Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Notices 12259

1 It is unlikely that the alternative requirement of

having at least $500,000 under the management of

the investment adviser will be satisfied, because

applicants invest their assets in multiple private

investment companies.

person of, any such registered

investment adviser.

5. All current members of Brac and

the majority of limited partners of

Lexington, as well as the general

partner, have a net worth exceeding

$1,000,000 and thereby satisfy the client

eligibility requirements of paragraph (b)

of rule 205–3. However, nine trusts

which are limited partners of Lexington

fail individually to satisfy the net worth

requirements of rule 205–3(b) (the

‘‘Non-qualifying Trusts’’).1 Six of the

Non-qualifying Trusts have been

established on behalf of six of the

grandchildren of William Sperry

Beinecke, whose ages range form 7 to

17. The seventh Non-qualifying Trust is

a grantor trust which was established by

a seventh grandchild of William Sperry

Beinecke upon reaching the age of

majority. Such grandchildren are the

ultimate beneficiaries of (a) the four

trusts which own Antaeus, a

corporation having assets with an

estimated market value in excess of $50

million, and (b) the trusts which are

qualifying limited partners of Lexington.

The eighth Non-qualifying Trust is a

testamentary trust beneficially owned

by the four adult children of William

Sperry Beinecke, each of whom has

assets in excess of $1,000,000. The ninth

Non-qualifying Trust is beneficially

owned by the three adult children of

Mr. Bael. Each of the Bael children is

expected to be an eventual beneficiary

of the estate of his or her parents to the

extent of more than $1,000,000. As a

result of the limited partnership

interests held by the Non-qualifying

Trusts, Lexington may not be treated as

satisfying the client eligibility

requirements in paragraph (b) of rule

205–3.

6. Applicants request that any relief

be applicable not only with respect to

the Non-qualifying Trusts that are

currently limited partners of Lexington,

but also with respect to future Beinecke

family trusts and custodianships under

the Uniform Gift to Minors Act

(‘‘UGMA’’) having Beinecke family

members as trustee or custodian, as

applicable, that may become limited

partners or members, as the case may

be, of applicants in the future. Such

future trusts and custodianships will

comply with the representations set

forth in the application.

Applicants’ Legal Analysis.

1. Section 205(a)(1) of the Advisers

Act generally prohibits a registered

investment adviser from receiving

compensation on the basis of a share of

capital gains in or capital appreciation

of a client’s account, or any portion

thereof. Section 205(e) of the Advisers

Act provides that the SEC may exempt

any person or transaction, or any class

or classes of persons or transactions

from section 205(a)(1) of the Advisers

Act if and to the extent that the

exemption relates to an investment

advisory agreement with any person

that the SEC determines does not need

the protection of section 205(a)(1), on

the basis of such factors as financial

sophistication, net worth, knowledge of

and experience in financial matters,

amount of assets under management,

relationship with a registered

investment adviser, and such other

factors as the SEC determines are

consistent with section 205.

2. Rule 205–3 provides an exemption

from the prohibition against

performance-based compensation in

section 205(a)(1) provided the

conditions of the rule are satisfied.

Paragraph (b)(1) of rule 205–3 requires

each client entering into an investment

advisory contract that provides for such

compensation to be: (a) A natural person

or a company who immediately after

entering into the contract has at least

$500,000 under management of the

investment adviser; or (b) a person who

the registered investment adviser

reasonably believes, prior to entering

into the contract, is a natural person or

a company whose net worth at the time

the contract is entered into exceeds

$1,000,000. Paragraph (b)(2) of the rule

provides that the term ‘‘company’’ does

not include private investment

companies such as applicants unless

each of the equity owners is a natural

person or a company, as defined

therein, that meets the eligibility

requirements of paragraph (b)(1) of the

rule. A trust is expressly included in the

definition of a ‘‘company.’’ Applicants

believe that a custodianship should be

viewed as a type of trust for this

purpose because, under UGMA, a

custodian is a fiduciary whose duties

and powers are similar to those of a

trustee.

3. The client eligibility requirements

of rule 205–3 reflect the SEC’s

recognition that certain high net worth

clients have the capacity to bear the

additional risks of performance fees, as

well as the ability to protect themselves

against the potential abuses of

performance fees. Applicants are unable

to rely on the rule because the Nonqualifying Trusts do not satisfy the

$500,000 under management or the

$1,000,000 net worth requirement.

