[Federal Register Volume 67, Number 123 (Wednesday, June 26, 2002)]
[Notices]
[Pages 43183-43184]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16060]



[[Page 43183]]

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

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25619; 812-12580]


AXP Market Advantage Series, Inc., et al.; Notice of Application

June 19, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for exemption under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') from section 15(a) of the 
Act and rule 18f-2 under the Act.

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

SUMMARY OF APPLICATION: Applicants request an order that would permit 
applicants to enter into and materially amend subadvisory agreements 
without shareholder approval.

Applicants: AXP Market Advantage Series, Inc.; AXP Partners Series, 
Inc.; AXP Partners International Series, Inc.; AXP Strategy Series, 
Inc. (collectively, the ``AXP Funds,'' and the series of the AXP Funds, 
the ``AXP Portfolios''); AXP Variable Portfolio--Partners Series, Inc. 
(the ``Life Fund,'' and the series of the Life Fund, the ``Life 
Portfolio'') (the AXP Funds and the Life Fund, the ``Funds'') (the AXP 
Portfolios and the Life Portfolio, the ``Portfolios''); American 
Express Financial Corporation (``AEFC''); and IDS Life Insurance 
Company (``IDS Life'').

FILING DATES: The application was filed on July 20, 2001 and amended on 
June 19, 2002.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on July 16, 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 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC 
20549-0609. Funds, 901 Marquette Avenue South, Suite 2810, Minneapolis, 
MN 55402-3268. AEFC and IDS Life, 200 AXP Financial Center, 
Minneapolis, MN 55474.

FOR FURTHER INFORMATION CONTACT: John L. Sullivan, Senior Counsel, at 
(202) 942-0681, or Nadya B. Roytblat, Assistant Director, at (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 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Each of the Funds is registered under the Act as an open-end 
management investment company and is organized as a Minnesota 
corporation. Each Fund is currently, or may be, composed of separate 
Portfolios, each with its own investment objectives and policies.\1\ 
AEFC, a Delaware corporation, and IDS Life, a stock life insurance 
company organized under the laws of Minnesota, are each registered as 
an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). IDS Life is a wholly owned subsidiary of AEFC. 
Shares of the Life Portfolio are sold to IDS Life and its subsidiaries 
as funding options for variable annuity contracts and variable life 
insurance policies offered through separate accounts of IDS Life and 
its subsidiaries.
---------------------------------------------------------------------------

    \1\ Applicants request that the exemptive relief sought apply to 
any existing or future series of the Funds and any other registered 
open-end management investment companies or series thereof that: (a) 
Are advised by AEFC or any entity controlling, controlled by, or 
under common control with AEFC; (b) use the adviser/subadviser 
structure described in the application, and (c) comply with the 
terms and conditions in the application (included in the term 
``Portfolios''). Applicants state that all registered management 
investment companies that currently intend to rely on the requested 
order are named as applicants. The name of any Portfolio will not 
contain the name of any Subadviser, as defined below, or, if the 
name of a Portfolio contains the name of a Subadviser, it will be 
preceded by AXP. AXP is the ticker symbol for American Express 
Company, which is the Adviser's parent company.
---------------------------------------------------------------------------

    2. Each AXP Portfolio has entered into an investment advisory 
agreement with AEFC pursuant to which AEFC provides investment advice 
and management services to the AXP Portfolio (each, an ``AXP Advisory 
Agreement''). IDS Life is the investment manager for the Life 
Portfolio, pursuant to an investment management agreement (the ``Life 
Management Agreement''). IDS Life has entered, with respect to the Life 
Portfolio, into an advisory agreement with AEFC, pursuant to which AEFC 
furnishes investment advice to the Life Portfolio (the ``Life Advisory 
Agreement,'' and together with the AXP Advisory Agreements and the Life 
Management Agreement, the ``Advisory Agreements''). The term 
``Adviser'' is used to mean AEFC, with respect to the AXP Funds, and 
IDS Life and AEFC jointly, with respect to the Life Fund. Each Advisory 
Agreement has been approved by either the initial shareholder or the 
public shareholders of the relevant Portfolio \2\ and by a majority of 
the relevant Fund's board of directors (``Board''), including a 
majority of the directors who are not ``interested persons,'' as 
defined in section 2(a)(19) of the Act (``Independent Board Members'').
---------------------------------------------------------------------------

    \2\ The term ``shareholder'' includes variable life insurance 
policy and variable annuity contract owners that are unitholders of 
any separate account for which the Life Portfolio serves as a 
funding medium.
---------------------------------------------------------------------------

