[Federal Register Volume 60, Number 113 (Tuesday, June 13, 1995)]
[Notices]
[Pages 31175-31177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14439]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21118; No. 812-9488]
Maxim Series Fund, Inc.
June 7, 1995.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (``1940 Act'').
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APPLICANT: Maxim Series Fund, Inc. (``Fund'').
RELEVANT 1940 ACT SECTION: Order requested under Sections 6(c) and
17(b) for an exemption from Sections 17(a)(1) and 17(a)(2) of the 1940
Act.
SUMMARY OF APPLICATION: Applicant seeks an order that would permit the
exchange of shares between certain Fund portfolios.
FILING DATE: The application was filed on February 21, 1995, and
amended on June 5, 1995.
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 June 28, 1995, 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 requestor's
interest, the reason for the request, and the issues contested. Persons
may request notification of a hearing by writing to the Secretary of
the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th
Street, NW., Washington, DC 20549. Applicant, Maxim Series Fund, Inc.,
c/o Beverly A. Byrne, Esq., 8515 East Orchard Road, Englewood, Colorado
80111.
FOR FURTHER INFORMATION CONTACT:
Yvonne M. Hunold, Assistant Special Counsel, or Wendy Friedlander,
Deputy Chief, at (202) 942-0670, Office of Insurance Products (Division
of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application; the complete application is available for a fee from the
Commission's Public Reference Branch.
Applicant's Representations
1. The Fund is a Maryland corporation registered under the 1940 Act
as an open-end, diversified management investment company. The Fund
consists of twenty-one investment portfolios, three of which are the
subject of this application: (a) Growth Index Portfolio; (b) Value
Index Portfolio; (c) and Small-Cap Index Portfolio (collectively,
``Portfolios''). Great West Life Assurance Company (``Adviser'') serves
as the investment adviser to the Fund.
2. Shares of the Portfolios currently are sold in connection with
certain tax-qualified insurance contracts to: (a) Future Funds Series
Account II, a separate account of Great-West Life & Annuity Insurance
Corporation (``GWL&A); and (b) TNE Series (K) Account, a separate
account of The New England Life Insurance Company. Shares of the
Portfolio may be offered in the future to other separate accounts of
GWL&A or of other insurance companies.
3. The investment objectives of the Portfolios are related to
corresponding indices of the Frank Russell Company (``Russell''). The
investment objectives of the Value Index Portfolio, the Growth Index
Portfolio and the Small-Cap Index Portfolio are to provide investment
results, before fees, that correspond, respectively, to the total
return of the Russell 1000 Value index, the Russell 1000 Growth Index,
and the Russell 2000 Index. Under normal circumstances, a minimum of
65% of each of the Portfolio's net assets will be invested in
securities included in the corresponding Russell Index.
4. On May 31, of each year, the Russell 1000 Index (of which the
Russell 1000 Growth Index and Russell 1000 Value Index are subsets) and
the Russell 2000 Index are reconstituted to reflect changes in the
marketplace.\1\ Consequently, some stocks previously included in one
Russell index, or its subset index, may thus become part of the other
Russell index, or its subset. Following the reconstitution of the
Russell indices, a corresponding reconstitution of the Portfolios
occurs, on or about June 30 of each year, consistent with each
Portfolio's respective investment objectives.
\1\ The Russell 100 Index and the Russell 2000 Index are subsets
of the Russell 3000 Index.
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5. The Portfolios thus propose to directly purchase from and sell
to each other their respective portfolio securities in private
transactions (``Reconstitution Transactions''),\2\ as follows: \3\
\2\ Applicant represents that the Reconstitution transactions
will not include any purchases or sales in which any of the
Portfolios are both buyers and sellers of the same Portfolio
securities.
\3\ Applicant statutes that the Portfolios also may purchase or
sell Portfolio securities as a direct result of the reconstitution
of the respective Russell indices that are not being simultaneously
sold to or purchased by another Portfolio because either: (i) the
newly reconstituted Russell Index contains different stocks than
previously were included, or (ii) the Portfolios do not exactly
match their corresponding Russell indices. Applicants represent that
these sales and purchases are not deemed to be Reconstitution
Transactions and, therefore, are not the subject of this
application.
