[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Notices]
[Pages 30907-30909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14692]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22694; 812-10584]
State Street Research Financial Trust, et al.; Notice of
Application
May 30, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: State Street Research Financial Trust (the ``Trust''),
State Street Research Portfolios, Inc. (the ``Company''), State Street
Research & Management Company (``SSRM''), State Street Research
Investment Services, Inc. (``SSRIS''), and GFM International Investors
Limited (``GFM'').
RELEVANT ACT SECTIONS: Order requested under section 17(b) to exempt
applicants from the provisions of section 17(a).
SUMMARY OF APPLICATION: Applicants seek an order to permit a
reorganization between a series of the Trust and a series of the
Company.
FILING DATES: The application was filed on March 25, 1997. Applicants
have agreed to file an amendment during the notice period, the
substance of which is incorporated herein.
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 June 19, 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants: the Trust, SSRM, and SSRIS, One Financial Center, Boston,
Massachusetts 02111; the Company, One Madison Avenue, New York, New
York 10010; and GFM, 5 Upper Street Martins Lane, London WC2H 9EA,
England.
FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Senior Counsel, at (202) 942-0572, or Mercer E.
Bullard, Branch Chief, at (202) 942-0564
[[Page 30908]]
(Division of Investment Management, Office of Investment Company
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.
Applicants' Representations
1. The Trust is a Massachusetts business trust registered under the
Act as an open-end management investment company. The Trust consists of
four series, including the State Street Research Government Income Fund
(the ``Acquiring Fund''). The Company, which was originally organized
under the name MetLife Portfolios, Inc., is a Maryland corporation
registered under the Act as an open-end management investment company.
The Company consists of two series, including the State Street Research
International Fixed Income Fund (the ``Acquired Fund'').
2. SSRM serves as the Acquiring Fund's and, as of March 1, 1997,
the Acquired Fund's investment adviser. SSRIS serves as the distributor
of the Acquired Fund and served as investment adviser to the Acquired
Fund until March 1, 1997. GFM serves as the subadviser for the Acquired
Fund. SSRM, SSRIS, and GFM are registered as investment advisers under
the Investment Advisers Act of 1940 and are indirect wholly-owned
subsidiaries of Metropolitan Life Insurance Company (``MetLife''). As
of December 31, 1996, MetLife and its affiliates held a record 72% of
the outstanding shares of the Acquired Fund. In some cases, any of
MetLife and its affiliates may hold or share voting discretion,
investment discretion, or both with respect to these shares.
3. The Acquiring and Acquired Funds both offer four classes of
shares. The classes of shares of the Acquiring Fund have identical
arrangements with respect to the imposition of initial and contingent
deferred sales charges and distribution and service fees as the
comparable classes of shares of each of the Acquired Funds.
4. The investment objective of the Acquired Fund is to seek a high
level of return by investing primarily in high quality debt securities
of non-U.S. issuers. The investment objective of the Acquired Fund is
not fundamental and may be changed by the board of directors of the
Company without a shareholder vote. The investment objective of the
Acquiring Fund is to seek high current income and under normal
circumstances the Acquiring Fund will invest at least 65% of the value
of its total assets in securities that are issued or guaranteed by the
U.S. Government, U.S. Government agencies or instrumentalities, or
certain mixed-ownership Government corporations. The investment
objective of the Acquiring Fund is fundamental and may not be changed
without a shareholder vote.
5. The Trust, on behalf of the Acquiring Fund, and the Company, on
behalf of the Acquired Fund, will enter into an agreement and plan of
reorganization, which was approved by the board of directors of the
Company on February 4, 1997 and by the board of trustees of the Trust
on November 6, 1996. The boards of the Acquiring and Aquired Funds,
including the members who are not ``interested persons'' as defined by
the Act, found that the reorganization would be in the best interest of
the Acquiring and Acquired Funds and their shareholders, respectively,
and that the interests of the existing shareholders of the respective
Funds will not be diluted as a consequence thereof. Each board
considered a number of factors, including the efficiencies resulting
from combining the operations of a small fund with a large fund; \1\
the performance of the Acquired Fund; the size, stability, and strength
of the Acquiring Fund; and that each Fund uses the same distribution
and multiple class structure and sales load structure. In addition, in
reaching its determination that the reorganization was in the best
interest of the Funds' shareholders, the boards also considered the
differences in the investment objectives of each Fund and concluded
that greater portfolio diversification could result from a larger asset
base. Applicants expect that greater diversification from a portfolio
of securities of both U.S. and non-U.S. issuers would be beneficial to
Acquired Fund shareholders because it may reduce the risk associated
with a portfolio of securities issued only by non-U.S. issuers.
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\1\ As of October 31, 1996, the Acquired and Acquiring Funds had
net assets of approximately $33 million and $702 million,
respectively.
