[Federal Register Volume 59, Number 174 (Friday, September 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22211]


[[Page Unknown]]

[Federal Register: September 9, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20524; 812-8966]

 

First Investors Cash Management Fund, Inc., et al.; Notice of 
Application

September 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: First Investors Cash Management Fund, Inc., First Investors 
Fund for Income, Inc., First Investors Global Fund, Inc., First 
Investors Government Fund, Inc., First Investors High Yield Fund, Inc., 
First Investors Insured Tax Exempt Fund, Inc., First Investors Life 
Series Fund, First Investors Multi-State Insured Tax Free Fund, First 
Investors New York Insured Tax Free Fund, First Investors Series Fund, 
First Investors Series Fund II, Inc., First Investors Special Bond 
Fund, Inc., First Investors Tax Exempt Money Market Fund, Inc., First 
Investors U.S. Government Plus Fund, and Executive Investors Trust 
(collectively, the ``Funds''), First Investors Corporation (``FIC''), 
First Investors Management Company, Inc. (``FIMCO''), Executive 
Investors Corporation (``EIC''), and Executive Investors Management 
Company, Inc. (``EIMCO'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) for an 
exemption from sections 2(a)(32), 2(a)(35), 18(f), 18(g), 18(i), 22(c), 
and 22(d) and rule 22c-1.

SUMMARY OF APPLICATION: Applicants request an order that would permit 
the Funds to issue multiple classes of shares representing interests in 
the same portfolio of securities and assets, and under certain 
circumstances waive, a contingent deferred sales charge (``CDSC'') on 
redemptions of shares.

FILING DATES: The application was filed on May 3, 1994, and amended on 
July 1, 1994, and August 18, 1994. Applicants have agreed to file an 
additional amendment, the substance of which is incorporated herein, 
during the notice period.

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 September 26, 
1994, 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, 95 Wall Street, New York, N.Y. 10005.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Staff Attorney, at 
(202) 942-0574, or Robert A. Robertson, Branch Chief, at (202) 942-0564 
(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. First Investors Life Series Fund, Multi-State Insured Tax Free 
Fund, Series Fund, U.S. Government Plus Fund, and Executive Investors 
Trust are organized as business trusts under the laws of Massachusetts 
and are registered under the Act as open-end management investment 
companies. First Investors Cash Management Fund, Fund for Income, 
Global Fund, Government Fund, High Yield Fund, Insured Tax Exempt, New 
York Insured Tax Free Fund, Series Fund II, Special Bond Fund, and Tax 
Exempt Money Market Fund are organized as corporations under the laws 
of Maryland and are also registered under the Act as open-end 
management investment companies. Only Series Fund II currently offers 
its shares in separate series.
    2. FIMCO is the investment adviser to each existing Fund except for 
Executive Investors Trust, for which EIMCO serves as investment 
adviser. FIC serves as underwriter for each existing Fund except for 
Life Series Fund, Special Bond Fund, Executive Investors Trust, for 
which EIC serves as underwriter.
    3. Shares of each existing Fund except for Cash Management Fund and 
Tax Exempt Money Market Fund are sold with a front-end sales charge. 
Certain of the existing Funds have adopted a rule 12b-1 distribution 
plan. Applicants request that relief extend to the funds and any other 
investment company, or series thereof, that (a) becomes a part of the 
same ``group of investment companies'' as that term is defined in rule 
11a-3 under the Act, (b) is distributed, as principal underwriter, by 
FIC, EIC or a person controlling, controlled by, or under common 
control with FIC or EIC, and (c) issues and sells classes of shares on 
a basis identical in all material respects to that described in this 
application.