However, applicants believe that

exemptive relief is appropriate under

and consistent with the purposes of

section 205(a)(1) and complies with the

factors specified in section 205(e) of the

Advisers Act because: (a) Antaeus, the

entity which makes the investment

decisions for applicants, satisfies the net

worth requirement, is financially

sophisticated with very substantial

knowledge of and experience in

financial matters, and is fully able to

assess the potential risks of performance

fees; (b) each trustee of the Nonqualifying Trusts is a family member of

the beneficiaries thereof who, in

addition to possessing a high level of

financial sophistication and very

substantial knowledge of and

experience in financial matters, have

substantial personal wealth,

entitlements or expectancies invested in

applicants, and may reasonably be

presumed to be acting in the best

interests of the beneficiaries who are

their close family members; and (c) the

beneficiaries of the Non-qualifying

Trusts have the financial means to bear

the potential risks of performance fees,

because each satisfies the net worth

requirement if his or her entitlements

and expectancies are aggregated for this

purpose, and do not have a relationship

with prospective registered investment

advisers.

4. Because those executing investment

authority for the Non-qualifying Trusts

have such strong and intimate familial

relationships to the beneficiaries,

applicants believe that it is not

unreasonable to presume that the

commonality of such interest will result

in the decision-maker behaving in the

best interests of the beneficiaries. Except

for the requested exemption for the

Non-qualifying Trusts and

custodianships, the requirements of rule

205–3 are satisfied in all respects. Thus,

applicants believe that granting the

requested exemption is appropriate

under and consistent with the purposes

of section 205(a)(1) and the factors

specified in section 205(e).

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–6420 Filed 3–13–97; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–22549; 812–10328]

Great-West Life & Annuity Insurance

Company, et al.

March 10, 1997.

AGENCY: The Securities and Exchange

Commission (‘‘Commission’’).
12260 Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Notices

ACTION: Notice of application for an

order pursuant to the Investment

Company Act of 1940 (‘‘1940 Act’’).

APPLICANTS: Great-West Life & Annuity

Insurance Company (‘‘GWL&A’’),

FutureFunds Series Account (‘‘Separate

Account’’), and BenefitsCorp Equities,

Inc. (‘‘BCE’’).

RELEVANT 1940 ACT SECTIONS: Order

requested pursuant to Sections 6(c),

17(b), and 26(b).

SUMMARY OF APPLICATION: Applicants

request an order pursuant to Section

26(b) of the 1940 Act approving a

proposed substitution of securities, and

pursuant to Sections 6(c) and 17(b) of

the 1940 Act exempting related

transactions from Section 17(a) of the

1940 Act.

FILING DATE: The application was filed

on September 6, 1996, and amended on

January 10, 1997.

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 Secretary of

the Commission 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 April 4, 1997, 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 Secretary of the

Commission.

ADDRESSES: Secretary, Securities and

Exchange Commission, 450 Fifth Street,

N.W. Washington, D.C. 20549.

Applicants, c/o W. Randolf Thompson,

Esq., Jorden Burt Berenson & Johnson,

LLP, 1025 Thomas Jefferson Street,

N.W., Suite 400 East, Washington, D.C.

20007–0805.

FOR FURTHER INFORMATION CONTACT:

Kevin M. Kirchoff, Branch Chief, Office

of Insurance Products (Division of

Investment Management), at (202) 942–

0672.

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application is

available for a fee from the Public

Reference Branch of the Commission.

Applicants’ Representations

1. GWL&A, a Colorado stock life

insurance company, does business in

the District of Columbia, Puerto Rico,

and all states of the United States except

New York.

2. GWL&A is wholly-owned by The

Great-West Life Assurance Company,

which is a subsidiary of Great-West

Lifeco Inc., an insurance holding

company. Great-West Lifeco Inc. is a

subsidiary of Power Financial

Corporation of Canada, which is

controlled by Power Corporation of

Canada.

3. The Separate Account, established

by GWL&A pursuant to Kansas law, is

registered with the Commission as a

unit investment trust. The Separate

Account acts a funding vehicle for

certain group variable flexible premium

deferred annuity contracts

(‘‘Contracts’’). The Separate Account

currently has seventeen investment

divisions, each of which invests

exclusively in one of the corresponding

portfolios of three open-end

management investment companies.

4. BCE, the principal underwriter of

the Contracts, is registered as a brokerdealer pursuant to the Securities

Exchange Act of 1934, and is a member

of the National Association of Securities

Dealers, Inc.

5. The Contracts expressly reserve the

right of GWL&A, both on its own behalf

and on behalf of the Separate Account,

to eliminate investment divisions,

combine two or more investment

divisions, or substitute one or more

underlying funds for others in which its

investment divisions are invested.

