[Federal Register Volume 59, Number 236 (Friday, December 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30263]
[[Page Unknown]]
[Federal Register: December 9, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20752; No. 812-8880]
Applications, Hearings, Determinations, etc.; First Investors
Corp., et al.
December 2, 1994.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``1940 Act'').
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APPLICANTS: First Investors Corporation (``FIC''); First Investors Life
Insurance Company (``First Investors''); First Investors Cash
Management Fund, Inc. (``Cash Management Fund''), First Investors
Global Fund, Inc., First Investors Government Fund, Inc. (``Government
Fund''), First Investors High Yield Fund, Inc. (``High Yield Fund''),
First Investors Fund for Income, Inc. (``Fund for Income''), First
Investors Insured Tax Exempt Fund, Inc., First Investors Multi-State
Insured Tax Free Fund, First Investors New York Insured Tax Free Fund,
Inc., First Investors Series Fund (``Series Fund''), First Investors
Series Fund II, Inc., First Investors Tax-Exempt Money Market Fund,
Inc. (``First Investors Money Market Fund''), and First Investors U.S.
Government Plus Fund (``Government Plus Fund'') (collectively,
``Funds''); First Investors Life Insurance Company Separate Account A
(``Separate Account A''), and First Investors Life Insurance Company
Separate Account C (``Separate Account C'') (collectively, ``Separate
Accounts''); First Investors Single Payment and Periodic Payment Plans
for the Accumulation of Shares of First Investors Global Fund, Inc.,
First Investors Single Payment and Periodic Payment Plans for
Investment in First Investors Government Fund, Inc., First Investors
Periodic Payment Plans for Investment in First Investors High Yield
Fund, Inc. (``High Yield Plan''), First Investors Single Payment and
Periodic Payment Plans for Investment in First Investors Fund for
Income, Inc. (``Fund for Income Plan''), and First Investors Single
Payment and Periodic Payment Plans for Investment in First Investors
Insured Tax Exempt Fund, Inc. (collectively, ``Plans''); and any mutual
funds, separate accounts, and contractual plans that may be
subsequently organized or sponsored by First Investors or its
affiliates.
RELEVANT 1940 ACT SECTIONS: An order of the Commission is requested
under Section 11 of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek: (a) an order of the Commission
approving the terms of certain offers of exchange involving certain
mutual funds, variable annuity contracts and contractual plans; and (b)
an amendment to a prior order issued by the Commission relating to
certain offers of exchange involving certain contractual plans and
mutual funds.
FILING DATE: The application was filed on March 10, 1994, and amended
on September 26, 1994.
HEARING OR NOTIFICATION OF HEARING: If no hearing is ordered, the
application will be granted. Any interested person may request a
hearing on this application, or ask to be notified if a hearing is
ordered. Any requests must be received by the Commission by 5:30 p.m.
on December 28, 1994. Request a hearing in writing, giving the nature
of your interest, the reason for the request and the issues you
contest. Serve the applicant with the request, either personally or by
mail, and also send it to the Secretary of the Commission, along with
proof of service by affidavit, or for lawyers, by certificate. Request
notification of the date of a hearing by writing to the Secretary of
the Commission.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants: Larry R. Lavoie, Esq., Secretary and General
Counsel, First Investors Corporation, 95 Wall Street, New York, New
York 10005.
FOR FURTHER INFORMATION CONTACT:
Yvonne M. Hunold, Senior Counsel, at (202) 942-0670, Office of
Insurance Products (Division of Investment Management).
SUPPLEMENTARY INFORMATION: 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. First Investor, a stock life insurance company, established
Separate Account A and Separate Account C as separate accounts
registered under the 1940 Act as unit investment trusts. FIC, a
registered broker-dealer, is the depositor and sponsor of each Plan as
well as the principal underwriter of each Fund, Separate Account and
Plan. FIC and First Investors are wholly-owned subsidiaries of First
Investors Consolidated Corporation (``FICON''), and affiliates of each
other.
2. The Funds are each open-end diversified management investment
companies registered under the 1940 Act. Each Fund is managed by a
registered investment adviser which is a wholly-owned subsidiary of
FICON.
