks and insurance 
companies purchasing for their own account; (e) investment companies 
not affiliated with the Adviser and (f) endowment funds for non-profit 
organizations. The unaffiliated benefit plans must meet certain asset 
levels as established by the Funds and have a separate trustee for the 
plan who is vested with investment discretion as to plan assets. 
Applicants will exclude self-directed plans from this category. The 
offerees of the tax-exempt plans in category (b) will be qualified 
defined contribution plans maintained pursuant to section 401(a) of the 
Internal Revenue Code (the ``Code'') by the Adviser and its affiliates 
for the benefit of employees. The UITs in category (c) will, under 
current regulations, require a separate order of exemption pursuant to 
section 6(c) of the Act in order to invest in shares of the Funds. The 
entities in categories (d), (e) and (f) will not be affiliated with the 
Adviser. These offerees will have in common the essential feature of 
substantial assets under management and investment decision-making by 
institutional management on behalf of the entity with respect to the 
purchase of Institutional Class shares. Thus, these entities could not 
be used as a conduit for individuals investing in Institutional Class 
shares, and no individual would be the direct owner of Institutional 
Class shares. Investors eligible to purchase Institutional Class shares 
would be sold only Institutional Class shares, rather than any other 
class of shares offered by the Funds.
    5. Operating expenses, which are attributable to all classes, will 
be allocated daily to each class of shares based on the relative net 
assets in each class at the beginning of the day. Expenses that have a 
greater cost for one class than another (i.e., distribution fees, 
service fees and possible transfer agent fees, registration fees, 
directors fees, administrative expenses, and legal fees and expenses) 
will be charged separately to each class. Accordingly, the net income 
attributable to and the dividends payable on Class B shares would be 
lower than the net income attributable to and the dividends payable on 
Class A shares.
    6. Shares of one class automatically may convert to another class 
with lower ongoing distribution or shareholder service fees after a 
specified period of time. Shares purchased through the reinvestment of 
dividends and other distributions paid in respect of a class would 
convert on a pro rata basis, determined by the ratio that the 
shareholder's shares converting to another class bears to the 
shareholder's total shares not acquired through dividends and 
distributions.
    7. Applicants anticipate that each class of shares may be exchanged 
for shares of the same class in another Fund to the extent that the 
shareholder would have been eligible to purchase the shares acquired in 
the exchange. The exchange privileges will comply with rule 11a-3 under 
the Act.

B. The CDSC

    1. Applicants expect that the CDSC applicable to Class B shares 
will be 1% for redemptions made during the first year after purchase to 
.25% for redemptions made during the fourth year after purchase. The 
amount of the CDSC will be calculated as the lesser of the amount that 
represents a specified percentage of the net asset value of the shares 
at the time of purchase or at the time of redemption. The CDSC schedule 
of any particular Fund or class thereof may vary. The sum of any CDSC, 
front-end sales charge and asset based sales charge will not exceed the 
maximum sales charge permissible under Article III, Section 26(d) of 
the NASD's Rule of Fair Practice.
    2. The CDSC will not be imposed on redemptions of shares derived 
from the reinvestment of distributions. No CDSC will be imposed on an 
amount that represents an increase in the value of the shareholder's 
account resulting from capital appreciation above the amount paid for 
shares purchased during the CDSC period. Furthermore, the CDSC will not 
be imposed on redemptions of shares redeemed after a specified period 
after purchase. In determining whether a CDSC is applicable, it will be 
assumed that a redemption is made first of shares representing capital 
appreciation, second of shares derived from reinvestment of dividends 
and capital gains distributions, and finally, of other shares held by 
the shareholder for the longest period of time. This will result in the 
charge, if any, being imposed at the lowest possible rate.
    3. Applicants propose to waive or reduce the CDSC: (a) On 
redemptions following the death or disability, as defined in section 
72(m)(7) of the Code, of a shareholder, if redemption is made within 
one year of death or disability of a shareholder, as relevant; (b) in 
connection with certain distributions from an Individual Retirement 
Account (``IRA''), or other qualified retirement plan; (c) in 
connection with redemptions of shares purchased by active or retired 
officers, directors or trustees, partners and employees of the Funds, 
the Underwriter or affiliated companies, by members of the immediate 
families of such persons, by dealers having a sales agreement with the 
Underwriter, by any state, country or city, or any instrumentality, 
department, authority or agency thereof and by trust companies and bank 
trust departments which are holding shares in a fiduciary capacity; (d) 
in connection with redemptions of shares purchased by beneficiaries of 
Aetna Life, disability and health insurance policies; (e) in connection 
with redemptions of shares made pursuant to a shareholder's 
participation in any systematic withdrawal plan adopted by a Fund; (f) 
for a shareholder with an account of $1 million or more; (g) in 
connection with redemptions effected by advisory accounts managed by 
the Adviser; and (h) involuntary redemptions.