A. Multiple Class System

    1. Applicants propose to establish a multiple class distribution 
system that would authorize each Fund to sell separate classes of its 
shares. Applicants propose that the current shares of each existing 
Fund be redesignated as Class A shares. In addition, each existing Fund 
could create additional classes of shares.
    2. Each class of shares would be identical in all respects, except 
that: (a) Each class of shares would have a different class 
designation; (b) certain classes of shares may have different sales 
charges; (c) each class with a rule 12b-1 plan and/or shareholder 
services plan would bear the expense of payments under the plans; (d) 
each class would bear certain other expenses that are directly 
attributable only to that class (``Class Expenses''), as set forth in 
condition 1; (e) classes will vote separately with respect to matters 
relating to 12b-1 or shareholder services plans, except as provided in 
condition 16; (f) certain classes will have a conversion feature; and 
(g) the exchange privileges could vary among the classes. Each Fund may 
enter into 12b-1 plan agreements and/or non-rule 12b-1 shareholder 
service plan agreements (``Plan Agreements'') with FIMCO, EIMCO, FIC, 
EIC and/or other organizations to provide distribution services and/or 
maintenance services to their customers who own shares of that Fund.
    3. The expenses of a Trust or a Fund that has established more than 
one series that cannot be attributed directly to any one series 
(``Trust Expenses'') generally will be allocated to each series based 
on the relative net assets of those series.\1\ Certain expenses may be 
attributable to a particular Fund, but not a particular class (``Fund 
Expenses''). All such Fund Expenses incurred by a Fund will be 
allocated to each class of its shares based upon the relative daily net 
assets of the class. Finally, 12b-1 plan payments and Class Expenses 
may be attributable to a particular class of shares of a Fund. All such 
Class Expenses will be charged directly to the net assets of the 
particular class and will be borne on a pro rata basis by the 
outstanding shares of such class. Therefore, the net income and net 
asset value per share of each class may be different than the net 
income and net asset value per share of other classes of shares in the 
same Fund.
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    \1\From time to time, a Fund may allocate Trust Expenses among 
series using an alternative method, including allocation based on 
the number of shareholders of each series or the number of series in 
a Fund, as may be appropriate.
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    4. Shares in different classes within a Fund also will have 
different exchange privileges. Shares may be exchanged at net asset 
value for shares of the corresponding class of certain other Funds. The 
applicable exchange privileges will comply with rule 11a-3 under the 
Act. In addition, shares of one or more classes (``Purchase Class 
Shares'') may automatically convert to shares of another class 
(``Target Class Shares'') after a prescribed period of time. Target 
Class Shares will in all cases be subject to lower aggregate 12b-1 plan 
payments, if any, and other ongoing Class Expenses than Purchase Class 
Shares. The conversion will be on the basis of the relative net asset 
values of the two classes, without the imposition of any sales or other 
charge except that any asset-based sales or other charge applicable to 
the Target Class Shares would thereafter be applied to the converted 
shares. Purchase Class Shares in a shareholder's account that were 
purchased through the reinvestment of dividends and other distributions 
paid in respect of Purchase Class Shares will be considered to be held 
in a separate sub-account. Each time any Purchase Class Shares in the 
shareholder's account convert to Target Class Shares, a pro rata 
portion of the Purchase Class Shares then in the sub-account also will 
convert to Target Class Shares.

B. The CDSC

    1. Applicants also request an exemption to allow the Funds to 
impose a CDSC on redemptions of certain shares of the Funds (``CDSC 
Shares''), and to waive or reduce the CDSC under certain circumstances. 
The sum of any front-end sales charge, asset-based sales charge, and 
CDSC would comply with the requirements of section 26(d) of the Rules 
of Fair Practice of the National Association of Securities Dealers, 
Inc. (``NASD'').
    2. The amount of the CDSC would be calculated as the lesser of the 
amount that represents a specified percentage of the net asset value of 
the CDSC Shares at the time of purchase, or the amount that represents 
such percentage of the net asset value of the CDSC Shares at the time 
of redemption. No CDSC would be imposed on an amount which represents 
an increase in the value of the shareholder's account resulting from 
capital appreciation above the amount paid for the CDSC Shares 
purchased. In determining the applicability and rate of any CDSC, it 
would be assumed that a redemption is made first of shares representing 
capital appreciation, secondly, of shares representing reinvestment of 
dividends and capital gain distributions, next of shares held by the 
shareholder for a period equal to or greater than the CDSC period, and 
finally of other shares held by the shareholder for the longest period 
of time. This would result in a charge, if any, being imposed at the 
lowest possible rate.
    3. Applicants request relief to permit each Fund to waive or reduce 
the CDSC in certain circumstances. Any waiver or reduction will comply 
with the conditions in paragraphs (a) through (d) of rule 22d-1.
    4. Each Fund may adopt a policy whereby it would provide a pro rata 
credit for any CDSC paid in connection with a redemption of CDSC Shares 
followed by a reinvestment effected within 30 days, or such other 
period as the board of trustees or directors may determine, in shares 
of the same class of the same or a different Fund, of all or part of 
the redemption proceeds. Such credit would be distributed by the 
principal underwriter of the Fund from its house account.

