[Federal Register Volume 65, Number 70 (Tuesday, April 11, 2000)]
[Notices]
[Pages 19399-19401]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8875]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24376; 812-11896]


Penn Series Funds, Inc., et al.; Notice of Application

April 4, 2000.
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 19f-2 under the Act.

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[[Page 19400]]


Summary of Application:  The order would permit applicants to enter 
into and materially amend investment subadvisory agreements without 
obtaining shareholder approval.

Applicants:  Penn Series Funds, Inc. (the ``Company''), on behalf of 
its series (the ``Funds''), and Independence Capital Management, Inc. 
(``ICMI'').

Filing Dates:  The application was filed on December 20, 1999. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in this notice.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing be 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 
27, 2000, 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 5th Street, NW, Washington, DC 20549-
0609. Applicants, 600 Dresher Road, Horsham, Pennsylvania 19044.

FOR FURTHER INFORMATION CONTACT:  J. Amanda Machen, Senior Counsel, 
(202) 942-7120, or Christine Y. Greenlees, Branch Chief, (202) 942-0564 
(Office of Investment Company Regulation, Division of Investment 
Management).

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 (tel. 202-942-8090).

Applicants' Representations

    1. The Company, a Maryland corporation, is registered under the Act 
as an open-end management investment company. The Company currently 
consists of nine Funds, each with different investment objectives and 
policies. The Funds currently serve as the investment medium for 
variable life insurance policies and variable annuity contracts issued 
by The Penn Mutual Life Insurance Company (``Penn Mutual'') and its 
subsidiary, The Penn Insurance and Annuity Company, and will serve as 
the investment medium for variable contracts that in the future are 
issued by Penn Mutual or its affiliates.
    2. ICMI serves as the investment adviser for each of the Funds and 
is registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). ICMI provides investment advisory services to the Funds under 
three separate investment advisory agreements with the Company (the 
``Advisory Agreements''). In its capacity as investment adviser, ICMI 
recommends the selection or termination of one or more sub-advisers 
(``Managers'') to each Fund's board of directors (``Board''). In 
addition, ICMI oversees and monitors the performance of the Managers 
and may reallocate a Fund's assets among Managers. Each Manager 
recommended by ICMI is approved by the Board of each Fund, including a 
majority of directors who are not ``interested persons,'' as defined in 
section 2(a)(19) of the Act (the ``Independent Directors''). Each Fund 
pays ICMI a fee for its services based on the Fund's net assets.
    3. ICMI has entered into sub-advisory agreements (``Subadvisory 
Agreements'') with four Managers, each of which is registered or is 
exempt from registration as an investment adviser under the Advisers 
Act, and none of which is an affiliate of ICMI. Subject to general 
supervision by ICMI and the Board, each Manager is responsible for the 
day-to-day management of the assets of a particular Fund or a portion 
of the assets assigned to such Manager if managed by more than one 
Manager (each Fund with a Manager, a ``Manager of Managers Fund''). 
ICMI pays the Managers out of the fees ICMI receives from the Funds.
    4 Applicants request an order to permit ICMI to enter into and 
amend Subadvisory Agreements without obtaining Shareholder approval.\1\ 
The requested relief will not extend to a Manager that is an 
``affiliated person'' (as defined in section 2(a)(3) of the Act) of 
either a Fund or ICMI, other than by reason of serving as Manager of 
the Fund ``Affiliated Manager'').\2\
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    \1\ The term ``Shareholder'' includes variable life and annuity 
contract owners having the voting interest in a separate account for 
which the Funds serve as a funding medium.
    \2\ Applicants also request relief for: (a) future series of the 
Company; and (b) all subsequently registered open-end management 
investment companies and their portfolios that in the future: (i) 
are advised by ICMI or any entity controlling, controlled by, or 
under common control (as defined in section 2(a)(9) of the Act) with 
ICMI, (ii) use the ``manager of managers'' strategy as described in 
the application, and (iii) comply with the terms and conditions of 
the application (``Future Funds''). The Company is the only existing 
investment company that currently intends to rely on the order.
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Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it 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 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 the matter if the Act 
requires shareholder approval.
    2. Section 6(c) of the Act authorizes the SEC to exempt persons or 
transactions from the provisions of the Act to the extent that the 
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 request 
relief under section 6(c) from section 15(a) of the Act and rule 18f-2 
under the Act. For the reasons discussed below, applicants state that 
the requested relief meets the standard of section 6(c).
    3. Applicants assert that the Shareholders, in effect, hire ICMI to 
manage a Fund's assets by using external Managers, in combination with 
ICMI's Manager selection and monitoring process, rather than by hiring 
its own employees to manage assets directly. Applicants believe that 
Shareholders expect that ICMI will, under the overall authority of the 
Board, take responsibility for overseeing the Managers and recommending 
their hiring, termination and replacement. Applicants argue that the 
requested relief will reduce Fund expenses associated with Shareholder 
meetings and solicitation of proxies and enable the Funds to operate 
more efficiently. Applicants also note that the Advisory Agreements 
will remain subject to the requirements of section 15 of the Act and 
rule 18f-2 under the Act, including the requirements for Shareholder 
approval.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Before any Fund may relay on the requested order, the operation 
of the Fund in the manner described in the application will be approved 
by a majority of each Fund's Shareholders, or, in the case of a Future 
Fund whose public Shareholders purchase shares on the basis of a 
prospectus containing the disclosure contemplated by condition 2 below, 
by the sole initial shareholder

