[Federal Register Volume 59, Number 68 (Friday, April 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8437]
[[Page Unknown]]
[Federal Register: April 8, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20186; 812-8802]
The Laurel Funds, Inc. et al.; Notice of Application
April 1, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: The Laurel Funds, Inc. (``Laurel Funds''), The Boston
Company Investment Series (``TBC Investment Series''), The Boston
Company Fund (``TBC Fund''), The Boston Company Tax-Free Municipal
Funds (``TBC Tax-Free Municipal Funds''), Funds Distributor, Inc.,
Mellon Bank, N.A. (``Mellon''), and The Boston Company, Inc. (``TBC'').
RELEVANT ACT SECTIONS: Order requested (a) under section 17(b) granting
an exemption from section 17 (a) and (b) permitting certain joint
transactions under section 17(d) and rule 17d-1.
SUMMARY OF APPLICATION: Applicants seek an order under section 17(b)
for an exemption from section 17(a) and an order under section 17(d)
and rule 17d-1 to permit certain series of Laurel Funds to acquire all
or substantially all of the assets of corresponding series of TBC
Investment Series, TBC Fund, and TBC Tax-Free Municipal Funds in
exchange for shares of the series of Laurel Funds.
FILING DATE: The application was filed on January 31, 1994, and amended
on March 21, 1994.
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
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on April 26, 1994,
and should be accompanied by proof of service on the applicants, in the
form in 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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants: Laurel Funds, 909 A Street, Tacoma, Washington 98402. TBC
Investment Series, TBC Fund, and TBC Tax-Free Municipal Funds, One
Exchange Place, Boston, Massachusetts 02109. Funds Distributor, Inc.,
Exchange Place, 10th Floor, Boston, Massachusetts, 02109. Mellon, One
Mellon Bank Center, Pittsburgh, Pennsylvania, 15258. TBC, One Boston
Place, Boston, Massachusetts, 02108.
FOR FURTHER INFORMATION CONTACT:
John V. O'Hanlon, Senior Attorney, at (202) 272-3922 or C. David
Messman, Branch Chief, at (202) 272-3018 (Office of Investment Company
Regulation, Division of Investment Management).
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. Laurel Funds is an open-end management investment company
organized as a Maryland corporation and registered under the Act.
Laurel Short-Term Government Securities Fund (``Laurel Bond''), Laurel
Prime Money Market I Fund (``Laurel Prime I''), Laurel U.S. Treasury
Money Market I Fund (``Laurel Treasury I''), and Laurel Tax-Exempt
Money Market Fund (``Laurel Tax-Exempt'') (collectively, the
``Acquiring Funds'') are series of Laurel Funds. Mellon serves as
investment adviser to each of the Acquiring Funds.
2. TBC Investment Series, TBC Fund, and TBC Tax-Free Municipal
Funds are open-end management investment companies organized as
Massachusetts business trusts and registered under the Act. Short-Term
Bond Fund (``TBC Bond'') is a series of TBC Investment Series. Cash
Management Fund (``TBC Cash'') and Government Money Fund (``TBC
Government'') are series of TBC Fund. Tax-Free Money Fund (``TBC Tax-
Free'') is a series of TBC Tax-Free Municipal Funds. TBC Bond, TBC
Cash, TBC Government, and TBC Tax-Free collectively are referred to
herein as the ``Acquired Funds.'' Mellon currently serves as the
investment adviser for each of the Acquired Funds. The Boston Company
Advisors, Inc. (``Boston Advisors'') formerly served as the investment
adviser for each of the Acquired Funds.
3. Mellon is a wholly-owned subsidiary of Mellon Bank Corporation.
Boston Advisors is a wholly-owned subsidiary of TBC, which is an
indirect wholly owned subsidiary of Mellon Bank Corporation.
4. As of September 30, 1993, TBC owned more than 25% of the
outstanding shares of TBC Bond. TBC subsequently transferred a number
of these shares to Funds Distributor, Inc., and TBC currently owns
18.69% of the outstanding shares of TBC Bond. Funds Distributor, Inc.
currently owns 5.62% of the outstanding shares of TBC Bond. Mellon
currently holds with the power to vote 9% of the outstanding shares of
Laurel Prime I. Mellon also currently holds with the power to vote 5%
of the outstanding shares of Laurel Treasury I and Laurel Tax-Exempt.