Applicants' Legal Analysis

    1. Applicants request an exemption under section 6(c) of the Act 
from sections 18(f)(1), 18(g), and 18(i) of the Act, to issue multiple 
classes of shares representing interests in the same portfolio of 
securities. Applicants believe that the proposed allocation of expenses 
and voting rights is equitable and would not discriminate against any 
group of shareholders. The proposal does not involve borrowings and 
does not affect the Fund's existing assets or reserves.
    2. Applicants also request an exemption under section 6(c) from 
sections 2(a)(32), 2(a)(35), 22(c), and 22(d) of the Act, and rule 22c-
1 thereunder, to assess and, under certain circumstances, waive or 
reduce a CDSC with respect to certain redemptions of shares. Applicants 
believe that the imposition of the CDSC on a class of shares is fair 
and in the best interests of their shareholders.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. Each class of shares of a Fund will represent interests in the 
same portfolio of investments, and be identical in all respects, except 
as set forth below. The only differences between the classes of shares 
of a Fund will relate solely to one or more of the following: (a) 
Expenses assessed to a class pursuant to a 12b-1 plan and/or 
shareholder services plan, if any, with respect to such class; (b) the 
impact of Class Expenses, which are limited to any or all of the 
following (i) transfer agent fees identified as being attributable to a 
specific class of shares, (ii) stationery, printing, postage, and 
delivery expenses related to preparing and distributing materials such 
as shareholder reports, prospectuses, and proxy statements to current 
shareholder of a specific class, (iii) Blue Sky registration fees 
incurred by a class of shares, (iv) SEC registration fees incurred by a 
class of shares, (v) expenses of administrative personnel and services 
as required to support the shareholders of a specific class, (vi) 
trustees'/directors' fees or expenses incurred as a result of issues 
relating to one class of shares, (vii) account expenses relating solely 
to one class of shares, (viii) auditors fees, litigation expenses, and 
legal fees and expenses relating to a class of shares, (ix) expenses 
incurred in connection with shareholders meetings as a result of issues 
relating to one class of shares, and (x) any other incremental expenses 
subsequently identified which should be properly allocated to a 
particular class of shares and which, as such are approved by the SEC 
pursuant to an amended order; (c) the fact that the classes will vote 
separately with respect to matters relating to the Fund's 12b-1 plan or 
shareholder services plan, if any, except as provided in condition 16 
below; (d) the different exchange privileges of the classes of shares, 
if any; (e) certain classes will have a conversion feature; and (f) the 
designation of each class of shares of a Fund.
    2. The board of trustees or the board of directors of the 
applicable Fund, including a majority of the trustees or directors who 
are not interested persons of the Fund (``independent trustees or 
directors''), will have approved the multiple class system with respect 
to a particular Fund prior to the implementation of the system by that 
Fund. The minutes of the meetings of the board of the Fund regarding 
the deliberations of the trustees or directors with respect to the 
approvals necessary to implement the multiple class system will reflect 
in detail the reasons for the determination by the board that the 
proposed multiple class system is in the best interests of each Fund 
and its shareholders.
    3. The initial determination of the Class Expenses that will be 
allocated to a particular class and any subsequent changes thereto will 
be reviewed and approved by a vote of the board of the applicable Fund, 
including a majority of the independent trustees or directors. Any 
person authorized to direct the allocation and disposition of monies 
paid or payable by a Fund to meet Class Expenses shall provide to the 
applicable board, and the trustees or directors shall review, at least 
quarterly, a written report of the amounts so expended and the purpose 
for which such expenditures were made.
    4. If any class will be subject to a share services plan, the 
plan(s) will be adopted and operated in accordance with the procedures 
set forth in rule 12b-1 (b) through (f) as if the expenditures made 
thereunder were subject to rule 12b-1, except that shareholders need 
not enjoy the voting rights specified in rule 12b-1.
    5. On an ongoing basis, the board of each Fund, pursuant to its 
fiduciary responsibilities under the Act and otherwise, will monitor 
each Fund, as applicable, for the existence of any material conflicts 
among the interests of the classes of its shares, if there is more than 
one class. The board, including a majority of the independent trustees 
or directors, shall take such action as is reasonably necessary to 