    4. If the Funds waiver or reduce the CDSC, such waiver or reduction 
will be applied uniformly to all offerees in the specified class. The 
Funds may provide a pro rata credit, to be paid by the distributor, for 
any CDSC paid in connection with a redemption of shares followed by a 
reinvestment effected within 365 days, or shorter, of the redemption.

Applicants' Legal Analysis

    1. Applicants request an exemption under section 6(c) of the Act, 
that would exempt the Funds from sections 18(f)(1), 18(g) and 18(i) of 
the Act to permit the issuance of an unlimited number of classes. 
Applicants believe that the multi-class distribution system does not 
raise any of the concerns that prompted the adoption of section 18 
(i.e., underfunded debt, preference stocks, and convertible 
securities). The proposal does not involve borrowings and does not 
affect the Fund's existing assets or reserves. In addition, the 
proposed arrangement will not increase the speculative character of the 
shares of the Funds.
    2. Applicants also request an exemption under section 6(c) from 
sections 2(a)(32), 2(a)(35), 22(c), and 22(d) of the Act, and rule 22c-
1 thereunder, to the extent necessary to permit the Funds to assess, 
waive, reduce or defer a CDSC with respect to certain redemptions of 
shares. The applicants believe that the imposition of the CDSC on a 
class of shares is fair and in the best interests of their 
shareholders, because the shares would have the advantage of greater 
investment dollars working for them from the time of their purchase of 
such shares of the Funds than if a sales load were imposed at the time 
of purchase.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. Each class of shares will represent interests in the same 
portfolio of investments of a Fund, and be identical in all respects, 
except as set forth below. The only differences among the classes of 
shares of the Fund will relate solely to: (a) Different expenses which 
the board of directors of a Fund determines to allocate to a specific 
class (``class specific expenses''), which are limited to: (i) Transfer 
agent fees; (ii) printing and postage expenses related to preparing and 
distributing materials such as shareholder reports, prospectuses and 
proxies to current shareholders of a specific class; (iii) Blue Sky 
registration fees incurred by a class of shares; (iv) SEC registration 
fees incurred by a class of shares; (v) the expense of administrative 
personnel and services required to support the shareholders of a 
specific class; (vi) litigation or other legal expenses relating solely 
to one class of shares; and (vii) directors; fees incurred as a result 
of issues relating to one class of shares; (viii) other expenses that 
are subsequently identified and determined to be properly allocated to 
a particular class of shares which shall be approved by the SEC 
pursuant to an amended order; (b) expenses assessed to a class pursuant 
to a 12b-1 plan and shareholder services plan (c) the fact that the 
classes will vote separately with respect to a Fund's rule 12b-1 
distribution plan, except as provided in condition 7 below; (d) the 
different exchange privileges of each class of shares; (e) the fact 
that only certain classes may have a conversion feature; and (f) the 
designation of each class of shares of a Fund.
    2. The directors of the Company, including a majority of the 
independent directors, shall have approved the multi-class distribution 
system, prior to the implementation of the multi-class distribution 
system. The minutes of the meetings of the directors of the Company 
regarding the deliberations of the directors with respect to the 
approvals necessary to implement the multi-class distribution system 
will reflect in detail the reasons for determining that the proposed 
multi-class distribution system is in the best interests of both the 
Funds and their respective shareholders.
    3. The initial determination of the class-specific expenses, if 
any, that will be allocated to a particular class of a Fund and any 
subsequent changes thereto will be reviewed and approved by a vote of 
the directors of the affected Fund, including a majority of the 
independent directors. Any person authorized to direct the allocation 
and disposition of monies paid or payable by a Fund to meet class-
specific expenses shall provide to the directors, and the directors 
shall review, at least quarterly, a written report of the amounts so 
expended and the purpose for which the expenditures were made.
    4. The shareholder services plan will be adopted and operated in 
accordance with the procedures set forth in rule 12b-1 (b) through (f) 
as if the expenditures made thereunder were subject to rule 12b-1, 
except that shareholders need not enjoy the voting rights specified in 
rule 12b-1.
