[Federal Register Volume 67, Number 88 (Tuesday, May 7, 2002)]
[Notices]
[Pages 30731-30733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-11229]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25558; 812-12160]


Portfolio Partners, Inc., et al.; Notice of Application

April 30, 2002.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order 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, as well as 
certain disclosure requirements.

-----------------------------------------------------------------------

SUMMARY OF THE APPLICATION: Applicants seek an order that would permit 
them to enter into and materially amend subadvisory agreements without 
shareholder approval and would grant relief from certain disclosure 
requirements.

APPLICANTS: Portfolio Partners, Inc.\1\ (the ``PPI Fund''), The GCG 
Trust (the ``GCG Trust,'' collectively with PPI Fund, the ``Funds''), 
Aetna Life Insurance and Annuity Company \2\ (``Aetna'') and Directed 
Services, Inc. (``DSI,'' collectively with Aetna, the ``Advisers'').
---------------------------------------------------------------------------

    \1\ Effective May 1, 2002, Portfolio Partners, Inc. will be 
renamed ``ING Partners, Inc.''
    \2\ 2 Effective May 1, 2002, Aetna Life Insurance and Annuity 
Company will be renamed ``ING Life Insurance and Annuity Company.''

FILING DATES: The application was filed on June 30, 2000, and amended 
---------------------------------------------------------------------------
on April 26, 2002.

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 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on May 23, 2002 and 
should be accompanied by proof of service on applicant, 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-
0609. Applicants, PPI Fund and Aetna, 151 Farmington Avenue, Hartford, 
CT 06156-8962; and GCG Trust and DSI, 1475 Dunwoody Drive, West 
Chester, PA 19380.

FOR FURTHER INFORMATION CONTACT: 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 at the 
SEC's Public Reference Branch, 450 5th Street, NW, Washington, DC 
20549-0102 (telephone (202 942-8090).

Applicants' Representations

    1. PPI Fund, a Maryland corporation, and GCG Trust, a Massachusetts 
business trust, are registered under the Act as open-end management 
investment companies. PPI Fund and GCG Trust are each comprised of 
multiple series (each a ``Portfolio,'' collectively the 
``Portfolios''), each with its own investment objectives and 
policies.\3\ The shares of each Portfolio currently are offered and 
sold through

[[Page 30732]]

insurance company separate accounts, which are used to fund variable 
annuity contracts and variable life insurance contracts.
---------------------------------------------------------------------------

    \3\ Applicants also request relief with respect to future series 
of the Funds and any other registered open-end management investment 
companies and series thereof that (a) are advised by the Advisers or 
any entity controlling, controlled by, or under common control with 
the Advisers; (b) use the Adviser/Sub-Adviser structure described in 
the application; and (c) comply with the terms and conditions in the 
application (``Future Funds,'' included in the term ``Funds,'' and 
their series included in the term ``Portfolios'' ). If the name of 
any Portfolio relying on the requested relief contains the name of a 
Sub-Adviser (as defined below), it will also contain the name of the 
Adviser, which will appear before the name of the Sub-Adviser.
---------------------------------------------------------------------------

