[Federal Register Volume 59, Number 236 (Friday, December 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30263]


[[Page Unknown]]

[Federal Register: December 9, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20752; No. 812-8880]

 

Applications, Hearings, Determinations, etc.; First Investors 
Corp., et al.

December 2, 1994.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (the ``1940 Act'').

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APPLICANTS: First Investors Corporation (``FIC''); First Investors Life 
Insurance Company (``First Investors''); First Investors Cash 
Management Fund, Inc. (``Cash Management Fund''), First Investors 
Global Fund, Inc., First Investors Government Fund, Inc. (``Government 
Fund''), First Investors High Yield Fund, Inc. (``High Yield Fund''), 
First Investors Fund for Income, Inc. (``Fund for Income''), First 
Investors Insured Tax Exempt Fund, Inc., First Investors Multi-State 
Insured Tax Free Fund, First Investors New York Insured Tax Free Fund, 
Inc., First Investors Series Fund (``Series Fund''), First Investors 
Series Fund II, Inc., First Investors Tax-Exempt Money Market Fund, 
Inc. (``First Investors Money Market Fund''), and First Investors U.S. 
Government Plus Fund (``Government Plus Fund'') (collectively, 
``Funds''); First Investors Life Insurance Company Separate Account A 
(``Separate Account A''), and First Investors Life Insurance Company 
Separate Account C (``Separate Account C'') (collectively, ``Separate 
Accounts''); First Investors Single Payment and Periodic Payment Plans 
for the Accumulation of Shares of First Investors Global Fund, Inc., 
First Investors Single Payment and Periodic Payment Plans for 
Investment in First Investors Government Fund, Inc., First Investors 
Periodic Payment Plans for Investment in First Investors High Yield 
Fund, Inc. (``High Yield Plan''), First Investors Single Payment and 
Periodic Payment Plans for Investment in First Investors Fund for 
Income, Inc. (``Fund for Income Plan''), and First Investors Single 
Payment and Periodic Payment Plans for Investment in First Investors 
Insured Tax Exempt Fund, Inc. (collectively, ``Plans''); and any mutual 
funds, separate accounts, and contractual plans that may be 
subsequently organized or sponsored by First Investors or its 
affiliates.

RELEVANT 1940 ACT SECTIONS: An order of the Commission is requested 
under Section 11 of the 1940 Act.

SUMMARY OF APPLICATION: Applicants seek: (a) an order of the Commission 
approving the terms of certain offers of exchange involving certain 
mutual funds, variable annuity contracts and contractual plans; and (b) 
an amendment to a prior order issued by the Commission relating to 
certain offers of exchange involving certain contractual plans and 
mutual funds.

FILING DATE: The application was filed on March 10, 1994, and amended 
on September 26, 1994.

HEARING OR NOTIFICATION OF HEARING: If no hearing is ordered, the 
application will be granted. Any interested person may request a 
hearing on this application, or ask to be notified if a hearing is 
ordered. Any requests must be received by the Commission by 5:30 p.m. 
on December 28, 1994. Request a hearing in writing, giving the nature 
of your interest, the reason for the request and the issues you 
contest. Serve the applicant with the request, either personally or by 
mail, and also send it to the Secretary of the Commission, along with 
proof of service by affidavit, or for lawyers, by certificate. Request 
notification of the date of a hearing by writing to the Secretary of 
the Commission.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicants: Larry R. Lavoie, Esq., Secretary and General 
Counsel, First Investors Corporation, 95 Wall Street, New York, New 
York 10005.

FOR FURTHER INFORMATION CONTACT:
Yvonne M. Hunold, Senior Counsel, at (202) 942-0670, Office of 
Insurance Products (Division of Investment Management).

SUPPLEMENTARY INFORMATION: Following is a summary of the application; 
the complete application is available for a fee from the Commission's 
Public Reference Branch.