6. GWL&A, on its own behalf and on

behalf of the Separate Account,

proposes to substitute shares of the

Maxim Series Fund Maxim INVESCO

Balanced Portfolio (‘‘Substituted

Portfolio’’), for shares of the Maxim

Series Fund Total Return Portolio and

the TCI Balanced Portfolio (‘‘Eliminated

Portfolios’’) (the ‘‘Substitution’’).

Applicants represent that the

Substitution will benefit the

participants by eliminating two

portfolios with below average historical

returns and consolidating participants’

investments in the Substituted Portfolio,

which has investment objectives similar

to the Eliminated Portfolios.

7. Participants will be advised that

they can transfer their shares in the

Eliminated Portfolios to the remaining

portfolios of the Separate Account or

leave their shares in the Eliminated

Portfolios until the date of the

Substitution. No Eliminated Portfolio

will accept additional premium

payments (i.e., new money or transfers)

on or after the date of the Substitution.

No sales load deductions or transfer

charges will be assessed in connection

with any transfers among the portfolios

because of the Substitution.

8. Applicants represent that the total

expenses of the Substituted Portfolio

currently are 1.00%, which are greater

than those of the Maxim Series Fund

Total Return Portfolio, the total

expenses of which are .60%, but the

same as the total expenses of the TCI

Balanced Portfolio.

Applicants’ Legal Analysis

1. Section 26(b) of the 1940 Act

provides that it shall be unlawful for

any depositor or trustee of a registered

unit investment trust holding the

security of a single issuer to substitute

another security for such security unless

the Commission shall have approved

such substitution. The Commission

shall issue an order approving such

substitution if the evidence establishes

that it is consistent with the protection

of investors and the purposes fairly

intended by the policies and provisions

of the 1940 Act. Section 26(b) protects

the expectation of investors that the unit

investment trust will accumulate shares

of a particular issuer and is intended to

insure that unnecessary or burdensome

sales loads, additional reinvestment

costs, other charges will not be incurred

due to unapproved substitutions of

securities.

2. Applicants request an order

pursuant to Section 26(b) of the 1940

Act approving the Substitution.

Applicants represent that the purposes,

terms, and conditions of the

Substitution are consistent with Section

26(b). Applicants believe the

Substitution will benefit the

participants by eliminating two

portfolios with below average historical

returns. Applicants represent that the

Maxim Series Fund Total Return

Portfolio, when compared to funds in its

asset class, has performed below average

for at least five quarters. In addition, its

one, three, and five year returns of

10.62%, 8.65%, and 10.40% have been

below average compared to funds

within the same asset class. Applicants

represent that the same is true of the TCI

Balanced Portfolio which, when

compared to other balanced funds, has

been performing poorly for at least

seven quarters. In addition, its one,

three, and five year returns of 10.65%,

9.42%, and 9.08% also are below the

average of balanced funds. GWL&A

proposes to consolidate participants’

investments in the Substituted Portfolio,

which has similar investment objectives

to the Eliminated Portfolios. The

Substitution will remove poorly

performing portfolios from the Separate

Account while the similarity in

investment objectives provides a means

for Contract owners and/or all

participants to continue their current

investment goals and risk expectations.
Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Notices 12261

3. Applicants represent that the

Substitution will be effected at net asset

value in conformity with Section 22(c)

and 22(g) of the 1940 Act and Rule 22c–

1 thereunder. The Substitution may be

effected primarily for cash, but also may

involve partial redemptions in-kind of

securities (‘‘Related Transactions’’). The

use of in-kind redemptions in

conformity with Section 22(g) of the

1940 Act would alleviate the impact of

the brokerage fees and expenses upon

GWL&A or the investment adviser or

sub-adviser of the Substituted Portfolio,

as these entities will bear all expenses

related to the Substitution. The Related

Transactions will be effected to the

extent consistent with the investment

objectives and any applicable

diversification requirements.

4. GWL&A or the investment adviser

of the Substituted Portfolio will assume

the transfer and custodial expenses and

legal and accounting fees incurred with

respect to the Substitution. Participants

will not incur any fees or charges as a

result of the transfer of account values

from any portfolio. Applicants represent

that there will be no increase in the

Contract or Separate Account fees and

charges after the Substitution.

Applicants further represent that the

Substitution is designed to avoid any

adverse federal tax impact to the

Contract owners or participants.