Shares of the Cash Management Fund and First Investors Money Market
Fund (collectively, ``Money Market Funds'') are sold without a sales
charge. First Investors Insured Intermediate Tax Exempt Fund
(``Intermediate Tax Exempt Fund''), a series of the Series Fund, is
sold with a maximum front-end sales charge of 3.5% on investments under
$100,000, with discounts on larger investments. Shares of each of the
other Funds are sold with a maximum front-end sales charge of 6.25% on
investments under $25,000, with discounts on larger investments. The
Government Plus Fund is no longer offering its shares for sale.
3. With the exception of the Money Market Funds and the Government
Plus Fund, and subject to the conditions described below, cash
distributions from one Fund may be invested in shares of another Fund
at net asset value (``NAV''). Systematic withdrawal plan payments from
a Fund, other than the Government Plus Fund, where a commensurate sales
charge was paid, may be invested in another Fund at NAV. Shareholders
of all of the Funds, except the Money Market Funds, Intermediate Tax
Exempt Fund and Government Plus Fund, have the right to exchange their
shares for shares of other Funds at relative NAV. Exchanges at relative
NAV from the Money Market Fund and Intermediate Tax Exempt Fund to
other Funds may only be made if the shares being exchanged were
acquired through an exchange from any of the Funds with an equivalent
sales charge; otherwise, a sales charge differential is imposed on any
exchanges into the other Funds. Shareholders of the Government Plus
Fund currently have no exchange privilege with any other Fund.
4. The Separate Accounts are used to fund variable annuity
contracts (``Contracts'') issued by First Investors. Separate Account A
invests in shares of First Investors Special Bond Fund, Inc., and
Separate Account C invests in shares of First Investors Life Series
Fund (currently consisting of nine separate series). First Investors
Special Bond Fund and Life Series Fund are each a registered
diversified open-end management investment company under the 1940 Act.
Units of the Separate Accounts are sold with a maximum front-end
sales charge of 7% for an investment of less than $25,000, with
discounts for larger investments. Investments must be annuitized or
withdrawn by a Contract Owner no later than the first day of the
calendar month following the Contract Owner's 85th birthday (``Maturity
Date''). Separate Account A Contracts may be exchanged at relative NAV
for Separate Account C Contracts, in accordance with Rule 11a-2 under
the 1940 Act.
5. The Plans are registered unit investment trusts under the 1940
Act and invest in shares of the corresponding underlying Fund. An
investor (``Planholder'') may purchase a Plan either by means of a
single payment (``Single Payment Plan'') or periodic payments
(``Periodic Payment Plan''). The maximum sales charge as a percentage
of the offering price is 6.25% on a Single Payment Plan investment of
less than $25,000, and 6.15% on a Periodic Payment Plan, with discounts
for larger Plans. On a purchase of a Periodic Payment Plan, a portion
of the total sales charge is deducted from each payment, with most of
the charges allocated to earlier payments.
6. The Fund for Income and the High Yield Fund Plans were
authorized temporarily to substitute the Government Fund as the
underlying investment of each of these two Plans due to the
unavailability for sale of the underlying high yield bond funds. Rel.
No. IC-17987 (Feb. 5, 1991) (``Exemptive Order''). As of December 20,
1993, these two Plans resubstituted the high yield funds as their
underlying investments with respect to new Plan payments, in accordance
with the terms of the Exemptive Order. Planholders of the Fund for
Income and High Yield Plans have the right to exchange at relative NAV
into any other First Investors Single Payment or Periodic Payment Plan
of the same denomination, subject to the same sales charge on
additional payments and the same rights and privileges under the new
Plan as under the current Plan. There currently are no other privileges
to exchange at NAV from Plan to Plan, or from Fund to Fund.
