[Federal Register Volume 63, Number 6 (Friday, January 9, 1998)]
[Notices]
[Pages 1513-1515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-537]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22991; 812-10542]


Advantus Capital Management, Inc. et al.; Notice of Application

January 5, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of 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; and from certain disclosure 
requirements set forth in item 22 of Schedule 14A under the Securities 
Exchange Act of 1934 (the ``Exchange Act''); item 2, 5(b)(iii), and 
16(a)(iii) of Form N-1A; item 3 of Form N-14; item 48 of Form N-SAR; 
and sections 6-07(2) (a), (b), and (c) of Regulation S-X.

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Summary of Application

    The order would permit applicants to enter into and materially 
amend investment management agreements with subadvisers without 
obtaining shareholder approval, and grant relief from certain 
disclosure requirements regarding advisory fees paid to the 
subadvisers.

Applicants

    Advantus Series Fund, Inc. (the ``Fund'') (formerly MIMLIC Series 
Fund, Inc.) and Advantus Capital Management, Inc. (the ``Adviser'').

Filing Dates

    The application was filed on March 5, 1997, and amended on August 
22, 1997, and December 30, 1997.

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 January 26, 1998, 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 such notification by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, 400 Robert Street North, St. Paul, MN 55101-2098.

FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenless, 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. The Fund is organized as a Minnesota corporation and is 
registered under the Act as an open-end management investment company. 
The Fund is comprised of twenty series (the ``Portfolios''), each of 
which has its own investment objectives and policies.\1\ Shares of the 
Fund are sold only to insurance companies and their separate accounts. 
The Fund currently serves as the underlying investment medium for sums 
invested in variable annuity and variable life contracts (collectively, 
``variable contracts'') issued by the Minnesota Mutual Life Insurance 
Company (``Minnesota Mutual''). Shares of the Portfolios are sold 
without sales charges or asset-based distribution charges.
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    \1\ Applicants also request relief with respect to: (a) any 
series of the Fund organized in the future; and (b) all subsequently 
registered open-end management investment companies that in the 
future: (i) serve as funding vehicles for variable annuity or 
variable life insurance contracts of Minnesota Mutual; (ii) are 
advised by the Adviser, or any entity controlling, controlled by, or 
under common control with, the Adviser; (iii) use a multi-manager 
structure as described in the application; and (iv) comply with the 
conditions to the requested order (``Future Companies'').
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    2. The Adviser is registered as an investment adviser under the 
Investment Advisers Act of 1940. The Adviser serves as investment 
adviser to the Fund pursuant to an advisory agreement between the 
Adviser and the Fund (the ``Advisory Agreement'').
    3. Under the terms of the Advisory Agreement, the Adviser 
administers the business and affairs of the Fund. For all Portfolios, 
the Adviser furnishes the Fund, at its own expense, office space and 
all necessary office facilities, equipment, and personnel for servicing 
the investments of the Fund. The Adviser maintains all records 
necessary in the operation of the Fund, including records pertaining to 
its shareholders and investments. Each Portfolio pays the Adviser a fee 
for its services equal to a percentage of average daily net assets.
    4. Currently, the Adviser manages certain of the Portfolios 
directly, and engages subadvisers (``Managers'') to manage certain of 
the Portfolios. Management of those Portfolios is provided by one 
Manager. In the future, the Adviser may allocate portions of a 
Portfolio's assets among multiple specialist Managers with dissimilar 
investment styles and security selection disciplines. The Adviser 
recommends selection of Managers to the Fund's board of directors (the 
``Board'') based on the continuing quantitative and qualitative 
evaluation of their skills and proven abilities to manage assets 
pursuant to a specific investment style. When it employs one or more 
Managers to manage the investment and reinvestment of all or a portion 
of the assets of a Portfolio (the ``Manager of Managers Strategy''), 
the Adviser monitors the compliance of each Manager with the investment 
objectives and related policies of each Portfolio, reviews the 
performance of each Manager and reports periodically on performance to 
the Board, and recommends to the Board that the Fund terminate a 
particular Manager when deemed in the best interests of a Portfolio. 
Each Manager performs services pursuant to a written agreement (the 
``Portfolio Management Agreement''). Managers' fees are paid by the 
Adviser out of its fees from the Portfolios at rates negotiated with 
the Managers by the Adviser.
    5. Applicants request an exemption from section 15(a) of the Act 
and rule 18f-2 under the Act to permit the Fund and the Adviser to 
enter into and materially amend Portfolio Management Agreements without 
obtaining shareholder approval (i.e., approval of the variable contract 
owners). For each Portfolio, applicants also request relief from 
certain disclosure requirements under the Act to disclose the following 
(both as a dollar amount and as a percentage of a Portfolio's net 
assets) (``Limited Fee Disclosure''): (a) Aggregate fees paid to the 
Adviser and any Manager that is an ``affiliated person'' (as defined in 
section 2(a)(3) of the Act) of either the Fund or the Adviser other 
than by reason of serving as a Manager to one or more of the Portfolios 
(an ``Affiliated Manager''); and (b) aggregate fees paid to Managers 
other than Affiliated Managers.

