[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