    2. Aetna and DSI are registered as investment advisers under the 
Investment Advisers Act of 1940 (the ``Advisers Act''). Aetna currently 
serves as the investment adviser to PPI Fund and DSI serves as the 
investment adviser to GCG Trust. Aetna and DSI are wholly owned 
subsidiaries of ING Group N.V.
    3. PPI Fund and GCG Trust have entered into separate investment 
management agreements with Aetna and DSI (``Advisory Agreements''), 
respectively, that were approved by the Funds'' respective boards of 
directors/trustees (the ``Boards''), including a majority of the 
directors/trustees who are not ``interested persons,'' as defined in 
section 2(a)(19) of the Act (``Independent Directors''), and each 
Portfolio's shareholders. The Advisory Agreements permit the Advisers 
to enter into separate investment advisory agreements (``Sub-Advisory 
Agreements'') with investment management organizations as sub-advisers 
(``Sub-Advisers'') to whom each Adviser may delegate day-to-day 
portfolio management responsibilities for a Portfolio.
    4. Each Adviser monitors and evaluates the Sub-Advisers and 
recommends to the respective Board their hiring, retention or 
termination. Sub-Advisers recommended to the Board by the Adviser are 
selected and approved by the Board, including a majority of the 
Independent Directors. Each Sub-Adviser's fees are paid by the 
respective Adviser out of the management fees received by that Adviser 
under its Advisory Agreement.
    5. Applicants request relief to permit the Advisers, subject to 
Board approval, to enter into and materially amend Sub-Advisory 
Agreements without shareholder approval. The requested relief will not 
extend to a Sub-Adviser that is an affiliated person, as defined in 
section 2(a)(3) of the Act, of the Fund or the Adviser, other than by 
reason of serving as a Sub-Adviser to one or more of the Portfolios (an 
``Affiliated Sub-Adviser'').
    6. Applicants also request an exemption from the various disclosure 
provisions described below that may require the Portfolios to disclose 
the fees paid by an Adviser to the Sub-Advisers. An exemption is 
requested to permit the Portfolios to disclose (as both a dollar amount 
and as a percentage of a Portfolio's net assets): (a) aggregate fees 
paid to the Adviser and Affiliated Sub-Advisers; and (b) aggregate fees 
paid to the Sub-Advisers other than Affiliated Sub-Advisers 
(``Aggregate Fee Disclosure''). If a Portfolio employs an Affiliated 
Sub-Adviser, the Portfolio will provide separate disclosure of any fees 
paid to the Affiliated Sub-Adviser.

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 a majority 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. Form N-1A is the registration statement used by open-end 
investment companies. Item 15(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (the ``1934 Act''). Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8), and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fees,'' a description of ``the terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.
    4. Form N-SAR is the semi-annual report filed with the Commission 
by registered investment companies. Item 48 of Form N-SAR requires 
investment companies to disclose the rate schedule for fees paid to 
their investment advisers, including the Sub-Advisers.
    5. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    6. 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 reasons discussed below.
    7. Applicants assert that each Portfolio's shareholders have 
determined to rely on the Adviser to select, monitor and replace Sub-
Advisers. Applicants contend that from the perspective of the investor, 
the role of the Sub-Advisers is comparable to individual portfolio 
managers employed by other firms. Applicants contend that requiring 
shareholder approval of the Sub-Advisory Agreements would impose 
unnecessary costs and delays on the Portfolios, and may preclude the 
Adviser from acting promptly in a manner considered advisable by the 
Board. Applicants note that the Advisory Agreements will remain subject 
to section 15(a) of the Act and rule 18f-2 under the Act.
    8. Applicants assert that many Sub-Advisers charge their customers 
for advisory services according to a ``posted'' rate schedule. 
Applicants state that while Sub-Advisers are willing to negotiate fees 
lower than those posted in the schedule, particularly with large 
institutional clients, they are reluctant to do so when the fees are 
disclosed to other prospective and existing customers. Applicants 
submit that the relief will encourage Sub-Advisers to negotiate lower 
advisory fees with the Advisers, the benefits of which are likely to be 
passed on to the Portfolio's shareholders.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Portfolio may rely on the order, the operation of the 
Portfolio in the manner described in the application will be approved 
by a majority of the outstanding voting securities of the Portfolio 
(or, if the Portfolio serves as a funding medium for any sub-account of 
a registered separate account, pursuant to voting instructions provided 
by the unitholders of the sub-account), as defined in the Act, or, in 
the case of a Portfolio whose public shareholders (or variable contract 
owners through a separate account) purchased shares on the basis of a 
prospectus(es) containing the disclosure contemplated by condition 2 
below, by the initial shareholder(s) before the shares of such 
Portfolio are offered to the public (or the variable contract owners 
through a separate account).