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6. Upon consummation of the proposed reorganization (the
``Closing''), the Acquiring Fund will acquire all of the assets of the
Acquired Fund (subject to the assumption by the Acquiring Fund of all
liabilities of the Acquired Fund which are reflected on an unaudited
statement of assets and liabilities on the Valuation Date (as defined
below)) in exchange for Class A, B, C, and D shares of the Acquiring
Fund. The number of Class A, B, C, and D shares to be issued to the
Acquired Fund will be determined by dividing (a) the aggregated net
assets in each class of shares of the Acquired Fund by (b) the net
asset value per Class A, B, C, and D share, respectively, of the
Acquiring Fund, each computed as the close of business on the business
day next preceding the Closing (the ``Valuation Date''). The Acquired
Fund will liquidate and distribute shares of the Acquiring Fund to its
shareholders at or as soon as practicable after the Closing. Holders of
the Acquiring Fund shares acquired as a result of the reorganization
will continue to be subject to a contingent deferred sales charge upon
subsequent redemption to the same extent as if they had continued to
hold shares of the Acquired Fund. The class of Acquiring Fund shares
distributed to each shareholder of the Acquired Fund upon the
liquidation of the Acquired Fund will correspond to the class of shares
of the Acquired Fund held by such shareholder immediately prior to the
reorganization.
7. At or prior to the Closing, the Acquired Fund shall declare a
dividend or dividends which shall have the effect of distributing to
the shareholders of the Acquired Fund all of the Fund's investment
company taxable income for all taxable years ending on or prior to the
Closing (computed without regard to any deduction for dividends paid)
and all of its net capital gain realized (after reduction for any
capital loss carry-forward) in all taxable years ending on or prior to
the Closing.
8. The proposed reorganization is subject to approval by an
affirmative vote of the holders of a majority of the outstanding shares
entitled to vote of the Acquired Fund. Approval will be solicited
pursuant to a prospectus/proxy statement, which was sent to
shareholders of the Acquired Fund on March 17, 1997. Each prospectus/
proxy statement includes pertinent financial information and projected
expense ratios of the combined funds. A shareholder meeting is
scheduled to be held on May 30, 1997.
9. The Acquiring and Acquired Funds each will bear half of the
costs of entering into and carrying out the provisions of the plan of
reorganization, whether or not the reorganization is consummated. In
determining this allocation, the boards of both Funds determined that,
in the absence of any special advantage of one Fund relative to the
other, an equal split of expenses was appropriate, and that any
potential benefits to SSRM, SSRIS, GFM or any of their affiliates as a
result of the reorganization were outweighed by the
[[Page 30909]]
potential benefits to each Fund and its shareholders.
10. The consummation of each reorganization is subject to certain
conditions, including that the parties shall have received from the SEC
the order requested in the application, and the receipt of an opinion
of tax counsel to the effect that upon consummation of each
reorganization and the transfer of substantially all the assets of each
Acquired Fund, no gain or loss will be recognized by the Acquired or
Acquiring Funds or their shareholders as a result of the
reorganization. Applicants will not amend, waive, or supplement any
term of the plan of reorganization without the prior approval of the
SEC if such amendment, waiver, or supplement would materially alter the
plan from the description of the plan in the application.
Applicants' Legal Analysis
1. Section 17(a) of the Act provides, in pertinent part, that it is
unlawful for any affiliated person of a registered investment company,
or any affiliated person of such an affiliated person, acting as
principal, knowingly to sell or purchase securities to or from such
registered company.
2. Section 2(a)(3) of the Act defines the term ``affiliated
person'' of another person to include, in pertinent part, (a) any
person directly or indirectly owning, controlling, or holding with
power to vote 5% or more of the outstanding voting securities of such
other person, (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote by such other person, (c) any person directly or
indirectly controlling, controlled by, or under common control with
such other person, and, (d) if such other person is an investment
company, any investment adviser thereof.
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. Applicants
state they may not be able to rely on rule 17a-8 because MetLife and
its affiliates hold or share direct or indirect ownership of more than
5% of the outstanding shares of the Acquired Fund, that the adviser of
the Acquiring Fund is a wholly-owned subsidiary of MetLife which,
therefore, could be deemed to control the Acquiring Fund, and that the
Acquiring Fund, therefore, may be deemed an affiliated person of an
affiliated person of the Acquired Fund, and vice versa, for reasons not
based solely on their common adviser.
4. Section 17(b) of the Act provides that the SEC may exempt a
transaction from the prohibitions 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 each registered investment
company concerned and with the general purposes of the Act.
5. Applicants submit that the terms of the proposed reorganization
satisfy the standards set forth in section 17(b). Applicants note that
the exchange of the Acquired Fund's assets and liabilities for shares
of the Acquiring Fund will be based on each Fund's relative net asset
value, and that the proposed reorganization is expected to be effected
on a tax-free basis, so that neither the Acquiring Fund, the Acquired
Fund, nor the shareholders of the Acquired Fund will recognize taxable
gains or losses as a result of the proposed reorganization.
6. Applicants submit that the terms of the proposed reorganization
are fair and reasonable and do not involve overreaching on the part of
any person concerned and that the proposed reorganization is consistent
with the policies of the Acquiring and Acquired Funds.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14692 Filed 6-4-97; 8:45 am]
BILLING CODE 8010-01-M