    3. The Adviser seeks to achieve each Portfolio's objective by 
selecting one or more subadvisers (``Subadvisers'') who have 
demonstrated skill and experience in a particular area to manage part 
or all of a Portfolio's assets (``Adviser/Subadviser Structure''). The 
Adviser enters into investment subadvisory agreements (``Subadvisory 
Agreements'') with Subadvisers, under which each Subadviser, subject to 
the general supervision by the Adviser and the Board, is responsible 
for the purchase, retention and sale of securities for the applicable 
Portfolio. Each Subadviser will be registered or exempt from 
registration under the Advisers Act. For services under the Subadvisory 
Agreement, a Subadviser receives a fee from AEFC at an annual rate 
based on a percentage of the Portfolio's average daily net assets. The 
amount paid to the Subadviser originates from the fees paid to AEFC by 
the Portfolios (in the case of the Life Portfolio, from the fees paid 
to AEFC by IDS Life).
    4. Applicants request relief to permit the Adviser, subject to the 
approval of the Board, to enter into and materially amend a Subadvisory 
Agreement with a Subadviser that is not an affiliated person of the 
Adviser or of the Portfolio within the meaning of Section 2(a)(3) of 
the Act, except by virtue of serving as a Subadviser to the Portfolio 
(a ``Non-Affiliated Subadviser''), without such Subadvisory Agreement 
being approved by the shareholders of the applicable Portfolio.

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 under a written contract that has been 
approved by the

[[Page 43184]]

vote 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. 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 policy and provisions of the Act. 
Applicants believe that their requested relief meets this standard for 
the reasons discussed below.
    3. Applicants assert that the shareholders are relying on the 
Adviser's experience to select one or more Subadvisers best suited to 
achieve a Portfolio's investment objective. Applicants assert that, 
from the perspective of the investor, the role of the Subadvisers is 
comparable to that of individual portfolio managers employed by 
traditional investment advisory firms. Applicants contend that 
requiring shareholder approval of each Subadvisory Agreement would 
impose costs and unnecessary delays on the Portfolios, and may preclude 
the Adviser from acting promptly and efficiently according to the 
judgment of the Board and the Adviser. Applicants also note that each 
Advisory Agreement will remain subject to section 15(a) of the Act and 
rule 18f-2 under the Act, including the requirements of shareholder 
approval.

Applicants' Conditions

    1. Before a Portfolio may rely on the order requested in the 
application, the operation of the Portfolio in the manner described in 
the application will be approved by a majority of the Portfolio's 
outstanding voting securities (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) 
will purchase shares on the basis of a prospectus containing the 
disclosure contemplated by condition 2 below, by its initial 
shareholder before shares of the Portfolio are offered to the public 
(or the variable contract owners through a separate account).
    2. The prospectus of each Portfolio relying on the requested relief 
will disclose the existence, substance and effect of any order granted 
pursuant to the application. In addition, each Portfolio will hold 
itself out to the public as employing the Adviser/Subadviser Structure 
described in the application. The prospectus will prominently disclose 
that the Adviser has ultimate responsibility to oversee the Subadvisers 
and recommend their hiring, termination, and replacement.
    3. The Adviser will provide general management and administrative 
services to each of the Portfolios, including overall supervisory 
responsibility for the general management and investment of each 
Portfolio, and, subject to the review and approval by the Board will 
(i) set each Portfolio's overall investment strategies; (ii) evaluate, 
select and recommend Subadvisers to manage all or part of a Portfolio's 
assets; (iii) when appropriate, allocate and reallocate a Portfolio's 
assets among multiple Subadvisers; (iv) monitor and evaluate the 
investment performance of Subadvisers; and (v) implement procedures 
reasonably designed to ensure that the Subadvisers comply with the 
relevant Portfolio's investment objectives, policies, and restrictions.
    4. At all times, a majority of the Board will be Independent Board 
Members, and the nomination of new or additional Independent Board 
Members will be placed within the discretion of the then-existing 
Independent Board Members.
    5. The Adviser will not enter into a subadvisory agreement with any 
Subadviser that is an affiliated person of the Adviser or of the 
Portfolio within the meaning of section 2(a)(3) of the Act, other than 
by virtue of serving as a Subadviser to the Portfolio (``Affiliated 
Subadviser''), without that agreement, including the compensation to be 
paid thereunder, being approved by the shareholders of the applicable 
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).
    6. When a Subadviser change is proposed for a Portfolio with an 
Affiliated Subadviser, the Board, including a majority of the 
Independent Board Members, will make a separate finding, reflected in 
the Board minutes, that the change is in the best interests of the 
applicable Portfolio and its shareholders (or, if the Portfolio serves 
as a funding medium for any sub-account of a registered separate 
account, in the best interests of the Portfolio and the unitholders of 
any sub-account) and does not involve a conflict of interest from which 
the Adviser or the Affiliated Subadviser derives an inappropriate 
advantage.
    7. No Board member 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 Board member, 
director or officer) any interest in a Subadviser, except for (i) 
ownership of interests in the Adviser or any entity that controls, is 
controlled by, or is under common control with the Adviser; 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 Subadviser 
or an entity that controls, is controlled by, or is under common 
control with a Subadviser.
    8. Within ninety days of the hiring of a new Subadviser, the 
Adviser will furnish the shareholders of the applicable Portfolio (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) all the information about the new Subadviser that 
would be included in a proxy statement, including any change in such 
disclosure caused by the addition of a new Subadviser. To meet this 
obligation, the Adviser will provide 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) within 
ninety days of the hiring of a Subadviser 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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland
Deputy Secretary.
[FR Doc. 02-16060 Filed 6-25-02; 8:45 am]
BILLING CODE 8010-01-P