[Federal Register Volume 62, Number 162 (Thursday, August 21, 1997)]
[Notices]
[Pages 44497-44500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-22185]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22788; 812-10540]
Aetna Variable Fund, et al.; Notice of Application
August 15, 1997.
Agency: Securities and Exchange Commission (``SEC'').
Action: Notice of application for an order under (i) section 6(c) of
the Investment Company Act of 1940 (the ``Act'') granting relief from
sections 13(a)(2), 18(f)(1), 22(f), and 22(g) of the Act and rule 2a-7;
(ii) sections 6(c) and 17(b) of the Act granting relief from section
17(a) of the Act; and (iii) section 17(d) of the Act and rule 17d-1 to
permit certain joint transactions.
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Summary of Application: Applicants request an order to permit certain
investment companies to enter into deferred compensation arrangements
with certain of their directors, and the companies and participating
directors to effect transactions incident to the deferred compensation
arrangements.
Applicants: Aetna Variable Fund; Aetna Income Shares; Aetna Variable
Encore Fund; Aetna Investment Advisers Fund, Inc.; Aetna GET Fund;
Aetna Variable Portfolios, Inc.; Aetna Generation Portfolios, Inc.; and
Aetna Series Fund, Inc. (collectively, the ``Investment
[[Page 44498]]
Companies''); and Aetna Life Insurance and Annuity Company (the
``Adviser'').
Filing Dates: The application was filed on March 3, 1997, and an
amendment was filed on July 11, 1997. Applicants have agreed to file an
additional amendment, the substance of which is included in this
notice, 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 September 9,
1997, 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 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 151 Farmington Avenue, Hartford, Connecticut 06156,
Attn: Amy R. Doberman, Esq.
For Further Information Contact: Brian T. Hourihan, Senior Counsel, at
(202) 942-0526, or Mercer E. Bullard, 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 SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington
D.C. 20549 (tel. (202) 942-8090).
Applicants' Representations
1. Each Investment Company is a registered open-end management
investment company. Four of the Investment Companies are Maryland
corporations, and four are Massachusetts business trusts. Shares of the
Investment Companies, other than the Aetna Series Fund, Inc., are sold
solely to insurance company separate accounts to fund variable annuity
contracts and variable life insurance policies. The Adviser, an
investment adviser registered under the Investment Advisers Act of
1940, serves as the investment adviser and principal underwriter for
each Investment Company.\1\ Applicants request that the requested
relief apply to the Investment Companies and any registered open-end
management investment companies or their series (including ``successors
in interest''), currently or in the future advised by the Adviser or
its successors in interest, or any entity controlling, controlled by,
or under common control with the Adviser (collectively with the
Investment Companies, the ``Funds'').\2\
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\1\ On the effective date of the post-effective amendment to the
Aetna Series Fund, Inc.'s registration statement that was filed with
the SEC on July 9, 1997, Aetna Investment Services, Inc., an
affiliate of the Adviser, will commence service as principal
underwriter to the Aetna Series Fund, Inc.
\2\ For purposes of this application, ``successors in interest''
are limited to entities that result from a reorganization into
another jurisdiction or a change in the type of business
organization. All existing Funds that currently intend to rely on
the requested relief have been named as parties to the application.
Any existing Funds that currently do not intend to rely on the
relief but which may in the future, and any future Funds that
subsequently rely on the relief, will do so only in accordance with
the terms and conditions set forth in the application.
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2. Aetna Money Market Fund, a series of Aetna Series Fund, Inc.,
and Aetna Variable Encore Fund are money market funds that compute
current price per share using the amortized cost method in reliance on
rule 2a-7 (together, and collectively with any future money market
Funds, the ``Money Market Funds'').
3. Each director of a Fund who is not an employee of that Fund, of
the Fund's distributor or administrator, of the Adviser, or of any
affiliate of the Adviser, and who is not eligible to participate in the
Retirement Plan for Employees of Aetna, Inc. will be eligible
(``Eligible Director'') to participate in the Deferred Compensation
Plan for Eligible Directors (the ``Plan''). Eligible Directors
currently receive compensation paid proportionately by each Fund based
on the net assets of the Fund as of the date the compensation is
earned. The purpose of the Plan is to permit Eligible Directors to
defer receipt of all or a portion of their compensation (the ``Deferred
Fees'') to enable them to defer payment of income taxes or to
accomplish other financial goals.
4. Each Fund will determine whether or not to adopt the Plan. With
respect to each Fund, the Plan will become effective upon adoption of a
written resolution by the Fund's board of directors or trustees, as
applicable, after the issuance of the requested exemptive order. The
Plan may be amended from time to time. The amendments will be limited
to immaterial amendments, amendments made to conform to applicable
laws, amendments approved by the SEC pursuant to an application, or
amendments caused by an amendment of an exemptive order.
