[Federal Register Volume 66, Number 47 (Friday, March 9, 2001)]
[Notices]
[Pages 14231-14234]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5792]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24883; 812-12222]


Advantus Bond Fund, Inc. et al.; Notice of Application

March 2, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of an application under section 17(d) of the Act and 
rule 17d-1 under the Act to permit certain joint arrangements.

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    Summary of the Application: Applicants seek an order to permit 
certain registered open-end investment companies to deposit their 
uninvested cash balances and their cash collateral in one or more joint 
accounts to be used to enter into short-term investments.
    Applicants: Advantus Bond Fund, Inc., Advantus Cornerstone Fund, 
Inc., Advantus Enterprise Fund, Inc., Advantus Horizon Fund, Inc., 
Advantus Index 500 Fund, Inc., Advantus International Balanced Fund, 
Inc., Advantus Money Market Fund, Inc., Advantus Mortgage Securities 
Fund, Inc., Advantus Real Estate Securities Fund, Inc., Advantus 
Spectrum Fund, Inc., Advantus Venture Fund, Inc., and Advantus Series 
Fund, Inc. (collectively, the ``Companies''); Advantus Capital 
Management, Inc. (``Advantus Capital'').
    Filing Dates: The application was filed on August 15, 2000, and 
amended on January 10, 2001.
    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 tot he 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 March 
27, 2001, 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, NW., Washington DC 20549-
0609. Applicants, James D. Alt, Esq., Dorsey & Whitney LLP, 220 South 
Sixth Street, Minneapolis, MN 55402.

FOR FURTHER INFORMATION CONTACT: Maura McNulty, Senior Counsel, at 
(202) 942-0621, or 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 Fifth Street, NW., Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicant's Representations

    1. Each of the Companies is an open-end management investment 
company organized under Minnesota law and registered under the Act. One 
of the Companies, Advantus Series Fund, Inc., offers 19 series of 
shares through variable life insurance policies and annuity contracts 
issued by Minnesota Life Insurance Company (``Minnesota Life''). Each 
of the other Companies

[[Page 14232]]