    5. On an ongoing basis, the directors of the Company, pursuant to 
their fiduciary responsibilities under the Act and otherwise, will 
monitor each Fund for the existence of any material conflicts between 
or among the interests of the classes of shares offered. The directors, 
including a majority of the independent directors, shall take such 
action as is reasonably necessary to eliminate any such conflicts that 
may develop. The Adviser and the Underwriter will be responsible for 
reporting any potential or existing conflicts to the directors. If a 
conflict arises, the Adviser and the Underwriter at their own costs 
will remedy such conflict up to and including establishing a new 
registered management investment company.
    6. Any class of shares (``Purchase Class'') with a conversion 
feature will convert into another class of shares (``Target Class'') on 
the basis of the relative net asset values of the two classes, without 
the imposition of any sales load, fee, or other charge. After 
conversion, the Target Class shares will be subject to an asset-based 
sales charge and/or service fee (as those terms are defined in Article 
III, Section 26 of the NASD's Rules of Fair Practice), if any, that in 
the aggregate are lower than the asset-based sales charge and service 
fee to which they were subject prior to the conversion.
    7. If a Fund implements any amendment to its rule 12b-1 plan (or, 
if presented to shareholders, adopts or implements any amendment of a 
non-rule 12b-1 shareholder services plan) that would increase 
materially the amount that may be borne by the Target Class shares 
under the plan, existing Purchase Class shares will stop converting 
into Target Class unless the Purchase Class shareholders, voting 
separately as a class, approve the proposal. If the Purchase Class 
shareholders fail to approve the proposal, the directors shall take 
such action as is necessary to ensure that existing Purchase Class 
shares are exchanged or converted into a new class of shares (``New 
Target Class''), identical in all material respects to Target Class as 
it existed prior to implementation of the proposal, no later than the 
date such shares previously were scheduled to convert into Target 
Class. If deemed advisable by the directors to implement the foregoing, 
such action may include the exchange of all existing Purchase Class 
shares for a new class (``New Purchase Class''), identical to existing 
Purchase Class shares in all material respects except that New Purchase 
Class will convert into New Target Class. New Target Class or New 
Purchase Class may be formed without further exemptive relief. 
Exchanges or conversions described in this condition shall be effected 
in a manner that the directors reasonably believe will not be subject 
to federal taxation. In accordance with condition 5, any additional 
cost associated with the creation, exchange, or conversion of New 
Target Class or New Purchase Class shall be borne solely by the Adviser 
and the Underwriter. Purchase Class shares sold after the 
implementation of the proposal may convert into Target Class shares 
subject to the higher maximum payment, provided that the material 
features of the Target Class plan and the relationship of such plan to 
the Purchase Class shares are disclosed in an effective registration 
statement.
    8. The directors of the Company will receive quarterly and annual 
statements concerning distribution and shareholder servicing 
expenditures complying with paragraph (b)(3)(ii) of rule 12b-1, as it 
may be amended from time to time. In the statements, only expenditures 
properly attributable to the sale or servicing of a particular class of 
shares will be used to justify any distribution or servicing fee 
charged to that class. Expenditures not related to the sale or 
servicing of a particular class will not be presented to the directors 
to justify any fee attributable to that class. The statements, 
including the allocations upon which they are based, will be subject to 
the review and approval of the independent directors in the exercise of 
their fiduciary duties.
    9. Dividends paid by a Fund with respect to each class of shares, 
to the extent any dividends are paid, will be calculated in the same 
manner, at the same time, on the same day, and will be in the same 
amount, except that fee payments made under 12b-1 plans relating to 
each respective class of shares, will be borne exclusively by that 
class and except that any other class-specific expenses, including 
transfer agency fees relating to a particular class will be borne 
exclusively by such class.
    10. The methodology and procedures for calculating the net asset 
value and dividends and distributions of the classes and the proper 
allocation of expenses between the classes has been reviewed by an 
expert (the ``Independent Examiner'') who has rendered a report to the 
applicants, which has been provided to the staff of the SEC, stating 
that such methodology and procedures are adequate to ensure that such 
calculations and allocations will be made in an appropriate manner. On 
an ongoing basis, the Independent Examiner, or an appropriate 
substitute Independent Examiner, will monitor the manner in which the 
calculations and allocations are being made and, based upon such 
review, will render at least annually a report to the Funds that the 
calculations and allocations are being made properly. The reports of 
the Independent Examiner shall be filed as part of the periodic reports 
filed with the SEC pursuant to sections 30(a) and 30(b)(1) of the Act. 