5. Each Fund will establish a bookkeeping account in the name of
each Eligible Director (a ``Deferral Account'') and credit it with an
amount equal to that Eligible Director's compensation at the time that
compensation would otherwise have been paid. Eligible Directors may
elect to participate in the Plan with each or any combination of Funds
that adopt the Plan. An Eligible Director's election to participate
will be made by execution of a deferral agreement that continues in
effect for each subsequent calendar year (each such calendar year,
including the fiscal year in which the election is first made
effective, the ``Deferral Year''). Under the Plan, an Eligible Director
will be able to elect to defer receipt of Deferred Fees with respect to
any Deferral Year until the Director's retirement, death, or
termination of services by reason other than retirement or death.
Payments will be made in a lump sum or in installments over a period of
twenty-five years as selected by the Eligible Director. In the event of
death, amounts payable to the Eligible Director under the Plan will
become payable in a lump sum (i) to a beneficiary designated by the
Director, (ii) in the event no beneficiary was selected by the
Director, to the Director's estate, (iii) in the event the beneficiary
does not survive the period during which such payments are to be made,
to the beneficiary's estate, or, (iv) in the event there is more than
one beneficiary who does not survive the period during which such
payments are to be made, proportionately to the surviving beneficiaries
until the death of the last beneficiary, then to the estate of the last
beneficiary to die. In all other events, the Eligible Director's right
to receive Deferred Fees will be nontransferable.
6. Under the Plan, Deferred Fees credited to a Deferral Account
will be deemed invested as soon as practicable in one or more of the
Funds that the Plan administrator makes available under the Plan
(collectively, the ``Investment Options'') that are selected by the
Eligible Director. The Investment Options will be used to measure the
notional investment performance of an Eligible Director's Deferral
Account. The value of a Deferral Account, as of any date, will be equal
to the value that Account would have had if the amount credited to it
had been invested and reinvested in shares of the Investment Option(s)
designated by the Eligible Director (the ``Designated Shares''). Each
Deferral Account will be credited or charged with book adjustments
[[Page 44499]]
representing all interest, dividends and other earnings and all gains
and losses that would have been realized had the amounts credited to
such Account actually been invested in the Designated Shares from the
date of original designation or subsequent change of the Investment
Option. Each Fund intends generally to purchase and maintain Designated
Shares in an amount equal to the deemed investments of the Deferral
Accounts of its Eligible Directors. However, when Deferred Fees are
owed by a Fund that serves as an Eligible Director's Investment Option,
it is not anticipated that the Fund would purchase its own shares.
Rather, monies equal to the amount credited to the Deferral Account
will be invested as part of the general investment operations of that
Fund.
7. A participating Fund's obligation to make payments with respect
to a Deferral Account will be a general obligation of the Fund and each
Eligible Director will be a general unsecured creditor. The Plan will
not create an obligation of any fund to any Eligible Director to
purchase, hold or dispose of any investments. If a Fund should choose
to purchase investments in order to ``match'' exactly its obligations
to credit or charge the Deferral Account with the earnings and gains or
losses attributable to the Designated Shares, all such investments will
continue to be part of the general assets and property of such Fund.
The Plan will not obligate any Fund to retain the services of an
Eligible Director, nor obligate any Fund to pay any (or any particular
level of) compensation to any Eligible Director. The amount of
compensation owed to Eligible Directors is expected to be insignificant
in comparison to the total net assets of each Fund.
Applicants' Legal Analysis
1. Applicants request an order under (i) section 6(c) of the Act
granting relief from sections 13(a)(2), 18(f)(1), 22(f) and 22(g) of
the Act and rule 2a-7; (ii) sections 6(c) and 17(b) of the Act granting
relief from section 17(a) of the Act; and (iii) section 17(d) of the
Act and rule 17d-1 to the extent necessary to permit the Funds to enter
into deferred compensation arrangements with Eligible Directors, and
the Funds and Eligible Directors to effect transactions incident to the
deferred compensation arrangements.
2. Section 6(c) provides that the SEC may exempt any person,
security, or transaction from any provision of the Act, 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 Act.
Applicants submit that, for the reasons discussed below, the requested
relief satisfies this standard.
3. Section 18(f)(1) generally prohibits a registered open-end
investment company from issuing any class of senior security or selling
any senior security of which it is the issuer. In addition, section
13(a)(2) requires that a registered investment company obtain
authorization by the vote of a majority of its outstanding voting
securities before issuing any senior securities not contemplated by the
recitals of policy contained in its registration statement. Applicants
state that the Plan will not give rise to the concerns underlying these
provisions such as excessive borrowing by investment companies,
confusing capital structures, and inappropriately speculative
investments.