[[Page 1514]]

Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it unlawful for any person to act 
as investment adviser to a registered investment company except 
pursuant to a written contract that has been approved by a majority of 
the investment 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. Items 2, 5(b)(iii), and 16(a)(iii) of Form N-1A require the Fund 
to disclose in its prospectus the investment adviser's compensation. 
Rule 20a-1 under the Act requires the disclosure of information in 
accordance with Schedule 14A under the Exchange Act. Items 
22(a)(3)(iv), 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8), and 22(c)(9) of 
Schedule 14A, taken together, require that proxy statements for a 
shareholder meeting at which action is to be taken on an advisory 
contract, or that would establish new or higher advisory fees or 
expenses, disclose information regarding advisory fee rates and 
amounts. Item 48 of Form N-SAR provides that the Fund must disclose the 
rate schedule for advisory fees paid to its advisers, including the 
Managers. Sections 6-07(2) (a), (b), and (c) of Regulation S-X require 
that the Fund's financial statements contain information concerning 
fees paid to investment advisers, which could be interpreted to require 
disclosure of fees paid to the Managers. Item 3 of Form N-14, the 
prescribed registration form for business combinations involving open-
end management investment companies, requires a fee table that shows 
current fees for the registrant and the company being acquired (and pro 
forma fees, if different).
    3. Applicants state that the Fund's structure will be different 
from that of traditional investment companies. For the Portfolios that 
the Adviser does not manage directly, the Fund will employ the Manager 
of Managers Strategy. Applicants state that a Portfolio employing 
multiple Managers would give variable contract owners the opportunity 
to have their pooled assets divided among a group of Managers which the 
Adviser, based on its own analyses and experience, has determined is 
likely to make specific portfolio securities selections which will 
achieve the desired and defined objectives of the Portfolio. Applicants 
assert that variable contract owners also would obtain the Adviser's 
constant supervision of these Managers, so that the proportion of their 
assets subject to particular Manager styles can be reallocated (or new 
Managers introduced) in response to changing market conditions or 
Manager performance.
    4. Applicants submit that investors in a Portfolio are, in effect, 
electing to have the Adviser manage the investment and reinvestment of 
a Portfolio's assets or select one or more Managers best suited to 
achieve that Portfolio's investment objectives. Part of that investor's 
investment decision, applicants argue, is a decision to have the 
selection of Managers made by a professional management organization, 
such as the Adviser, with substantial experience in making such 
evaluations and selections. Applicants state that Managers are 
concerned only with selection of portfolio investments in accordance 
with a Portfolio's investment objectives and policies, and do not have 
broader supervisory, management, or administrative responsibilities 
with respect to a Portfolio or the Fund. Thus, applicants believe that 
the role of the Managers, from the perspective of the investor, is 
comparable to that of the individual portfolio managers employed by 
other investment company advisory firms.
    5. The Fund's prospectus and statement of additional information 
will include all required information concerning each Manager, except 
as modified by the proposed Limited Fee Disclosure. If a new Manager is 
retained, the Fund will furnish variable contract owners, within 60 
days, all the information that would have been provided in a proxy 
statement, provided that information regarding fees would be modified 
by the proposed Limited Fee Disclosure.
    6. Applicants contend that requiring shareholder approval of 
Portfolio Management Agreements places costs and burdens on the Fund 
and its shareholders that do not advance shareholder interests. 
Applicants additionally assert that variable contract owners are 
adequately protected by their voting rights concerning the Investment 
Advisory Agreement between the Fund and the Adviser, as well as by the 
responsibilities borne by the Adviser and the Board with respect to the 
Managers and the Portfolio Management Agreements.
    7. Applicants note that the investment advisory fees paid to the 
Adviser will be disclosed in the Fund's prospectus and statement of 
additional information. Applicants contend that each investor will, 
therefore, be able to determine whether its cost for investment 
advisory services, including the selection and supervision of Managers 
(and the reallocation of assets among multiple Managers from time to 
time, if and where applicable), is competitive with the services and 
costs which the investor could obtain elsewhere. Applicants note that 
some Managers use a ``posted'' rate schedule to set their fees, 
particularly at lower asset levels. Based upon the Adviser's extensive 
experience in dealing with Managers and upon the Adviser's discussions 
with prospective Managers, applicants believe that some organizations 
will be unwilling to serve as Managers at any fee rate other than their 
``posted'' fee rates, unless the rates negotiated for the Portfolios 
are not publicly disclosed. Applicants believe that forcing disclosure 
of Managers' fees would therefore tend to deprive the Adviser of its 
bargaining power while producing no benefit to variable contract 
owners, since the fees they pay would not be affected.
    8. Section 6(c) of the Act 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 the requested relief meets this standard.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The Fund will disclose in its registration statement the Limited 
Fee Disclosure.
    2. The Adviser will not enter into a Portfolio Management Agreement 
with an Affiliated Manger without that agreement, including the 
compensation to be paid thereunder, being approved by the variable 
contract owners with assets allocated to any subaccount of a separate 
account for which the applicable Portfolio serves as a funding medium.
    3. At all times, a majority of the Board will continue to be 
persons each of whom is not an ``interested person'' of the Fund as 
defined in Section 2(a)(19) of the Act (``Independent Directors''), and 
the nomination of new or additional Independent Directors will continue 
to be at the discretion of the then existing Independent Directors.
    4. Independent counsel knowledgeable about the Act and the duties 
of Independent Directors will be engaged to represent the Independent 
Directors of the Fund. The selection of such counsel will be within the 
discretion of the Independent Directors.