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a. Growth Index Portfolio: As a direct result of the reconstitution
of the Russell 1000 Growth Index, the Growth Index Portfolio proposes
to sell specific portfolio securities, and the Value Index Portfolio or
the Small-Cap Index Portfolio simultaneously propose to purchase those
same securities, as a direct result of the reconstitution of the
Russell 1000 Value Index or the Russell 2000 Index, respectively;
b. Value Index Portfolio: As a direct result of the reconstitution
of the Russell 1000 Value Index, the Value Index Portfolio proposes to
sell specific portfolio securities, and the Growth Index Portfolio or
the Small-Cap Index Portfolio simultaneously propose to purchase those
same portfolio securities as a direct result of the reconstitution of
the Russell 1000 Growth Index or the Russell 2000 Index, respectively;
and
c. Small-Cap Index Portfolio: As a direct result of the
reconstitution of the Russell 2000 Index, the Small-Cap Index Portfolio
proposes to sell specific portfolio securities, and the Value Index
Portfolio or the Growth Index Portfolio simultaneously propose to
purchase those same portfolio securities as a direct result of the
reconstitution of the Russell 1000 Value Index or the Russell 1000
Growth Index, respectively.
6. Applicant proposes that cash consideration be paid by one
Portfolio to another Portfolio only to the extent of the net difference
in the aggregate purchase price of the securities bought or sold
between two Portfolios. The remaining consideration will be paid
[[Page 31176]] with the prompt delivery of securities valued at current
market prices.\4\ Applicant states that the Reconstitution Transactions
will avoid unnecessary brokerage commissions and other transaction
costs of market transactions.
\4\ For example, on June 30, 1995, the Growth Index Portfolio
purchases portfolio securities from the Value Index Portfolio with
an aggregate purchase price of $1 million based on ``Current Market
Prices,'' as defined in Rule 17a-7. Simultaneously, the Value Index
Portfolio purchases different portfolio securities from the Growth
Index Portfolio with an aggregate purchase price of $1.2 million
based on Current Market Prices. Under these circumstances,
Applicants propose that the transactions be settled by: (a) the
prompt delivery by the Growth Index Portfolio to the Value Index
Portfolio of portfolio securities with the aggregate Current Market
Value of $1.2 million, and (b) the prompt delivery by the Value
Index Portfolio to the Growth Index Portfolio of the portfolio
securities with the aggregate Current Market Value of $1 million
together with $200,000 in cash.
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Applicant's Legal Analysis
1. Section 17(a) of the 1940 Act prohibits affiliates of a
registered investment company, or affiliates of such affiliates acting
as principal, from knowingly selling to or purcashing from the
registered investment company any security or other property, except
under certain circumstances. Applicant states that the Reconstitution
Transactions may be prohibited by Section 17(a) because the Fund and
each Fund Portfolio may be deemed to be an affiliate of a registered
investment company, or an affiliate of such an affiliate, as defined in
Section 2(a)(3) of the 1940 Act.
2. Section 17(b) of the 1940 Act provides exemptive relief from
Section 17(a) if: (a) the terms of the proposed transaction, including
the consideration to be paid or received, are reasonable and fair and
do not involve overreaching on the part of any person concerned; (b)
the proposed transaction is consistent with the policies of each
registered investment company concerned, as recited in its registration
statement and reports filed under the 1940 Act; and (c) the proposed
transaction is consistent with the general purposes of the 1940 Act.
Rule 17a-7 under the 1940 Act also provides exemptive relief from
Section 17(a), provided certain specified conditions are met.
3. Applicant submits that the terms of the proposed transactions
satisfy Section 17(b). Applicant represents that the Reconstitution
Transactions will be made at the respective portfolio securities'
``Current Market Prices,'' as defined in Rule 17a-7 under the 1940 Act,
with the consideration to be paid or received being cash and/or the
delivery of portfolio securities of an equivalent value (based upon
those portfolio securities' Current Market Prices).
