[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