offers series of shares directly to the public.
    2. Advantus Capital, a wholly-owned subsidiary of Minnesota Life, 
is registered under the Investment Advisers Act of 1940.\1\ Advantus 
Capital serves as investment adviser for each series of the Companies, 
subject to the general oversight of the Companies' boards of directors 
(the ``Boards''). With respect to several such series, Advantus Capital 
has engaged sub-advisers that are not affiliated with Advantus Capital 
or any of its affiliates. Wells Fargo Bank Minnesota, N.A. (``Wells 
Fargo'') serves as custodian for the assets of several of the 
Companies' series, and Bankers Trust Company serves as custodian for 
the assets of the other series. Neither custodian is affiliated with 
the Companies or Advantus Capital.
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    \1\ For purposes of this application, the term ``Advantus 
Capital'' includes, in addition to such entity itself, any other 
entity controlling, controlled by or under common control with 
Advantus Capital that acts in the future as an investment adviser to 
the Companies or other registered management investment companies.
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    3. Applicants request that any relief granted pursuant to the 
application also apply to future series of the Companies and any other 
registered management investment company and each series thereof that 
is advised by Advantus Capital in the future (together with the 
existing series of the Companies, the ``Funds'').\2\
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    \2\ Each entity that currently intends to rely on the requested 
order is named as an applicant. Any future series of the Companies 
and any other registered management investment companies or series 
thereof that are in the future advised by Advantus Capital that rely 
upon the requested order in the future will do so only in compliance 
with the terms and conditions of the application.
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    4. All of the existing Funds are authorized by their investment 
policies and restrictions to invest at least a portion of their 
uninvested cash balances in short-term liquid assets such as repurchase 
agreements, rated commercial paper, U.S. Government securities and 
other short-term debt obligations.
    5. All of the existing Funds also are authorized to engage in 
securities lending transactions. In connection with these transactions, 
the Funds may receive collateral in the form of either cash (``Cash 
Collateral'') or securities. When Cash Collateral is received, it is 
expected to be invested in a manner consistent with customary 
securities lending practices. Wells Fargo serves as the securities 
lending agent for those funds that currently engage in securities 
lending transactions. Wells Fargo, in such capacity, and any other 
entity that may in the future act as securities lending agent for any 
of the Funds, is referred to as a ``Securities Lending Agent.'' \3\
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    \3\ No affiliated person of the Funds or of Advantus Capital 
will serve as a Securities Lending Agent unless applicants have 
received further appropriate exemptive relief from the SEC.
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    6. Applicants propose to invest uninvested cash balances of the 
Funds that remain at the end of the trading day and cash for investment 
purposes (``Uninvested Cash''), and/or Cash Collateral (collectively, 
with Uninvested Cash, ``Cash Balances'') into one or more joint 
accounts (the ``Joint Accounts'') established at the Fund's custodian. 
The daily balances in the Joint Accounts would be invested only in the 
following types of investments: (a) Repurchase agreements 
``collaterlized fully'' as defined in rule 2a-7 under the Act, \4\ (b) 
interest-bearing or discounted commercial paper, including U.S. dollar-
denominated commercial paper of foreign issuers; and (c) any other 
short-term taxable and tax-exempt money market instruments, including 
government securities and variable rate demand notes, that constitute 
``Eligible Securities'' as defined in rule 2a-7 under the Act 
(collectively, ``Short-Term Investments'').
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    \4\ Repurchase agreements will be entered into on a ``hold-in-
custody'' basis (i.e., where the counterparty or one of its 
affiliated persons may have possession of, or control over, the 
collateral subject to the agreement) only if cash is received late 
in the business day and otherwise would be unavailable for 
investment.
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    7. Funds participating in a Joint Account will invest through the 
Joint Account only to the extent that, regardless of the Joint Accounts 
they would desire to invest in short-term liquid investments that are 
consistent with their respective investment objectives, policies and 
restrictions. A Fund's decision to use a Joint Account will be based on 
the same factors as its decision to make any other short-term liquid 
investment. The sole purposes of the Joint Accounts would be to provide 
a convenient means of aggregating what otherwise would be one or more 
daily transactions for some or all Funds necessary to manage their 
respective Cash Balances.
    8. Advantus Capital will be responsible for investing Cash Balances 
held by the Joint Accounts, establishing accounting and control 
procedures, operating the Joint Accounts in accordance with the 
procedures discussed below, and ensuring fair treatment of the 
participating Funds. Advantus Capital may establish guidelines for the 
investment of Cash Collateral received in connection with the 
participating Funds' securities lending transactions and may delegate 
the investment of such Cash Collateral to the Securities Lending Agent 
in accordance with any applicable Commission or staff guidelines. 
Advantus Capital will pre-approve securities for investment and the 
Securities Lending Agent will invest Cash Collateral only in 
investments that are pre-approved by Advantus Capital.
    9. All investments of Cash Collateral through the Joint Accounts 
will comply with all present and future SEC or staff positions relating 
to the investment of cash collateral in connection with securities 
lending activities. Any repurchase agreements entered into through the 
Joint Accounts will comply with any applicable Commission or staff 
guidelines. Applicants acknowledge that they have a continuing 
obligation to monitor the SEC's published statements on repurchase 
agreements, and represent that repurchase agreement transactions will 
comply with future positions of the SEC and its staff to the extent 
that such positions set forth different or additional requirements 
regarding repurchase agreements. If the SEC sets forth guidelines with 
respect to other Short-Term Investments, all investments made through 
the Joint Accounts will comply with those guidelines.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, or an 
affiliated person of such a person, acting as principal, from 
participating in any joint enterprise or arrangement in which that 
investment company is a participant, unless the Commission has issued 
an order authorizing the arrangement. In determining whether to grant 
such an order, the Commission considers whether the participation of 
the registered investment company in the proposed joint arrangement 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 in the arrangement.
    2. Under section 2(a)(3)(C) of the Act, each Fund may be deemed to 
be an ``affiliated person'' of each other Fund if each Fund were deemed 
to be under the common control of their investment adviser Advantus 
Capital. Applicants state that each Fund participating in a Joint 
Account and Advantus Capital, by managing the Joint Account, may be 
deemed to be ``joint participants'' in a transaction within the meaning 
of section 17(d) of the Act. Applicants further state that each Joint 
Account may be deemed to be a ``joint enterprise