[[Page 30733]]

    2. A Portfolio's prospectus will prominently disclose the 
existence, substance, and effect of any order granted pursuant to the 
application. Each Portfolio will hold itself out to the public as 
employing the management structure described in the application. A 
Portfolio's prospectus will prominently disclose that the Adviser has 
the ultimate responsibility (subject to oversight by the Board) to 
oversee the Sub-Advisers and recommend their hiring, termination, and 
replacement.
    3. The Advisers will provide general management services to each of 
the respective Portfolios, including overall supervisory responsibility 
for the general management and investment of each Portfolio's assets, 
and, subject to the review and approval by the Board, will (i) set each 
Portfolio's overall investment strategies; (ii) evaluate, select and 
recommend Sub-Advisers to manage all or part of a Portfolio's assets; 
(iii) when appropriate, allocate and reallocate a Portfolio's assets 
among multiple Sub-Advisers; (iv) monitor and evaluate the investment 
performance of Sub-Advisers; and (v) implement procedures reasonably 
designed to ensure that the Sub-Advisers comply with the relevant 
Portfolio's investment objectives, policies and restrictions.
    4. At all times, a majority of the Board of the respective Fund 
will be Independent Directors and the nomination of new or additional 
Independent Directors will be at the discretion of the then-existing 
Independent Directors.
    5. The Adviser will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser without such agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Portfolio.
    6. When a Sub-Adviser change is proposed for a Portfolio with an 
Affiliated Sub-Adviser, the Board of the Fund, including a majority of 
the Independent Directors, will make a separate finding, reflected in 
the minutes of the meeting of the Board, that such change is in the 
best interests of the applicable Portfolio and its shareholders and 
does not involve a conflict of interest from which the respective 
Adviser or the Affiliated Sub-Adviser derives an inappropriate 
advantage.
    7. No director, trustee, or officer of the Fund or director or 
officer of the Adviser 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 Sub-Adviser except (a) 
for the ownership of interests in the Adviser or any entity that 
controls, is controlled by, or is under common control with the 
Adviser; or (b) for the 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 Sub-Adviser or an entity that controls, is controlled 
by, or is under common control with a Sub-Adviser.
    8. Within 90 days of the hiring of any new Sub-Adviser, the Adviser 
will furnish shareholders (or, if the Portfolio serves as a funding 
medium for any sub-account of a registered separate account, the 
Adviser will furnish the unitholders of the sub-account) of the 
applicable Portfolio all information about the new Sub-Adviser that 
would be contained in a proxy statement, except as modified by the 
order to permit Aggregate Fee Disclosure. This information will include 
Aggregate Fee Disclosure and any change in such disclosure caused by 
the addition of a new Sub-Adviser. To meet this condition, the 
respective Adviser will provide the shareholders (or, if the Portfolio 
serves as a funding medium for any sub-account of a registered separate 
account, then by providing unitholders of the sub-account) with an 
information statement meeting the requirements of Regulation 14C, 
Schedule 14C, and Item 22 of Schedule 14A under the 1934 Act, except as 
modified by the order to permit Aggregate Fee Disclosure.
    9. Each Portfolio will disclose in its registration statement the 
Aggregate Fee Disclosure.
    10. Independent legal counsel, as defined in Rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Directors of the 
Fund. The selection of such counsel will remain within the discretion 
of the then-existing Independent Directors.
    11. Each Adviser will provide the respective Board, no less 
frequently than quarterly, with information about the Adviser's 
profitability on a per-Portfolio basis. The information will reflect 
the impact on the profitability of the hiring or termination of any 
Sub-Adviser during the applicable quarter.
    12. Whenever a Sub-Adviser is hired or terminated, the relevant 
Adviser will provide the Board with information showing the expected 
impact on the Adviser's profitability.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-11229 Filed 5-6-02; 8:45 am]
BILLING CODE 8010-01-P