4. Applicant states that no brokerage commission, fee (except for
customary transfer fees), or other remuneration will be paid in
connection with any of the Reconstitution Transactions. Applicant
further states that the purpose of the Reconstitution Transactions is
to enable the Portfolios to avoid incurring unnecessary brokerage
expenses and other transaction costs to the ultimate detriment of
Contract owners. By effecting the Reconstitution Transactions through
exchanges of securities between Portfolios (instead of market
transactions through broker-dealers), the Portfolios will enjoy a net
cost savings equal to: (a) the amount of brokerage commissions that
otherwise would have been paid to such broker-dealers, and (b) any
differences in the price paid or received on the purchase or sale of
the portfolio securities through a broker-dealer (which would be based
on bid and asked prices for reported securities) and the ``Current
Market Price'' that Applicant would use in effecting the Reconstitution
Transactions.
5. Applicant states that the amount of savings for 1994 (or any
year thereafter can not be estimated with any degree of certainty
because the extent to which the Russell indices will be reconstituted
on May 31, 1995 (or any year thereafter) is not yet known. Applicant
represents, however, that brokerage commission savings to the
Portfolios would be $0.04 per share for each share transferred in the
Reconstitution Transactions (as opposed through a broker-dealer).
6. Applicant represents that each purchase and sale comprising the
Reconstitution Transactions will be consistent with the policy of each
Portfolio, as recited in the Fund's registration statement and reports
filed under the 1940 Act.
7. Applicant states that the Reconstitution Transactions will be
effected only when the respective Portfolios independently determine
which securities it will purchase and sell, and independently decide:
(a) to purchase and sell the same portfolio securities; and (b) that it
is more advantageous to that Portfolio to purchase or sell the
Portfolio security from or to the other Portfolio, as compared with an
open market purchase or sale.
8. Applicant states that the Reconstitution Transactions are
consistent with the general purposes of the 1940 Act and do not present
any of the issues or abuses that the Act is designed to prevent.
Moreover, Applicant submits that the Reconstitution Transactions will
be effected in a manner consistent with the public interest and the
protection of investors.
9. Applicant represents that the Reconstitution Transactions will
be made in compliance with all of the requirements of Rule 17a-7,
except for one element of subparagraph (a) of the Rule. Rule 17a-7(a)
requires in connection with certain purchase and sale transactions that
there be ``no consideration other than cash payment against prompt
delivery of a security for which market quotations are readily
available.'' In the Reconstitution Transactions, a portion of the
consideration will be Portfolio securities rather than cash. Applicant
proposes that cash consideration be paid to a Portfolio from another
Portfolio only to the extent the aggregate price of the portfolio
securities acquired by a Portfolio from another Portfolio exceeds the
aggregate price of the portfolio securities sold by that Portfolio to
such other Portfolio. The remaining consideration would be the prompt
delivery of Portfolio securities, valued at Current Market Prices, to
such other Portfolio.
10. Applicant states that the nature of the proposed transactions
does not give rise to the type of potential abuse Rule 17a-7 was
designed to guard against. Applicant submits that Rule 17a-7 was
designed to permit investment companies to sell securities between
themselves at Current Market Prices without necessary incurring costs,
including brokerage costs, to the detriment of investors. Applicant
states that the Reconstitution Transactions will be effected at Current
Market Prices and thus will avoid unnecessary brokerage costs.