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or other joint arrangement'' within the meaning of rule 17d-1.
    3. Applicants submit that the proposed Joint Accounts meet the 
criteria of rule 17d-1 for issuance of an order. Applicants assert that 
no Fund would be in a less favorable position than any other Fund as a 
result of its participating in one or more Joint Accounts. Applicants 
also assert that the proposed operation of the Joint Accounts will not 
result in any conflicts of interest among any of the participating 
Funds or Advantus Capital. Each Fund's liability on any Short-Term 
Investment invested in through the Joint Accounts will be limited to 
its interest in such Short-Term Investment.
    4. Applicants state that the operation of the Joint Accounts could 
result in certain benefits to the Funds. The Funds may earn a higher 
rate of return on investments through the Joint Accounts relative to 
the returns they could earn individually. Under most market conditions, 
applicants assert, it is possible to negotiate a rate of return on 
larger investments that is higher than the rate available on smaller 
investments. In addition, applicants state that the aggregation of Cash 
Balances in a Joint Account may make more investment opportunities 
available to the Funds and may reduce the possibility that a Fund's 
Cash Balance would remain uninvested. Finally, the Joint Accounts may 
result in certain administrative efficiencies and lessen the potential 
for error by reducing the number of trade tickets and cash wires that 
counterparties and the Fund's custodian and administrator must process.
    5. Applicants state that although Advantus Capital may realize some 
benefit through administrative convenience and reduced clerical costs, 
prior to a Fund's participating in a Joint Account, the Boards will 
determine that the Funds will be the primary beneficiaries of the Joint 
Accounts due to the potential for higher returns and increased 
efficiencies through the use of Joint Accounts.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Joint Accounts will not be distinguishable from any other 
accounts maintained by the Funds at their custodian except that Cash 
Balances from the Funds will be deposited in the Joint Accounts on a 
commingled basis. The Joint Accounts will not have a separate existence 
and will not have indicia of a separate legal entity. The sole function 
of the Joint Accounts will be to provide a convenient way of 
aggregating individual transactions that would otherwise require daily 
management of uninvested Cash Balances.
    2. Cash Balances in the Joint Accounts will be invested in Short-
Term Investments as directed by Advantus Capital (or, in the case of 
Cash Collateral, the Securities Lending Agent in instruments pre-
approved by Advantus Capital). Uninvested Cash in the Joint Accounts 
will be invested in repurchase agreements that have a remaining 
maturity of 60 days or less and other Short-Term Investments that have 
a remaining maturity of 90 days or less, each as calculated in 
accordance with rule 2a-7 under the Act. Cash Collateral in a Joint 
Account will be invested in Short-Term Investments that have a 
remaining maturity of 397 days or less, as calculated in accordance 
with rule 2a-7 under the Act.
    3. All assets held in the Joint Accounts will be valued on an 
amortized cost basis to the extent permitted by applicable Commission 
releases, rules, or orders.
    4. Each Fund valuing its net assets in reliance on rule 2a-7 under 
the Act will use the average maturity of the instruments in the Joint 
Account in which the Fund has an interest (determined on a dollar-
weighted basis) for the purpose of computing its average portfolio 
maturity with respect to its portion of the assets held in a Joint 
Account on that day.
    5. In order to assure that there will be no opportunity for any 
Fund to use any part of a balance of a Joint Account credited to 
another Fund, no Fund will be allowed to create a negative balance in 
any Joint Account for any reason, although each Fund will be permitted 
to draw down its entire balance at any time, provided that Advantus 
Capital determines that such draw-down will have no significant adverse 
impact on any other Fund participating in that Joint Account. Each 
Fund's decision to invest in a Joint Account will be solely at its 
option, and no Fund will be obligated to invest in a Joint Account or 
to maintain any minimum balance in a Joint Account. In addition, each 
Fund will retain the sole rights of ownership to any of its assets 
invested in a Joint Account, including interest payable on such assets 
in the Joint Account.
    6. Advantus Capital will administer the investment of Cash Balances 
in and the operation of the Joint Accounts as part of its general 
duties under its existing or any future investment advisory agreements 
with the Funds and will not collect any additional or separate fees for 
advising any Joint Account.
    7. The administration of the Joint Accounts will be within the 
fidelity bond coverage required by section 17(g) of the Act and rule 
17g-1 under the Act.
    8. Each Board will adopt procedures pursuant to which the Joint 
Accounts will operate, which will be reasonably designed to provide 
that the requirements of the application will be met. Each Board will 
make and approve such changes as it deems necessary to ensure that such 
procedures are followed. In addition, each Board will determine, no 
less frequently than annually, that the Joint Accounts have been 
operated in accordance with the adopted procedures and will permit a 
Fund to continue to participate therein only if it determines that 
there is a reasonable likelihood that the Fund and its shareholders 
will benefit from the Fund's continued participation.
    9. Any Short-Term Investment made through the Joint Accounts will 
satisfy the investment policies and restrictions of all Funds 
participating in that investment.
    10. Advantus Capital, each Fund, and custodian for each Fund will 
maintain records documenting, for any given day, each Fund's aggregate 
investment in a Joint Account and each Fund's pro rata share of each 
investment made through such Joint Account. The records maintained for 
each Fund shall be maintained in conformity with section 31 of the Act 
and the rules and regulation thereunder.
    11. Short-Term Investments held in a Joint Account generally will 
not be sold prior to maturity unless: (a) Advantus Capital believes the 
investment no longer presents minimal credit risks; (b) the investment 
no longer satisfies the investment criteria of all Funds participating 
in the investment because of a credit downgrading or otherwise; or (c) 
in the case of a repurchase agreement, the counterparty defaults. 
Advantus Capital may, however, sell any Short-Term Investment (or a 
fractional portion thereof) on behalf of some or all Funds prior to the 
maturity of the investment if the cost of such transactions will be 
borne solely by the selling Funds and the transaction will not 
adversely affect other Funds participating in that Joint Account. In no 
case will an early termination by less than all Funds participating in 
a Joint Account be permitted if it would reduce the principal amount or 
yield received by other Funds participating in the applicable Joint 
Account or otherwise adversely affect the other Funds. Each Fund 
participating in a Joint Account will be deemed to have consented to