Applicant's Representations

    1. First Investor, a stock life insurance company, established 
Separate Account A and Separate Account C as separate accounts 
registered under the 1940 Act as unit investment trusts. FIC, a 
registered broker-dealer, is the depositor and sponsor of each Plan as 
well as the principal underwriter of each Fund, Separate Account and 
Plan. FIC and First Investors are wholly-owned subsidiaries of First 
Investors Consolidated Corporation (``FICON''), and affiliates of each 
other.
    2. The Funds are each open-end diversified management investment 
companies registered under the 1940 Act. Each Fund is managed by a 
registered investment adviser which is a wholly-owned subsidiary of 
FICON.
    Shares of the Cash Management Fund and First Investors Money Market 
Fund (collectively, ``Money Market Funds'') are sold without a sales 
charge. First Investors Insured Intermediate Tax Exempt Fund 
(``Intermediate Tax Exempt Fund''), a series of the Series Fund, is 
sold with a maximum front-end sales charge of 3.5% on investments under 
$100,000, with discounts on larger investments. Shares of each of the 
other Funds are sold with a maximum front-end sales charge of 6.25% on 
investments under $25,000, with discounts on larger investments. The 
Government Plus Fund is no longer offering its shares for sale.
    3. With the exception of the Money Market Funds and the Government 
Plus Fund, and subject to the conditions described below, cash 
distributions from one Fund may be invested in shares of another Fund 
at net asset value (``NAV''). Systematic withdrawal plan payments from 
a Fund, other than the Government Plus Fund, where a commensurate sales 
charge was paid, may be invested in another Fund at NAV. Shareholders 
of all of the Funds, except the Money Market Funds, Intermediate Tax 
Exempt Fund and Government Plus Fund, have the right to exchange their 
shares for shares of other Funds at relative NAV. Exchanges at relative 
NAV from the Money Market Fund and Intermediate Tax Exempt Fund to 
other Funds may only be made if the shares being exchanged were 
acquired through an exchange from any of the Funds with an equivalent 
sales charge; otherwise, a sales charge differential is imposed on any 
exchanges into the other Funds. Shareholders of the Government Plus 
Fund currently have no exchange privilege with any other Fund.
    4. The Separate Accounts are used to fund variable annuity 
contracts (``Contracts'') issued by First Investors. Separate Account A 
invests in shares of First Investors Special Bond Fund, Inc., and 
Separate Account C invests in shares of First Investors Life Series 
Fund (currently consisting of nine separate series). First Investors 
Special Bond Fund and Life Series Fund are each a registered 
diversified open-end management investment company under the 1940 Act.
    Units of the Separate Accounts are sold with a maximum front-end 
sales charge of 7% for an investment of less than $25,000, with 
discounts for larger investments. Investments must be annuitized or 
withdrawn by a Contract Owner no later than the first day of the 
calendar month following the Contract Owner's 85th birthday (``Maturity 
Date''). Separate Account A Contracts may be exchanged at relative NAV 
for Separate Account C Contracts, in accordance with Rule 11a-2 under 
the 1940 Act.
    5. The Plans are registered unit investment trusts under the 1940 
Act and invest in shares of the corresponding underlying Fund. An 
investor (``Planholder'') may purchase a Plan either by means of a 
single payment (``Single Payment Plan'') or periodic payments 
(``Periodic Payment Plan''). The maximum sales charge as a percentage 
of the offering price is 6.25% on a Single Payment Plan investment of 
less than $25,000, and 6.15% on a Periodic Payment Plan, with discounts 
for larger Plans. On a purchase of a Periodic Payment Plan, a portion 
of the total sales charge is deducted from each payment, with most of 
the charges allocated to earlier payments.
    6. The Fund for Income and the High Yield Fund Plans were 
authorized temporarily to substitute the Government Fund as the 
underlying investment of each of these two Plans due to the 
unavailability for sale of the underlying high yield bond funds. Rel. 
No. IC-17987 (Feb. 5, 1991) (``Exemptive Order''). As of December 20, 
1993, these two Plans resubstituted the high yield funds as their 
underlying investments with respect to new Plan payments, in accordance 
with the terms of the Exemptive Order. Planholders of the Fund for 
Income and High Yield Plans have the right to exchange at relative NAV 
into any other First Investors Single Payment or Periodic Payment Plan 
of the same denomination, subject to the same sales charge on 
additional payments and the same rights and privileges under the new 
Plan as under the current Plan. There currently are no other privileges 
to exchange at NAV from Plan to Plan, or from Fund to Fund.
    7. Applicants propose to: (a) Offer investors four types of 
exchange privileges, at relative NAV: (1) Fund-to-Separate Account; (2) 
Separate Account-to-Fund; (3) Plan-to-Plan; and (4) Fund-to-Single 
Payment Plan; and (b) eliminate one of the special termination/exchange 
privileges that were previously created for the Fund for Income Plan 
and the High Yield Plan.