The work papers of the Independent Examiner with respect to such 
reports, following request by the Funds which the Funds agree to make, 
will be available for inspection by the SEC staff upon the written 
request for such work papers by a senior member of the Division of 
Investment Management or of a Regional Office of the Commission, 
limited to the Director, an Associate Director, the Chief Accountant, 
the Chief Financial Analyst, an Assistant Director and any Regional 
Administrators or Associate and Assistant Administrators. The initial 
report of the Independent Examiner is a ``Special Purpose'' report on 
the ``Design of a System'' as defined and described in SAS No. 44 of 
the AICPA, and the ongoing reports will be ``reports on policies and 
procedures placed in operation and tests of operating effectiveness'' 
as defined and described in SAS No. 70 of the AICPA, as it may be 
amended from time to time, or in similar auditing standards as may be 
adopted by the AICPA from time to time.
    11. The applicants have adequate facilities in place to ensure 
implementation of the methodology and procedures for calculating the 
net asset value and dividends and distributions of the classes of 
shares and the proper allocation of expenses between such classes of 
shares, and this representation has been concurred with by the 
Independent Examiner in the initial report referred to in condition 
(10) above and will be concurred with by the Independent Examiner, or 
an appropriate substitute Independent Examiner, on an ongoing basis at 
least annually in the ongoing reports referred to in condition (10) 
above. Applicants will take immediate corrective action if this 
representation is not concurred in by the Independent Examiner, or 
appropriate substitute Independent Examiner.
    12. The prospectuses of the Funds will contain a statement to the 
effect that a salesperson and any other person entitled to receive 
compensation for selling or servicing Fund shares may receive different 
levels of compensation for selling one particular class of shares over 
another in a Fund.
    13. The Underwriter will adopt compliance standards as to when each 
class of shares may appropriately be sold to particular investors. 
Applicants will require all persons selling shares of the Funds to 
agree to conform to such standards. Such compliance standards will 
require that all investors eligible to purchase Institutional Class 
shares be sold only Institutional Class shares, rather than any other 
class of shares offered by the Funds.
    14. The conditions pursuant to which the exemptive order is granted 
and the duties and responsibilities of the directors of the Funds with 
respect to the multi-class distribution system will be set forth in 
guidelines which will be furnished to the directors.
    15. Each Fund will disclose the respective expenses, performance 
data, distribution arrangements, services, fees, sales loads, deferred 
sales loads, and exchange privileges applicable to each class of 
shares, other than the Institutional Class, in every prospectus, 
regardless of whether all classes of shares are offered through each 
prospectus. The Institutional Class will be offered solely pursuant to 
a separate prospectus. The prospectus for the Institutional Class will 
disclose the existence of the Fund's other classes, and the prospectus 
for the Fund's other classes will disclose the existence of the 
Institutional Class and will identify the persons eligible to purchase 
shares of such class. Each Fund will disclose the respective expenses 
and performance data applicable to all classes of shares in every 
shareholder report. The shareholder reports will contain, in the 
statement of assets and liabilities and statement of operations, 
information related to the Fund as a whole generally and not on a per 
class basis. Each Fund's per share data, however, will be prepared on a 
per class basis with respect to the classes of shares of such fund. To 
the extent any advertisement or sales literature describes the expenses 
or performance data applicable to any class of shares (other than the 
Institutional Class), it will disclose the expenses and/or performance 
data applicable to all classes of shares. Advertising materials 
reflecting the expenses and performance data for the Institutional 
Class will be available only to investors eligible to invest in shares 
of the Institutional Class. The information provided by applicants for 
publication in any newspaper or similar listing of the Funds' net asset 
values and public offering prices will present each class of shares 
separately (other than the Institutional Class).
    16. The applicants acknowledge that the grant of the exemptive 
order requested by the application will not imply SEC approval, 
authorization, or acquiescence in any particular level of payments that 
the Funds may make pursuant to its rule 12b-1 plans or shareholder 
services plans in reliance on the exemptive order.
    17. The applicants will comply with the provisions of proposed rule 
6c-10 under the Act, Investment Company Act Release No. 16619 (Nov. 2, 
1988), as such rule is currently proposed and as it may be reproposed, 
adopted or amended.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-7080 Filed 3-24-94; 8:45 am]
BILLING CODE 8010-01-M