The initial offering of shares of Laurel Bond is expected to commence
in April 1994, and initially Mellon may own more than 5% of Laurel
Bond's outstanding shares.
5. Each Acquiring Fund proposes to acquire all or substantially all
of the assets of its corresponding Acquired Fund in exchange for its
shares: (a) Laurel Bond would acquire all or substantially all of the
assets of TBC Bond in exchange for shares of Laurel Bond; (b) Laurel
Prime I would acquire all or substantially all of the assets of TBC
Cash in exchange for shares of Laurel Prime I; (c) Laurel Treasury I
would acquire all or substantially all of the assets of TBC Government
in exchange for shares of Laurel Treasury I; and (d) Laurel Tax-Exempt
would acquire all or substantially all of the assets of TBC Tax-Free in
exchange for shares of Laurel Tax-Exempt.
6. The Acquired Funds will endeavor to discharge all their known
liabilities and obligations prior to the closing date. Each of the
Acquiring Funds will assume all liabilities, expenses, costs, charges,
and reserves or obligations of its corresponding Acquired Fund
reflected on an unaudited statement of assets and liabilities of such
Acquired Fund on the valuation date. The Acquiring Funds will not
assume any other liabilities.\1\
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\1\It is anticipated that the liabilities of each Acquired Fund
to be reflected in the closing statement of assets and liabilities
will consist of all the known, non-contingent liabilities of such
Acquired Fund that are liquidated in amount. If on the valuation
date there exists any known contingent liability or any known
absolute but unquantified liability, the parties to the
reorganization will agree to an appropriate procedure for the
satisfaction of such liability, such as insurance, indemnity or
establishment of reserve.
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7. In connection with the proposed reorganizations, Laurel Funds
will enter into separate Agreements and Plans of Reorganization
(``Plans'') with each of TBC Investment Series, TBC Fund, and TBC Tax-
Free Municipal Funds. Forms of the Plans, including the consideration
to be paid or received by the funds involved, have been reviewed by the
directors of Laurel Funds and the trustees of TBC Investment Series,
TBC Fund, and TBC Tax-Free Municipal Funds, including the directors and
trustees who are not ``interested persons'' of each company, and they
have approved the reorganizations. Each board based its decision to
approve the reorganizations on a number of factors, including: (a) The
capabilities and resources of the Acquiring Funds' investment adviser;
(b) expense ratios and published information regarding the fees and
expenses of the funds; (c) the terms and conditions of the
reorganizations, and whether the reorganizations would result in the
dilution of shareholder interests; (d) the compatibility of the funds'
investment objectives, policies, and restrictions, as well as service
features available to shareholders; (e) the absence of any costs of the
reorganizations to the funds; and (f) the favorable tax consequences of
the reorganizations.
8. The proposed reorganizations will be submitted for approval by
the shareholders of TBC Cash, TBC Government, and TBC Tax-Free at
meetings tentatively scheduled to be held on May 20, 1994. The approval
of shareholders of TBC Bond will be sought in the second half of 1994.
Approval will be solicited pursuant to a prospectus/proxy statement
comparing the Acquiring Funds and the Acquired Funds, and describing
the proposed reorganizations and the reasons therefore. Assuming that
the required shareholder votes are obtained at the shareholder
meetings, the valuation date of the reorganizations involving TBC Cash,
TBC Government, and TBC Tax-Free is expected to be May 20, 1994, and
the closing date is expected to be May 23, 1994.
9. The number of shares of each Acquiring Fund to be issued to the
corresponding Acquired Fund will be determined on the basis of relative
net asset values on the valuation date, by dividing the net value of
the assets of each Acquired Fund by the net asset value of a share of
the corresponding Acquiring Fund.
As soon as practicable after the closing date, each of the Acquired
Funds will liquidate and distribute pro rata to its shareholders of
record the shares of the corresponding Acquiring Fund received by it
pursuant to the reorganization. After such distribution and the winding
up of its affairs, each of the Acquired Funds will be terminated.
10. The expenses of the reorganizations will be borne by Mellon.
Applicants' Legal Analysis
1. Section 2(a)(3) of the Act provides, in pertinent part, that any
person directly or indirectly owning, controlling, or holding with
power to vote 5% or more of the outstanding voting securities of any
other person is an affiliated person of that person.