a. Exchange Offers

    (1) Fund-to-Separate Account. Fund investors may move investments 
at relative NAV to a variable annuity sponsored by First Investors 
without a sales charge. Shareholders remain subject to all of the 
rights and obligations of Contract holders, including insurance-related 
fees.
    (2) Separate Account-to-Fund: Investors will have an alternative to 
annuitization without an additional sales change. Front-end sales 
charges will be waived on fund shares purchased with the proceeds of a 
Contract. Back-end (surrender) sales charges will not be imposed on 
liquidation of a Contract. The exchange privilege will be available 
only during the one-year period preceding the Maturity Date of a 
Contract. Applicants reserve the right to extend the offer throughout 
the term of the Contact.
    (3) Plan-to-Plan: Planholders may exchange directly into any other 
Single or Periodic Payment Plan of the same type and denomination, at 
relative NAV, without a sales charge. The same sales charges paid on 
additional payments and the same rights and privileges that apply under 
the current Plan will apply under the new Plan. This privilege is now 
available only to income Planholders and High Yield Planholders.
    (4) Fund-to-Single Payment Plan: Fund shareholders may use 
redemption proceeds of a Fund account to purchase a Single Payment Plan 
in the same way as the Fund shareholder can now exchange into other 
Funds. Proceeds of the Fund redemption are to be transferred directly 
to the sponsor for the purchase of Plan units.
    In connection with the four proposed exchange privileges, 
Applicants reserve the right to: (a) Require an investors to hold 
investments for a period of time before taking advantage of the 
proposed exchange offers; (b) makes the exchange privileges unavailable 
for exchanges among Funds, Separate Accounts and Plans which have 
different sales charges structures; and (c) impose reasonable 
redemption and/or administrative fees to pay for the costs of 
processing exchanges. Applicants also would limit the right of Cash 
Management Fund and Money Market Fund shareholders to exchange into 
Separate Accounts or Plans to those situations in which they could 
exchange at NAV into other Funds. Applicants do not intend to impose 
any holding period requirement. Applicants do not intend to impose any 
redemption or administrative fees on the proposed exchanges, other than 
the nominal redemption fees that are currently imposed on liquidation 
of Plans. A $5.00 exchange fee is charged for each exchange from one 
Fund into another Fund. This fee is borne by the Fund into which the 
exchange is being made and could add to that Fund's expenses. 
Additionally, an exchange of Fund shares for shares of another Fund 
generally will have similar consequences to that of a redemption of a 
Fund's shares and, this, is a taxable event.
    Applicants reserve the right to refrain from commencing, or to 
terminate at any time, any of these exchange offers, subject to certain 
conditions set forth below. Each exchange offer will be contingent on 
the acquired product being legally available at relative NAV, all 
necessary state and federal approvals being obtained, and satisfaction 
of the product's minimum investment requirements.

b. Amended Order

    Applicants also request that the Commission amend its Exemptive 
Order. The Exemptive Order, in relevant part, gave shareholders of the 
Fund For Income and High Yield Plans five alternatives, one of which 
allowed termination of the relevant Plan with direct purchases of 
shares of another Fund under a special discounted sales change 
structure (``Termination Option''). Applicants propose to eliminate the 
Termination Option because: (1) It is unduly burdensome for Applicants 
to keep track of and apply the special sales charge and maintain and 
administer special records and procedures to ensure that Planholders 
electing to exercise this right receive the special discounted sales 
charge; and (2) it is no longer necessary or appropriate because Plan 
shareholders affected by the unavailability of the underlying two Funds 
have had ample opportunity to take action within the more than two 
years since the Exemptive Order authorized the five options, and the 
circumstances which necessitated the privilege no longer exist because 
the Income Fund and High Yield Fund have again become available for 
purchase by the Plans.