eliminate any such conflicts that may develop. Each Fund's principal 
underwriter and investment adviser will be responsible for reporting 
any potential or existing conflicts to the appropriate board. If such a 
conflict arises, the Fund's principal underwriter and investment 
adviser, at their own expense, will take such actions as are necessary 
to remedy such conflict, including establishing a new registered 
management investment company, if necessary.
    6. The principal underwriter of each Fund implementing a multiple 
class system will adopt compliance standards with respect to when each 
class of shares may be appropriately sold to particular investors. 
Applicants will require all persons selling shares of the Funds to 
agree to conform to such standards.
    7. The board of each Fund will receive quarterly and annual 
statements concerning distribution and shareholder servicing 
expenditures complying with paragraph (B)(3)(ii) of rule 12b-1, as it 
may be amended from time to time. In the statements, only expenditures 
properly attributable to the sale or servicing of a particular class of 
shares will be used to justify any fee for distribution or maintenance 
services charged to that class. Expenditures not related to the sale or 
servicing of a particular class will not be presented to the board to 
justify any fee attributable to that class. The statements, including 
the allocations upon which they are based, will be subject to the 
review and approval of the independent trustees or directors in the 
exercise of their fiduciary duties.
    8. Dividends and other distributions paid by a Fund with respect to 
each class of its shares, to the extent any dividends and other 
distributions are paid, will be declared and paid on the same day and 
at the same time, and will be determined in the same manner and will be 
in the same amount, except that the amount of the dividends and other 
distributions declared and paid by a particular class may be different 
from that of another class because payments made by a class under a 
12b-1 plan and Class Expenses will be borne exclusively by that class.
    9. The methodology and procedures for calculating the net asset 
value and dividends and other distributions of the classes and the 
proper allocation of expenses between the classes have been reviewed by 
an expert (the ``Expert'') who has rendered a report to the applicants, 
which has been provided to the staff of the SEC, stating that such 
methodology and procedures are adequate to ensure that such 
calculations and allocations would be made in an appropriate manner. On 
an ongoing basis, the Expert, or an appropriate substitute Expert, will 
monitor the manner in which the calculations and allocations are being 
made and, based upon such review, will render at least annually a 
report to the Funds that the calculations and allocations are being 
made properly. The reports of the Expert will be filed as part of the 
periodic reports filed with the SEC pursuant to sections 30(a) and 
30(b)(1) of the Act. The work papers of the Expert with respect to such 
reports, following request by the Funds (which the Funds agree to 
provide), will be available for inspection by the SEC staff upon 
written request to the Funds for such work papers by a senior member of 
the Division of Investment Management, limited to the Director, an 
Associate Director, the Chief Accountant, the Chief Financial Analyst, 
an Assistant Director and any Regional Administrators or Associate and 
Assistant Administrators. The initial report of the Independent Expert 
is a ``Special Purpose'' report on ``policies and procedures placed in 
operation'' in accordance with Statement on Auditing Standards 
(``SAS'') No. 70, ``Reports on the Processing of Transactions by 
Service Organizations,'' of the American Institute of Certified Public 
Accountants (``AICPA''). Ongoing reports will be ``policies and 
procedures placed in operation and tests of operating effectiveness'' 
prepared in accordance with SAS No. 70 of AICPA, as it may be amended 
from time to time, or in similar auditing standards as may be adopted 
by the AICPA.
    10. Applicants have adequate facilities in place to ensure 
implementation of the methodology and procedures for calculating the 
net asset value and dividends and other distributions of the classes of 
shares and the proper allocation of expenses among the classes of 
shares, and this representation has been concurred with by the Expert 
in the initial report referred to in condition (9) above and will be 
concurred with by the Expert, or an appropriate substitute Expert, on 
an ongoing basis at least annually in the ongoing reports referred to 
in condition (9) above. Applicants will take immediate corrective 
action if the Expert, or appropriate substitute Expert, does not so 
concur in the ongoing reports.
    11. The prospectuses of each class of shares will contain a 
statement to the effect that a salesperson and any other person 
