[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