[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