entitled to receive compensation for selling or servicing shares may 
receive different compensation with respect to one particular class of 
shares over another in the Funds.
    12. The conditions pursuant to which the exemptive order is granted 
and the duties and responsibilities of the board of each Fund with 
respect to the multiple class system will be set forth in guidelines 
which will be furnished to the trustees or directors.
    13. Each Fund will disclose the respective expenses, performance 
data, distribution arrangements, services, fees, sales loads, deferred 
sales loads, and exchange privileges applicable to each class of its 
shares in every prospectus, regardless of whether all classes of its 
shares are offered pursuant to each prospectus. Each Fund will disclose 
the respective expenses and performance data applicable to all classes 
of its shares in every shareholder report. The shareholder reports will 
contain, in the statement of assets and liabilities and statement of 
operations, information related to the Fund as a whole generally and 
not on a per class basis. Each Fund's per share data, however, will be 
prepared on a per class basis with respect to all classes of shares of 
such Fund. To the extent that any advertisement or sales literature 
describes the expenses or performance data applicable to any class of 
its shares, each Fund will also disclose the respective expenses and/or 
performance data applicable to all classes of that Fund's shares. The 
information provided by an applicant for publication in any newspaper 
or similar listing of a Fund's net asset value or public offering price 
will present each class of that Fund's shares separately.
    14. Applicants acknowledge that the grant of the exemptive order 
requested by this application will not imply SEC approval of, 
authorization of, or acquiescence in any particular level of payments 
that any Fund may make pursuant to its rule 12b-1 plan or shareholder 
services plan in reliance on the exemptive order.
    15. Any class of shares with a conversion feature will convert into 
another class of shares on the basis of the relative net asset values 
of the two classes, without the imposition of any sales load, fee or 
other charge. After conversion, the converted shares will be subject to 
an asset-based sales charge or service fee (as those terms are defined 
in Article III, Section 26 of the NASD's Rule of Fair Practice), if 
any, that in the aggregate are lower than the asset-based sales charge 
and service fee to which they were subject prior to the conversion.
    16. If a Fund implements any amendment to a 12b-1 plan (or, if 
presented to shareholders, adopts or implements any amendment of a non-
rule 12b-1 shareholder services plan) that would increase materially 
the amount that may be borne by the Target Class Shares under the plan, 
then existing Purchase Class Shares will stop converting into the 
Target Class Shares unless the holders of a majority of Purchase Class 
Shares, voting separately as a class, approve the amendment. The 
directors shall take such action as is necessary to ensure that 
existing Purchase Class Shares are exchanged or converted into a new 
class of shares (``New Target Class Shares''), identical in all 
material respects of Target Class Shares as they existed prior to 
implementation of the amendment, no later than the date such shares 
previously were schedules to convert into Target Class Shares. If 
deemed advisable by the directors to implement the foregoing, such 
action may include the exchange of all existing Purchase Class Shares 
for a new class (``New Purchase Class Shares'') of shares, identical to 
existing Purchase Class Shares in all material respects except that the 
New Purchase Class Shares will convert into the New Target Class 
Shares. The New Target Class Shares and New Purchase Class Shares may 
be formed without further exemptive relief. Exchanges or conversions 
described in this condition shall be effected in a manner that the 
directors reasonably believe will not be subject to federal taxation. 
Any additional cost associated with the creation, exchange, or 
conversion of the New Target Class Shares or New Purchase Class Shares 
will be borne solely by the adviser or underwriter. Purchase Class 
Shares sold after the implementation of this proposed arrangement may 
convert into Target Class Shares subject to the highest maximum 
payment, provided that the material features of the Target Class Shares 
plan and the relationship of such plan to the Purchase Class Shares are 
disclosed in an effective registration statement.
    17. The applicants will comply with the provisions of proposed rule 
6c-10 under the Act, Investment Company Act Release No. 16619 (Nov. 2, 
1988), as such rule is currently proposed and as it may be reproposed, 
adopted or amended.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-22211 Filed 9-8-94; 8:45 am]
BILLING CODE 8010-01-M