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such sale and partition of the investments in the Joint Account.
    12. Short-Term Investments held through a Joint Account with a 
remaining maturity of more than seven days, as calculated pursuant to 
rule 2a-7 under the Act, will be considered illiquid and will be 
subject to the restriction that a Fund may not invest more than 15% or, 
the case of a money market fund, more than 10% (or such other 
percentage as set forth by the Commission from time to time) of its net 
assets in illiquid securities, and any similar restriction set forth in 
the Fund's investment policies and restrictions, if Advantus Capital 
cannot sell the instrument, or the Fund's fractional interest in such 
instruments, pursuant to the preceding condition.
    13. Not every Fund participating in Joint Account will necessarily 
have its Cash Balances invested in every Joint Account. However, to the 
extent a Fund's Cash Balances are applied to a particular Joint 
Account, the Fund will participate in and own a proportionate share of 
the investment in such Joint Account, and the income earned or accrued 
thereon, based upon the percentage of such investment in such Joint 
Account purchased with Cash Balances contributed by the Fund.
    14. Each Joint Account will be established as a separate cash 
account on behalf of the Funds participating in such Joint Account at 
the custodian for one or more of the Funds (the ``Joint Account 
Custodian'' with respect to such Joint Account). Each Fund may deposit 
daily all or a portion of its Cash Balances into the Joint Accounts. 
Each Fund whose regular custodian is a custodian other than the Joint 
Account Custodian with respect to the applicable Joint Account and that 
wishes to participate in such Joint Account will appoint such Joint 
Account Custodian as sub-custodian for the limited purposes of (a) 
receiving and disbursing Cash Balances; (b) holding Short-Term 
Investments; and (c) holding any collateral received from a transaction 
effected through such Joint Account. All Funds that so appoint such 
Joint Account Custodian will have taken all necessary actions to 
authorize the Joint Account Custodian as its legal custodian, including 
all actions required under the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-5792 Filed 3-8-01; 8:45 am]
BILLING CODE 8010-01-M