11. Applicant represents that the Fund's board of directors,
including a majority of the directors who are not interested persons of
the Fund, will (i) adopt procedures pursuant to which the
Reconstitution Transactions may be effected, which are reasonably
designed to provide that all the conditions in paragraphs (a) through
(d) of Rule 17a-7 have been complied with, except the condition set
forth in paragraph (a) that requires the transaction to be effected for
no consideration other than cash, (ii) make and approve such changes as
the board deems necessary, and (iii) determine no less frequently than
quarterly that all such purchases or sales made during the preceding
quarter were effected in compliance with such procedures. Additionally,
the Fund will (i) maintain and preserve permanently, [[Page 31177]] in
an easily accessible place, a written copy of the procedures (and any
modifications thereto) described in paragraph (e) of Rule 17a-7, and
(ii) maintain and preserve for a period not less than six years from
the end of the fiscal year in which any transactions occurred, the
first two years, in an easily accessible place, a written record of
each such transaction setting forth a description of the security
purchased or sold, the identity of the person [portfolio] on the other
side of the transaction, the terms of the purchase or sale transaction,
and the information or materials upon which the determinations
described in paragraph (e)(3) of Rule 17a-7 were made.
12. Applicant therefore submits that the Reconstitution
Transactions are, in substance, the type of transactions ordinarily
exempted by Rule 17a-7.
13. Applicant also requests relief pursuant to Section 6(c) of the
1940 Act, because the Commission has interpreted Section 17(b) of the
1940 Act as authorizing the granting of exemptive relief from Section
17(a) on a transaction-by-transaction basis only. Applicant requests
relief pursuant to Section 6(c) exempting Applicant from Section 17(a)
to the extent necessary to permit Applicant to engage in the
Reconstitution Transactions each year.
14. Section 6(c) of the 1940 Act provides that the Commission ``by
order upon application, may conditionally or unconditionally exempt any
person, security, or transaction, or any class or classes of persons,
securities, or transactions, from any provision or provisions of [the
Act] or of any rule or regulation thereunder, 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].''
15. Applicant submits that the exemptions requested under Section
6(c) are appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the 1940 Act.
Applicant's Conditions
Applicant represents and agrees to the following conditions:
1. Each of the Reconstitution Transactions will be: (a) a purchase
or sale, for no consideration other than the delivery of portfolios
securities valued at the independent ``Current Market Price'' (as
defined in Rule 17a-7 under the 1940 Act), or, (b) to the extent the
aggregate price of the portfolio securities acquired by one Portfolio
from another Portfolio exceeds the aggregate price of the portfolio
securities sold by that Portfolio to such other Portfolio, a cash
payment for the difference, against prompt delivery of a security for
which market quotations are readily available.
2. Each of the Reconstitution Transactions will be effected at the
security's independent ``Current Market Price,'' as defined in Rule
17a-7 under the 1940 Act.
3. Each of the Reconstitution Transactions will be consistent with
the policy of each of the Portfolios participating in such
transactions, as recited in the Fund's registration statement and
reports filed under the 1940 Act.
4. No brokerage commission, fee (except for customary transfer
fees), or other remuneration will be paid in connection with any of the
Reconstitution Transactions.
5. The Fund's board of directors, including a majority of the
directors who are not interested persons of the Fund, shall (a) review
the terms of the Reconstitution Transactions, the composition of the
investment portfolios of the affected Portfolios, and the value (and
valuation method) of the investment securities comprising the purchase
price in the Reconstitution Transactions; (b) adopt a resolution
determining that each of the Reconstitution Transactions are reasonable
and fair to the affected portfolios, that the Reconstitution
Transactions would not subject any of the affected Portfolios to
overreaching, and that each of the Reconstitution Transactions are
consistent with the policy of each of the Portfolios participating in
such transactions, as recited in the Fund's registration statement and
reports filed under the 1940 Act; (c) make and approve such changes as
the board deems necessary; and (d) determine at the board meeting next
following any Reconstitution Transactions that such Reconstitution
Transactions were effected in compliance with such procedures.
6. The Fund agrees that it will maintain and preserve (a)
permanently in an easily accessible place a written copy of the
procedures (and any modifications thereto) described in condition
``5'', and (b) for a period not less than six years from the end of the
fiscal year in which any Reconstitution transactions occurred, the
first two years in an easily accessible place, a written record of each
such transaction setting forth a description of the securities
purchased or sold in such transaction, and the information or materials
upon which the determinations described in condition ``5(d)'' were
made.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-14439 Filed 6-13-95; 8:45 am]
BILLING CODE 8010-01-M