2. Section 17(a), in pertinent part, prohibits an affiliated person
of a registered investment company, or any affiliated person of such a
person, acting as principal, from selling to or purchasing from such
registered company, or any company controlled by such registered
company, any security or other property.
3. Rule 17a-8 under the Act exempts from the prohibitions of
section 17(a) mergers, consolidations, or purchases or sales of
substantially all of the assets of registered investment companies that
are affiliated persons solely by reason of having a common investment
adviser, common directors, and/or common officers, provided that
certain conditions set forth in the rule are satisfied.
4. As noted above, the Acquiring Funds and the Acquired Funds have
a common investment adviser. Thus, the proposed reorganizations would
be exempt from the provisions of section 17(a) by virtue of rule 17a-8,
but for the fact that the Acquiring Funds and the Acquired Funds may be
affiliated for reasons other than those set forth in the rule. Because
TBC, at the commencement of discussions regarding the reorganizations,
owned more than 25% of TBC Bond's outstanding shares, TBC Bond and
Laurel Bond may be deemed to be part of a common control group.
Additionally, to the extent that Mellon holds more than 5% of the
outstanding shares of each of Laurel Prime I, Laurel Treasury I, and
Laurel Tax-Exempt, it may be deemed to be an affiliated person of each
such fund. Also, because Funds Distributor, Inc. owns more than 5% of
the outstanding shares of TBC Bond, it may be deemed to be an
affiliated person of that fund. Although the nature of these
affiliations precludes applicants from relying on rule 17a-8,
applicants represent that the respective boards have made the findings
required by rule 17a-8, and these findings and the bases therefore will
be recorded fully in the minutes of the board of each company.
5. Section 17(b) provides that the Commission may exempt a
transaction from the provisions of section 17(a) if evidence
establishes that the terms of the proposed transaction, including the
consideration to be paid, are reasonable and fair and do not involve
overreaching on the part of any person concerned, and that the proposed
transaction is consistent with the policy of the registered investment
company concerned and with the general purposes of the Act.
6. Applicants assert that the term of the proposed reorganizations
satisfy the standards of section 17(b). Applicants note that the board
of directors or board of trustees of each company involved in the
reorganizations, including the independent directors or trustees, has
concluded that the reorganizations are in the best interests of the
funds and that the interests of the existing shareholders of the funds
would not be diluted as a result of the reorganizations. Applicants
submit that the terms of the proposed reorganizations are consistent
with the provisions, policies, and purposes of the Act in that they are
reasonable and fair, do not involve overreaching, and are consistent
with the investment policies of each of the Acquired Funds and
Acquiring Funds.
7. Section 17(d) of the Act prohibits any affiliated person of, or
principal underwriter for, a registered investment company, or any
affiliated person of such a person, acting as principal from effecting
any transaction in which such registered company is a joint, or joint
and several, participant with such person in contravention of such
rules and regulations as the Commission may prescribe for the purpose
of limiting or preventing participation by such registered company on a
basis different from, or less advantageous than, that of such other
participant. Rule 17d-1 under the Act provides that no joint
transaction covered by the rule may be consummated unless the
Commission grants exemptive relief after considering whether the
participation of the investment company is consistent with the
provisions, policies and purposes of the Act and the extent to which
the participation is on a basis different from or less advantageous
than that of other participants.
8. Because Mellon holds more than 5% of the outstanding shares of
Laurel Prime I, Laurel Treasury I, and Laurel Tax-Exempt, and serves as
the investment adviser for these funds, and Funds Distributor, Inc.
owns more than 5% of the outstanding shares of TBC Bond, and serves as
distributor for that Fund, the Acquired Funds and the Acquiring Funds
may be considered affiliated persons or affiliated persons of
affiliated persons of each other. In addition, the proposed sale of
assets of each Acquired Fund to the corresponding Acquiring Fund and
the related transactions involved in each reorganization might be
deemed to be a joint enterprise or arrangement prohibited by section
17(d) and rule 17d-1.
9. Applicants assert that the participation in each reorganization
by each fund is consistent with the provisions, policies, and purposes
of the Act and is not on a basis different from or less advantageous
than that of other participants.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8437 Filed 4-7-94; 8:45 am]
BILLING CODE 8010-01-M