7. Applicants propose to: (a) Offer investors four types of
exchange privileges, at relative NAV: (1) Fund-to-Separate Account; (2)
Separate Account-to-Fund; (3) Plan-to-Plan; and (4) Fund-to-Single
Payment Plan; and (b) eliminate one of the special termination/exchange
privileges that were previously created for the Fund for Income Plan
and the High Yield Plan.
a. Exchange Offers
(1) Fund-to-Separate Account. Fund investors may move investments
at relative NAV to a variable annuity sponsored by First Investors
without a sales charge. Shareholders remain subject to all of the
rights and obligations of Contract holders, including insurance-related
fees.
(2) Separate Account-to-Fund: Investors will have an alternative to
annuitization without an additional sales change. Front-end sales
charges will be waived on fund shares purchased with the proceeds of a
Contract. Back-end (surrender) sales charges will not be imposed on
liquidation of a Contract. The exchange privilege will be available
only during the one-year period preceding the Maturity Date of a
Contract. Applicants reserve the right to extend the offer throughout
the term of the Contact.
(3) Plan-to-Plan: Planholders may exchange directly into any other
Single or Periodic Payment Plan of the same type and denomination, at
relative NAV, without a sales charge. The same sales charges paid on
additional payments and the same rights and privileges that apply under
the current Plan will apply under the new Plan. This privilege is now
available only to income Planholders and High Yield Planholders.
(4) Fund-to-Single Payment Plan: Fund shareholders may use
redemption proceeds of a Fund account to purchase a Single Payment Plan
in the same way as the Fund shareholder can now exchange into other
Funds. Proceeds of the Fund redemption are to be transferred directly
to the sponsor for the purchase of Plan units.
In connection with the four proposed exchange privileges,
Applicants reserve the right to: (a) Require an investors to hold
investments for a period of time before taking advantage of the
proposed exchange offers; (b) makes the exchange privileges unavailable
for exchanges among Funds, Separate Accounts and Plans which have
different sales charges structures; and (c) impose reasonable
redemption and/or administrative fees to pay for the costs of
processing exchanges. Applicants also would limit the right of Cash
Management Fund and Money Market Fund shareholders to exchange into
Separate Accounts or Plans to those situations in which they could
exchange at NAV into other Funds. Applicants do not intend to impose
any holding period requirement. Applicants do not intend to impose any
redemption or administrative fees on the proposed exchanges, other than
the nominal redemption fees that are currently imposed on liquidation
of Plans. A $5.00 exchange fee is charged for each exchange from one
Fund into another Fund. This fee is borne by the Fund into which the
exchange is being made and could add to that Fund's expenses.
Additionally, an exchange of Fund shares for shares of another Fund
generally will have similar consequences to that of a redemption of a
Fund's shares and, this, is a taxable event.
Applicants reserve the right to refrain from commencing, or to
terminate at any time, any of these exchange offers, subject to certain
conditions set forth below. Each exchange offer will be contingent on
the acquired product being legally available at relative NAV, all
necessary state and federal approvals being obtained, and satisfaction
of the product's minimum investment requirements.
b. Amended Order
Applicants also request that the Commission amend its Exemptive
Order. The Exemptive Order, in relevant part, gave shareholders of the
Fund For Income and High Yield Plans five alternatives, one of which
allowed termination of the relevant Plan with direct purchases of
shares of another Fund under a special discounted sales change
structure (``Termination Option''). Applicants propose to eliminate the
Termination Option because: (1) It is unduly burdensome for Applicants
to keep track of and apply the special sales charge and maintain and
administer special records and procedures to ensure that Planholders
electing to exercise this right receive the special discounted sales
charge; and (2) it is no longer necessary or appropriate because Plan
shareholders affected by the unavailability of the underlying two Funds
have had ample opportunity to take action within the more than two
years since the Exemptive Order authorized the five options, and the
circumstances which necessitated the privilege no longer exist because
the Income Fund and High Yield Fund have again become available for
purchase by the Plans.
Applicant's Legal Analysis
1. Section 11(a) of the 1940 Act makes it unlawful, in relevant
part, for a registered open-end investment company or any of its
principal underwriter:
To make or cause to be made an offer to the holder of a security
of such company or of any other open-end investment company to
exchange his security for a security in the same or another such
company on any basis other than the relative net asset values of the
respective securities to be exchanged, unless the terms of the offer
have first been submitted to and approved by the Commission or are
in accordance with such rules and regulations as the Commission may
have prescribed in respect of such offers which are in effect at the
time such offer is made.
