[Federal Register Volume 62, Number 242 (Wednesday, December 17, 1997)]
[Notices]
[Pages 66153-66154]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32919]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IA-1686/803-116]


ProFutures Capital Management, Inc.; Notice of Application

December 11, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Advisers Act of 1940 (``Advisers Act'').

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    Applicant: ProFutures Capital Management, Inc. (``PMC'').
    Relevant Advisers Act Sections: Exemption requested under section 
203A(c) from section 203A(a).
    Summary of Application: Applicant requests an order to permit it to 
register with the SEC as an investment adviser.
    Filing Dates: The application was filed on July 8, 1997, and 
amended on October 3, 1997 and December 2, 1997.

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 
to the SEC's Secretary and serving applicant with a copy of the 
requests, personally or by mail. Hearing requests should be received by 
the SEC by 5:30 p.m. on January 7, 1998, 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 may request notification of a hearing by 
writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicant, ProFutures Capital Management, Inc., Suite 200, 1310 
Highway 620 South, Austin, Texas 78374.

FOR FURTHER INFORMATION CONTACT: Robert J. Leonard, Attorney, at (202) 
942-0646, or Jennifer S. Choi, Special Counsel, at (202) 942-0716 
(Division of Investment Management, Task Force on Investment Adviser 
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.

Applicant's Representations

    1. Applicant is a Texas corporation with its principal place of 
business in Austin, Texas. Applicant researches and evaluates the 
performance and trading programs of other investment advisers who 
manage client accounts on a discretionary basis and refers clients to 
those advisers selected by applicant.
    2. Applicant assists prospective clients in identifying their 
investment objectives and risk tolerance, and provides information on 
investment advisers whose trading programs seek to meet those 
objectives. Applicant provides clients with account opening documents 
and reviews all account documents for accuracy before forwarding them 
to the adviser that the client has selected. Applicant also reviews all 
accounts for client suitability. Additionally, applicant assists 
clients in allocating assets among the selected investment advisers and 
suggests adjustments to the allocations. Applicant does not have 
discretionary authority on behalf of clients to select the advisers or 
allocate client funds to selected advisers.
    3. Applicant is compensated for referring clients to selected 
advisers by sharing in up to one half of the management fee charged by 
such adviser. Applicant has over 700 clients located nationwide. These 
clients include individuals, financial institutions, pension and profit 
sharing plans, trusts, estates and other corporate entities
    4. Applicant is legally obligated to be registered in at least 30 
states as an investment adviser, taking into account the national de 
minimis standard in section 222(d) of the Advisers Act and all 
applicable exemptions and exclusions under the securities laws and 
regulations of such states. Applicant is currently registered in 46 
states. Applicant was registered as an investment adviser with the SEC 
until July, 1997.

Applicant's Legal Analysis

    1. On October 11, 1996, the National Securities Markets Improvement 
Act of 1996 was enacted. Title III of the Act, the Investment Advisers 
Supervision Coordination Act (``Coordination Act''), added new section 
203A to the Advisers Act. Under section 203A(a)(1),<SUP>1</SUP> an 
investment adviser that is regulated or required to be regulated as an 
investment adviser in the state in which it maintains its principal 
office and place of business is prohibited from registering with the 
SEC unless the investment adviser (i) has assets under management of 
not less than $25 million or (ii) is an adviser to an investment 
company registered under the Investment Company Act of 1940 
(``Investment Company Act''). Section 203A(a)(2) defines the phrase 
``assets under management'' as the ``securities portfolios with respect 
to which an investment adviser provides continuous and regular 
supervisory or management services.'' <SUP>2</SUP>
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    \1\ 15 U.S.C. 80b-3a(a)(1).
    \2\ 15 U.S.C. 80b-3a(a)(2).
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    2. applicant states that it does not qualify for registration as an 
investment adviser with the SEC. Applicant states that it has no assets 
under management, does not act as an investment adviser to an 
investment company registered under the Investment Company Act, and 
does not qualify for exemption from the prohibition on SEC registration 
as provided in rule 203A-2 under the Advisers Act. Applicant also 
maintains its principal place of business in Texas, which regulates 
applicant as an investment adviser.
    3. Section 203A(c) of the Advisers Act authorizes the SEC to permit 
an investment adviser to register with the SEC if prohibiting 
registration would be ``unfair, a burden on interstate commerce, or 
otherwise inconsistent with the purposes of [section 203A].'' 
<SUP>3</SUP>
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    \3\ 15 U.S.C. 80b-3a(c).
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    4. Applicant states that Congress noted that ``the definition of 
`assets under management' . . . may, in some cases, exclude firms with 
a national or multistate practice from being able to register with the 
SEC.'' <SUP>4</SUP> Applicant asserts that to remedy any unfairness, 
burdens or inconsistencies caused by the assets under management 
requirement, Congress intended the SEC to use its exemptive authority 
to ``permit, where appropriate, the registration of such firms with the 
[SEC].'' <SUP>5</SUP>
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    \4\ S. Rep. No. 293, 104th Cong., 2d Sess. 4 (1996).
    \5\ Id. at 5.
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    5. Applicant believes that Congress in adopting section 203A 
intended the SEC

[[Page 66154]]

to grant these exemptions to advisers having a ``national or multistate 
practice'' and that ``[l]arger advisers, with national businesses, 
should be registered with the [SEC] and be subject to national rules.'' 
<SUP>6</SUP> Applicant notes that Congress chose an assets under 
management requirement as a rough proxy that would divide 
responsibilities between the SEC and the states; investment advisers 
managing $25 million or more of assets under management are more likely 
to be national investment advisers.
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    \6\ Id.
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    6. Applicant asserts that prohibiting it from registering with the 
SEC would be a burden on interstate commerce in that applicant would be 
subject to the regulations and oversight of at least 30 jurisdictions, 
which would impede applicant's ability to operate its national business 
on a uniform basis. Applicant states that it is legally obligated to be 
registered in at least 30 jurisdictions as an investment adviser, 
taking into account the national de minimis standard in section 222(d) 
of the Advisers Act and all applicable exemptions and exclusions under 
the securities laws and regulations of such states. Applicant states 
that the extent of its investment advisory services means that it does 
not qualify for the national de minimis exemption, as set forth in 
section 222(d) of the Advisers Act, in at least 30 states because it 
has provided investment advisory services to more than five clients 
during the preceding twelve months who are residents of those states.
    7. Section 222(d) of the Advisers Act makes state investment 
advisers statutes inapplicable to investment advisers that do not have 
a place of business located within that state and, during the preceding 
twelve month period, have fewer than six clients who are residents of 
that state.
    8. Applicant also asserts that to prohibit it from registered with 
the SEC would be unfair because applicant's investment advisory 
business is substantially similar to that of other national investment 
advisers who are eligible for SEC registration and oversight. Moreover, 
applicant believes that it would be inconsistent with the purposes of 
section 203A if it is prohibited from being registered with the SEC.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-32919 Filed 12-16-97; 8:45 am]
BILLING CODE 8010-01-M