[[Page 1515]]

    5. The Adviser will provide the Board, no less frequently than 
quarterly, information about the Adviser's profitability on a per-
Portfolio basis. Such information will reflect the impact on 
profitability of the hiring or termination of any Manager during the 
applicable quarter.
    6. Whenever a Manager is hired or terminated, the Adviser will 
provide the board information showing the expected impact on the 
Adviser's profitability.
    7. When a Manager change is proposed for a Portfolio with an 
Affiliated Manager, the Fund's directors, including a majority of the 
Independent Directors, will make a separate finding, reflected in the 
Fund's board minutes, that the change is in the best interests of the 
Portfolio and variable contract owners with assets allocated to any 
sub-account of a separate account for which a Portfolio serves as a 
funding medium and does not involve a conflict of interest from which 
the Adviser or the Affiliated Manger derives an inappropriate 
advantage.
    8. Before a Portfolio may rely on the order requested hereby, the 
operation of the Portfolio in the manner described in the application 
will be approved by a majority of its outstanding voting securities, as 
defined in the Act, pursuant to voting instructions provided by 
variable contract owners with assets allocated to any sub-account of a 
registered separate account for which a Portfolio serves as a funding 
medium or, in the case of a new Portfolio whose shareholders (i.e., 
separate accounts) purchased shares on the basis of a prospectus 
containing the disclosure contemplated by condition 11 below, by the 
sole initial shareholder(s) before offering shares of that new 
Portfolio to variable contract owners through a separate account.
    9. The Adviser will provide general management services to the Fund 
and its Portfolios, including overall supervisory responsibility for 
the general management and investment of each Portfolio's securities 
portfolio, and, subject to review and approval by the Board, will: (a) 
set the Portfolios' overall investment strategies; (b) select Managers; 
(c) when appropriate, allocate and reallocate a Portfolio's assets 
among multiple Managers; (d) monitor and evaluate the performance of 
Managers; and (e) ensure that the Managers comply with the Portfolio's 
investment objectives, policies, and restrictions.
    10. Within 60 days of the hiring of any new Manager, variable 
contract owners with assets allocated to any registered separate 
account for which the Fund serves as a funding medium will be furnished 
all information about a new Manager or Portfolio Manager Agreement that 
would be included in a proxy statement, except as modified by the order 
to permit Limited Fee Disclosure. Such information will include Limited 
Fee Disclosure and any change in such disclosure caused by the addition 
of a new Manager. The Adviser will meet this condition by providing 
such variable contract owners with an information statement meeting the 
requirements of Regulation 14C and Schedule 14C under the Exchange Act. 
The information statement also will meet the requirements of Item 22 of 
Schedule 14A under the Exchange Act.
    11. The Fund will disclose in its prospectus the existence, 
substance, and effect of any order granted pursuant to the application. 
In addition, the Fund will hold itself out to the public as employing 
the ``Manager of Managers Strategy'' described in the application. The 
prospectus relating to the Fund will prominently disclose that the 
Adviser has ultimate responsibility for the investment performance of 
each Portfolio employing subadvisers due to its responsibility to 
oversee the Managers and recommend their hiring, termination, and 
replacement.
    12. No director 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 that director or 
officer) any interest in a Manager, except for: (a) ownership of 
interests in the Adviser or any entity that controls, is controlled by, 
or is under common control with the Adviser; 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 Manager or any entity that 
controls, is controlled by, or is under common control with a Manager.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-537 Filed 1-8-98; 8:45 am]
BILLING CODE 8010-01-M