2. Section 11(c) of the 1940 Act provides that, irrespective of the
basis of exchange, subsection (a) shall be applicable:
(1) To any offer of exchange of any security of a registered
open-end investment company for a security of a registered unit
investment trust * * * and (2) any type of offer of exchange of the
securities of registered unit investment trusts * * * for the
securities of any other investment company.
3. Applicants' state that, because the proposed offers of exchange
will be based on the relative NAV of the units or shares being
exchanged, there is no possibility of the abuse contemplated by Section
11(a) (i.e., offer of exchange made solely for the purpose of assessing
additional selling charges). Nevertheless, Section 11(c) makes Section
11(a) applicable because each of the proposed exchanges involve a unit
investment trust; the basis of the exchange is irrelevant.
4. Applicants believe that exemptive relief is necessary,
appropriate and fully consistent with the purpose of Section 11(a). The
proposed exchanges will be offered exclusively at relative NAV and no
deferred sales charge will be imposed on liquidation of the investment
in the new Fund, Plan or Separate Account being acquired in the
exchange. Further, the offers of exchange provide substantial benefits
to Contract Owners, Plan Shareholders and Fund Shareholders by
providing new investment options and attractive ways to exchange
existing securities for other securities without a sales charge.
5. Applicants will describe for investors the various exchanges
that are possible and may promote the ability to effect such exchanges
as an advantage of investing in Applicants' family of funds and
variable insurance products. However, no sales commission or other
remuneration will be paid to any First Investors' sales representative
as compensation for any proposed exchange.
6. Although the exchanges will be offered at relative NAV,
Applicants reserve the rights to impose reasonable redemption and
administrative fees to compensate for the costs incurred in processing
redemptions, as expressly permitted by Rules 11a-3 and 11a-3 under the
1940 Act. As conditions to this relief, Applicants represent that:
(a) No redemption or administrative fee will be imposed in
connection with the proposed exchanges unless the fee would be
permissible under Rules 11a-2 and 11a-3 for exchanges authorized by
these Rules.
(b) At the commencement of each exchange offer, and at all times
thereafter, the prospectus or the statement of additional information,
as appropriate, of the offering investment company will disclose:
(i) The amount of any administrative or redemption fee, if any,
imposed in connection with the exchange transaction;
(ii) That the exchange offer is subject to termination and its
terms are subject to change; and
(iii) That exchanges may constitute taxable events.
(c) Whenever an exchange offer is to be terminated or its terms are
to be amended materially, any holder of a security subject to that
offer shall be given prominent notice of the impending termination or
amendment at least 60 days prior to the date of termination or the
effective date of the amendment, provided that:
(i) No such notice need be given if the only material effect of an
amendment is to reduce or eliminate fees or sales charges payable at
the time of an exchange, and
(ii) No notice need be given if, under extraordinary circumstances,
either--
(A) There is either a suspension of the redemption of the exchanged
security under Section 22(e) of the 1940 Act and the rules and
regulations thereunder, or
(B) The offering investment company temporarily delays or ceases
the sale of the security to be acquired because it is unable to invest
amounts effectively in accordance with applicable investment
objectives, policies and restrictions.
Other than in the circumstances set forth in (c)(i) and (c)(ii),
above, Applicants would dispense with the 60-day notice requirement
only upon obtaining further relief from the Commission authorizing them
to do so.
Applicants' Legal Conclusion
The proposed offers of exchange are consistent with the intent and
purpose of Section 11 and none of the abuses for which Section 11 of
the 1940 Act was enacted to prevent are present. The proposed exchanges
may benefit Contract owners, Plan shareholders and Fund shareholders.
The proposed offers of exchange as well as the proposed amendment of
the Commission Order, are consistent with the protection of investors
and with the purposes fairly intended by the policy and provisions of
the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30263 Filed 12-8-94; 8:45 am]
BILLING CODE 8010-01-M