4. Section 22(f) prohibits restrictions on the transferability or
negotiability of redeemable securities issued by an open-end investment
company unless the restriction is disclosed in its registration
statement and does not contravene SEC rules and regulations. Applicants
state that the concerns underlying this provision are met because the
restrictions on transferability of an Eligible Director's Deferred Fees
under the Plan will be clearly set forth in the Plan and will not
adversely affect the interests of the Eligible Directors, the Funds, or
any shareholder of any Fund.
5. Section 22(g) generally prohibits registered open-end investment
companies from using any of their securities for services or for
property other than cash or securities.
Applicants assert that the legislative history of the Act suggests
that Congress was primarily concerned with the dilutive effect on the
equity and voting power of common stock of, or units of beneficial
interest in, an investment company if the company's securities were
issued for consideration not readily valued. Applicants contend that
the Plan does not raise these concerns because it will provide solely
for deferral of the payment of compensation and thus any rights issued
under the Plan to the Eligible Directors should be viewed as issued not
for services but in consideration of the Fund's not being required to
pay the compensation on a current basis.
6. Rule 2a-7 provides that, notwithstanding the requirements of
section 2(a)(41) of the Act and rules 2a-4 and 22c-1, the current price
per share of any money market fund may be computed by use of the
amortized cost method or the penny-rounding method, provided that the
fund meets certain conditions. These conditions include, among others,
that the money market fund will (i) limit its investments to securities
that have remaining maturity of 397 days or less and that meet certain
credit quality standards, and (ii) not maintain a dollar-weighted
average portfolio maturity that exceeds 90 days. Applicants request
relief from the rule to the extent required to permit the Money Market
Funds to invest in Designated Shares (and to exclude Designated Shares
from the calculation of such Funds' dollar-weighted average
maturities). Applicants believe that the requested relief will permit
the Money Market Funds to achieve an exact matching of Designated
Shares with the deemed investments of the Deferral Account, thereby
ensuring that the deferred compensation arrangements will not affect
the Money Market Funds' net asset value. Applicants state that the
Deferred Fees involved will in all cases be de minimis in relation to
the total net assets of each Money Market Fund, and will have no effect
on such Fund's per share net asset value.
7. Section 17(a) generally prohibits an affiliated person of a
registered investment company, or any affiliated person of such person,
from selling any security to or purchasing any security from the
company. Section 2(a)(3)(C) defines the term ``affiliated person'' of
another person to include any person controlling, controlled by, or
under common control with such person. Because the Funds have the same
investment adviser and the same directors and officers, each Fund could
be deemed to be under common control with the other Funds and,
therefore, might be deemed to be an affiliated person of the other
Funds. Applicants assert that section 17(a) was designed to prevent
sponsors of investment companies from using investment company assets
as capital for enterprises with which they are associated or to acquire
controlling interests in such enterprises and other types of
``overreaching.'' Applicants state that the purchase and sale of
securities issued by the Funds pursuant to the Plan will not implicate
the concerns underlying section 17(a), but merely will facilitate the
matching of the liabilities for compensation deferrals with Designated
Shares, the value of which determines the amount of such liabilities.
8. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 17(a) if evidence establishes that the terms
of the proposed transaction, including the consideration to be paid
[[Page 44500]]
or received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, the proposed transaction is
consistent with the policies of the registered investment company and
the general purposes of the Act. Applicants believe that the relief
requested satisfies the standards of sections 6(c) and 17(b).
9. Section 17(d) and rule 17d-1 prohibit affiliated persons from
participating in joint arrangements with a registered investment
company unless authorized by the SEC. In passing on applications for
such orders, rule 17d-1 provides that the SEC will consider whether the
participation of such investment company 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 acknowledge that the Plan
may be deemed to constitute a joint arrangement within the meaning of
rule 17d-1. Applicants state that an Eligible Director will neither
directly nor indirectly receive a benefit that would otherwise inure to
the Funds or any of their shareholders. Moreover, applicants note that
the changes in value made to the Deferral Accounts to reflect the
income, gain or loss with respect to the Designated Shares will be
identical to the changes in share value experienced by the shareholders
of the Funds during the same period.
Applicants' Condition
Applicants agree that any order of the SEC granting the requested
relief will be subject to the following conditions that, with respect
to the requested relief from rule 2a-7, any Money Market Fund that
values its assets by the amortized cost method or penny-rounding method
will buy and hold Designated Shares that determine the performance of
Deferred Accounts to achieve an exact match between the liability of
any such Fund to pay compensation deferrals and the assets that offset
that liability.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-22185 Filed 8-20-97; 8:45 am]
BILLING CODE 8010-01-M