[Federal Register Volume 68, Number 20 (Thursday, January 30, 2003)]
[Notices]
[Pages 4801-4803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2167]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25912; 812-12502]


LB Series Fund Inc. et al.; Notice of Application

January 24, 2003.
AGENCY: Securities and Exchange Commission (``Commission'')

ACTION: Notice of application for an order 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.

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

APPLICANTS: LB Series Fund, Inc. (``LBSF''), AAL Variable Product 
Series Fund, Inc. (``AAL VPSF''), The Lutheran Brotherhood Family of 
Funds (``The LB Family of Funds''), and The AAL Mutual Funds (``AAL 
Funds'')(each a ``Company'') and Thrivent Financial for Lutherans 
(``Thrivent'') and Thrivent Investment Management Inc. (``TIMI'')(each 
a ``Manager'').

FILING DATES: The application was filed on April 17, 2001 and amended 
on January 22, 2003.

HEARING OR NOTIFICATION OF HEARING:  An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on February 18, 2003 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants, Peter T. Fariel, Esq., Goodwin Procter LLP, 
Exchange Place, Boston, MA 02109 or James E. Nelson, Thrivent Financial 
for Lutherans, 625 Fourth Avenue South, Minneapolis, MN 55415.

FOR FURTHER INFORMATION CONTACT: Todd F. Kuehl, Branch Chief, at (202) 
942-0564, or Nadya 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 Company is registered under the Act as an open-end 
management investment company. Each Company

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currently offers multiple series (``Portfolios''), each with its own 
investment objectives, policies and restrictions. LBSF is incorporated 
under the laws of the State of Minnesota. AAL VPSF is incorporated 
under the laws of the State of Maryland. The LB Family of Funds is 
organized as a Delaware business trust. AAL Funds is organized as a 
Massachusetts business trust. Shares of the Portfolios of LBSF are 
offered exclusively to separate accounts that fund variable annuity and 
life insurance contracts issued by Thrivent, Lutheran Brotherhood 
Variable Insurance Products Company, a wholly owned subsidiary of 
Thrivent, and retirement plans sponsored by Thrivent. Shares of the 
Portfolios of AAL VPSF are offered exclusively to separate accounts 
that fund variable annuity and variable life insurance contracts issued 
by Thrivent and retirement plans sponsored by Thrivent.
    2. Thrivent, organized as a fraternal benefit society under the 
laws of the State of Wisconsin, is registered as an investment adviser 
under the Investment Advisers Act of 1940 (``Advisers Act''). Under 
separate investment advisory agreements with LBSF (the ``LBSF Advisory 
Contract'') and AAL VPSF (the ``AAL VPSF Advisory Contract''), 
respectively. Thrivent serves as the investment adviser to the LBSF 
portfolios and AAL VPSF Portfolios. TIMI, a Delaware corporation and 
wholly owned subsidiary of Thrivent, is registered as an investment 
adviser under the Advisers Act. TIMI serves as investment adviser to 
the AAL Funds and The LB Family of Funds, providing services for the 
AAL Funds' Portfolios and The LB Family of Funds' Portfolios under 
separate advisory agreements (the ``AAL Funds Advisory Contract'' and 
the ``LB Family of Funds Advisory Contract,'' respectively, and 
together with the LBSF Advisory Contract and AAL VPSF Advisory 
Contract, each an ``Advisory Contract'' and collectively the ``Advisory 
Contracts''). The terms of each existing Advisory Contract comply with 
section 15(a) of the Act. The Advisory Contracts each require approval 
by shareholders of the applicable Portfolio and by the board of 
directors or trustees of each Company (each a ``Board''), including a 
majority of the directors or trustees who are not ``interested 
persons'' (as defined in section 2(a)(19) of the Act) of such Portfolio 
(the ``Independent Directors''), at the time and in the manner required 
by sections 15(a) and (c) of the Act and Rule 18f-2 thereunder.\1\ For 
their services under the Advisory Contracts, the Managers receive a fee 
from each Portfolio as a percentage of the net assets of the Portfolio.
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    \1\ Applicants also request that the requested relief apply to 
all series of the Companies now existing or established in the 
future and to all other registered open-end management investment 
companies and series thereof that (1) Are advised by a Manager, (or 
any person controlling, controlled by, or under common control with 
a Manager), (2) operate in a manager/sub-adviser structure as 
described in the application (the ``Manager/Sub-Adviser 
Structure''), and (3) comply with the terms and conditions of the 
applications (included in the term ``Portfolios''). All entities 
that currently intend to rely on the requested relief are named as 
applicants. If the name of any Portfolio should, at any time, 
contain the name of a Sub-Adviser (as defined above), it will also 
contain the name of the Manager, which will appear before the name 
of the Sub-Adviser.
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    3. Pursuant to the Advisory Contract with each Manager, the 
Managers have primary responsibility for management of the Portfolios 
and may hire one or more sub-advisers (``Sub-Advisers'') to invest all 
or a portion of each Portfolio's assets pursuant to separate sub-
advisory agreements (``Sub-Advisory Agreements''). Each Sub-Adviser has 
discretionary authority to invest that portion of a Portfolio's assets 
assigned to it. Each Sub-Adviser is or will be either registered or 
exempt from registration under the Advisers Act. For its services, each 
Sub-Adviser will receive a sub-advisory fee payable by the Manager out 
of the fee the Manager receives from the relevant Portfolio.
    4. The Managers are subject to the general oversight and approval 
of the respective Boards. Sub-Adviser evaluation on both a quantitative 
and qualitative basis will be an ongoing process with the Manager 
selecting Sub-Advisers, as well as allocating and reallocating 
Portfolio assets among Sub-Advisers, subject to approval by the 
Portfolio's Board.
    5. Applicants request relief to permit the Managers to enter into 
and materially amend Sub-Advisory Agreements without seeking 
shareholder approval. Applicants will not enter into any Sub-Advisory 
Agreement with a Sub-Adviser that is an ``affiliated person'' (as 
defined in section 2(a)(3) of the Act) of the Companies or the 
Managers, other than by reason of serving as a Sub-Adviser to one or 
more of the Portfolios (``Affiliated Sub-Adviser''), without that 
agreement, including the compensation to be paid thereunder, being 
approved by the shareholders of the 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 vote of a majority 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 the policy and provisions of the 
Act. Applicants believe the requested relief meets this standard for 
the reasons discussed below.
    3. Applicants assert that each Portfolio's shareholders are relying 
on the Manager's experience to select, monitor and replace Sub-
Advisers. Applicants assert that, from the perspective of the 
shareholder, the role of the Sub-Advisers is comparable to that of 
individual portfolio managers employed by other investment advisory 
firms. Applicants contend that requiring shareholder approval of Sub-
Advisory Agreements would impose costs and unnecessary delays on the 
Portfolios, and may preclude the Managers from acting promptly in a 
manner considered advisable by the applicable Board. Applicants note 
that the Advisory Contracts will remain subject to the shareholder 
approval requirements of section 15(a) of the Act and rule 18f-2 under 
the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Portfolio may rely on the order requested in the 
application, (i) the operation of the Portfolio in the manner described 
in the application will be approved by a majority of the outstanding 
voting securities of such 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 owners of variable 
annuity and variable life insurance contracts (``Owners'') who have 
allocated assets to that sub-account) within the meaning of the Act, or 
(ii) in the case of a Portfolio whose shareholders (or Owners through a 
sub-account of a registered separate account) purchase shares on the 
basis of a