[[Page 19401]]

before offering shares of any Future Fund to the public.
    2. The prospectus for each Manager of Managers Fund will disclose 
the existence, substance and effect of any order granted pursuant to 
the application. In addition, each Manager of Managers Fund will hold 
itself out to the public as employing the ``manager of managers'' 
approach described in the application. The prospectus for each Manager 
of Managers Fund will prominently disclose that ICMI has ultimate 
responsibility to oversee the Managers and recommend their hiring, 
termination, and replacement.
    3. Within 90 days of the hiring of any new Manager, ICMI will 
furnish Shareholders all information about the new Manager that would 
be included in a proxy statement. To meet this obligation, ICMI will 
provide Shareholders with an information statement meeting the 
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 
14A under the Securities Exchange Act of 1934.
    4. ICMI will not enter into a Subadvisory Agreement with any 
Affiliated Manager without such agreement, including the compensation 
to be paid thereunder, being approved by the Shareholders of the 
applicable Manager of Managers Fund.
    5. At all times, a majority of the Company's Board will be 
Independent Directors, and the nomination of new or additional 
Independent Directors will be at the discretion of the then existing 
Independent Directors.
    6. When a Manager change is proposed for a Manager of Managers Fund 
with an Affiliated Manager, the Company's Board, including a majority 
of the Independent Directors, will make a separate finding, reflected 
in the applicable Fund's Board minutes, that such change is in the best 
interests of the Fund and its Shareholders and does not involve a 
conflict of interest from which ICMI or the Affiliated Manager derives 
an inappropriate advantage.
    7. ICMI will provide general management services to each Manager of 
Managers Fund, including overall supervisory responsibility for the 
general management and investment of each Manager of Managers Fund's 
securities portfolio, and, subject to Board review and approval, will 
(i) set each Manager or Managers Fund's overall investment strategies, 
(ii) recommend and select Managers, (iii) allocate, and when 
appropriate, reallocate a Manager of Managers Fund's assets among its 
Managers when a Fund has more than one Manager, (iv) monitor and 
evaluate Manager performance, and (v) implement procedures designed to 
ensure that the Manager complies with the Manager of Managers Fund's 
investment objectives, policies, and restrictions.
    8. No director or officer of the Company, or director or officer of 
ICMI will own, directly or indirectly (other than through a pooled 
investment vehicle over which such person does not have control), any 
interest in a Manager, except for (i) ownership of interests in ICMI or 
any entity that controls, is controlled by or is under common control 
with ICMI; or (ii) 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 an 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. 00-8875 Filed 4-10-00; 8:45 am]
BILLING CODE 8010-01-M