5. Section 6(c) of the 1940 Act

authorizes the Commission to exempt

any person, security, or transaction for

any class or classes of persons,

securities, or transactions from the

provisions of the 1940 Act, if and to the

extent that such exemption is necessary

or appropriate in the public interest and

consistent with the protection of

investors and purposes fairly intended

by the policy and provisions of the 1940

Act.

6. Section 17(a)(1) of the 1940 Act

prohibits any affiliated person, or an

affiliate of an affiliated person, of a

registered investment company, from

selling any security or other property to

such registered investment company.

Section 17(a)(2) of the 1940 Act

prohibits any affiliated person from

purchasing any security or other

property from such registered

investment company.

7. Section 17(b) of the 1940 Act

authorizes the Commission to issue an

order exempting a proposed transaction

from Section 17(a) if: (a) The terms of

the proposed transaction are fair and

reasonable and do not involve

overreaching on the part of any person

concerned; (b) the proposed transaction

is consistent with the policy of each

registered investment company

concerned; and (c) the proposed

transaction is consistent with the

general purposes of the 1940 Act.

8. Applicants request an order

pursuant to Sections 6(c) and 17(b) of

the 1940 Act exempting the Related

Transactions from the provisions of

Sections 17(a) of the 1940 Act.

9. Applicants represent that the terms

of the Substitution are reasonable and

fair and do not involve overreaching on

the part of any person concerned. The

Substitution will be effected at the net

asset value of the securities involved

and the interests of Contract owners will

not be diluted. In-kind redemptions will

alleviate some of the expenses involved

with the Substitution and only will be

used to the extent they are consistent

with the investment objectives and

applicable diversification requirements

of the affected portfolios.

10. The Applicants represent that the

Substitution and the Related

Transactions are consistent with the

policies of each investment company

involved and the general purposes of

the 1940 Act, and comply with the

requirements of both Section 6(c) and

17(b).

Conclusion

Applicants assert that, for the reasons

summarized above, the requested order

approving the Substitution and Related

Transactions should be granted.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–6473 Filed 3–13–97; 8:45 am]

BILLING CODE 8010–01–M

Sunshine Act Meeting

Time Change/Agency Meeting

The time for the closed meeting,

scheduled for Tuesday, March 11, 1997,

at 10:00 a.m., has been changed to 4:00

p.m. (previously announced in 62 FR

10303, March 6, 1997).

Notice is hereby given, pursuant to

the provisions of the Government in the

Sunshine Act, Pub. L. 94–409, that the

Securities and Exchange Commission

will hold the following closed meeting

during the week of March 17, 1997.

A closed meeting will be held on

Wednesday, March 19, 1997, at 10:00

a.m.

Commissioners, Counsel to the

Commissioners, the Secretary to the

Commission, and recording secretaries

will attend the closed meeting. Certain

staff members who have an interest in

the matters may also be present.

The General Counsel of the

Commission, or his designee, has

certified that, in his opinion, one or

more of the exemptions set forth in 5

U.S.C. 552b(c) (4), (8), (9)(A) and (10)

and 17 CFR 200.402(a) (4), (8), (9)(i) and

(10), permit consideration of the

scheduled matters at the closed meeting.

Commissioner Hunt, as duty officer,

voted to consider the items listed for the

closed meeting in a closed session.

The subject matter of the closed

meeting scheduled for Wednesday,

March 19, 1997, at 10:00 a.m., will be:

Institution and settlement of

injunctive actions.

Institution and settlement of

administrative proceedings of an

enforcement nature.

Opinions.

At times, changes in Commission

priorities require alternations in the

scheduling of meeting items. For further

information and to ascertain what, if

any, matters have been added, deleted

or postponed, please contact:

The Office of the Secretary at (202)

942–7070.

Dated: March 11, 1997.

Jonathan G. Katz,

Secretary.

[FR Doc. 97–6650 Filed 3–12–97; 1:07 pm]

BILLING CODE 8010–01–M

[Release No. 34–38371; File No. SR–CHX–

97–04]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Chicago Stock Exchange, Incorporated

Relating to SEC Transaction Fees

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934 (the

‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on February 18, 1997,

the Chicago Stock Exchange,

Incorporated (‘‘CHX’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, and III below, which Items

have been prepared by the Exchange.

The CHX has designated this proposal

as one constituting a change to a due,

fee, or other charge under Section

19(b)(3)(A) of the Act, which renders the

rule effective upon receipt of this filing.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organizations

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to codify in

its fee schedule the CHX’s collection of

SEC transaction fees assessed pursuant