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prospectus containing the disclosure contemplated by condition 2 below, 
by the initial shareholder(s) before shares of such Portfolio are 
offered to the public (or to Owners through a sub-account of a 
registered separate account).
    2. Each Portfolio relying on the requested order will disclose in 
its prospectus the existence, substance and effect of any order granted 
pursuant to the application. In addition, each Portfolio relying on the 
requested order will hold itself out to the public as employing the 
Manager/Sub-Adviser Structure described in the application. Such 
Portfolio's prospectus will prominently disclose that the Manager has 
ultimate responsibility (subject to oversight by the Board) to oversee 
the Sub-Advisers and recommend their hiring, termination and 
replacement.
    3. The Manager will provide general management and administrative 
services to each Portfolio, including overall supervisory 
responsibility for the general management and investment of each 
Portfolio's securities and other assets, and, subject to review and 
approval by the applicable Board, will: (i) Set each Portfolio's 
overall investment strategies; (ii) evaluate, select and recommend Sub-
Advisers to manage all or a part of a Portfolio's assets: (iii) when 
appropriate, allocate and reallocate a Portfolio's assets among 
multiple Sub-Advisers; (iv) monitor and evaluate the investment 
performance of Sub-Advisers; and (v) implement procedures reasonably 
designed to ensure Sub-Advisers comply with the relevant Portfolio's 
investment objectives, policies and restrictions.
    4. At all times, a majority of the Board of a Portfolio will be 
Independent Directors, and the nomination of new or additional 
Independent Directors will be at the discretion of the then existing 
Independent Directors.
    5. Neither the Manager nor any Portfolio will enter into a Sub-
Advisory Agreement with any Affiliated Sub-Adviser without such Sub-
Advisory 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, then pursuant to voting instructions of 
the Owners who have allocated assets to that sub-account).
    6. When a Sub-Adviser change is proposed for a Portfolio with an 
Affiliated Sub-Adviser, the Board, including a majority of the 
Independent Directors, will make a separate finding, reflected in the 
minutes of the meeting of the Board, that such 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 Owners who have allocated assets to the sub-account) and does not 
involve a conflict of interest from which the Manager of the Affiliated 
Sub-Adviser derives an inappropriate advantage.
    7. No director or officer of a Portfolio or director or officer of 
the Manager will own directly or indirectly (other than through a 
polled investment vehicle that is not controlled by the director or 
officer) any interest in Sub-Adviser except (i) for the ownership of 
interests in the Manager or any entity that controls, is controlled by, 
or is under common control with the Manager; or (ii) for 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 Sub-Adviser or an 
entity that controls, is controlled by, or is under common control with 
a Sub-Adviser.
    8. Within 90 days of the hiring of any new Sub-Adviser, the Manager 
will furnish the shareholders (or, if the Portfolio serves as a funding 
medium for a sub-account of a registered separate account, the Owners 
who have allocated assets to that sub-account) of the applicable 
Portfolio all the information about the new Sub-Adviser that would have 
been included in a proxy statement. To meet this obligation, the 
Manager will provide the shareholders (or if the Portfolio serves as a 
funding medium for any sub-account of a registered separate account, 
the Owners) of the applicable Portfolio with an information statement 
meeting the requirements of Regulation 14C and Schedule 14C under the 
Securities Exchange Act of 1934, as amended, as well as the 
requirements of Item 22 of Schedule 14A under that Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-2167 Filed 1-29-03; 8:45 am]
BILLING CODE 8010-01-M