Applicant's Legal Analysis

    1. Section 11(a) of the 1940 Act makes it unlawful, in relevant 
part, for a registered open-end investment company or any of its 
principal underwriter:

    To make or cause to be made an offer to the holder of a security 
of such company or of any other open-end investment company to 
exchange his security for a security in the same or another such 
company on any basis other than the relative net asset values of the 
respective securities to be exchanged, unless the terms of the offer 
have first been submitted to and approved by the Commission or are 
in accordance with such rules and regulations as the Commission may 
have prescribed in respect of such offers which are in effect at the 
time such offer is made.

    2. Section 11(c) of the 1940 Act provides that, irrespective of the 
basis of exchange, subsection (a) shall be applicable:

    (1) To any offer of exchange of any security of a registered 
open-end investment company for a security of a registered unit 
investment trust * * * and (2) any type of offer of exchange of the 
securities of registered unit investment trusts * * * for the 
securities of any other investment company.

    3. Applicants' state that, because the proposed offers of exchange 
will be based on the relative NAV of the units or shares being 
exchanged, there is no possibility of the abuse contemplated by Section 
11(a) (i.e., offer of exchange made solely for the purpose of assessing 
additional selling charges). Nevertheless, Section 11(c) makes Section 
11(a) applicable because each of the proposed exchanges involve a unit 
investment trust; the basis of the exchange is irrelevant.
    4. Applicants believe that exemptive relief is necessary, 
appropriate and fully consistent with the purpose of Section 11(a). The 
proposed exchanges will be offered exclusively at relative NAV and no 
deferred sales charge will be imposed on liquidation of the investment 
in the new Fund, Plan or Separate Account being acquired in the 
exchange. Further, the offers of exchange provide substantial benefits 
to Contract Owners, Plan Shareholders and Fund Shareholders by 
providing new investment options and attractive ways to exchange 
existing securities for other securities without a sales charge.
    5. Applicants will describe for investors the various exchanges 
that are possible and may promote the ability to effect such exchanges 
as an advantage of investing in Applicants' family of funds and 
variable insurance products. However, no sales commission or other 
remuneration will be paid to any First Investors' sales representative 
as compensation for any proposed exchange.
    6. Although the exchanges will be offered at relative NAV, 
Applicants reserve the rights to impose reasonable redemption and 
administrative fees to compensate for the costs incurred in processing 
redemptions, as expressly permitted by Rules 11a-3 and 11a-3 under the 
1940 Act. As conditions to this relief, Applicants represent that:
    (a) No redemption or administrative fee will be imposed in 
connection with the proposed exchanges unless the fee would be 
permissible under Rules 11a-2 and 11a-3 for exchanges authorized by 
these Rules.
    (b) At the commencement of each exchange offer, and at all times 
thereafter, the prospectus or the statement of additional information, 
as appropriate, of the offering investment company will disclose:
    (i) The amount of any administrative or redemption fee, if any, 
imposed in connection with the exchange transaction;
    (ii) That the exchange offer is subject to termination and its 
terms are subject to change; and
    (iii) That exchanges may constitute taxable events.
    (c) Whenever an exchange offer is to be terminated or its terms are 
to be amended materially, any holder of a security subject to that 
offer shall be given prominent notice of the impending termination or 
amendment at least 60 days prior to the date of termination or the 
effective date of the amendment, provided that:
    (i) No such notice need be given if the only material effect of an 
amendment is to reduce or eliminate fees or sales charges payable at 
the time of an exchange, and
    (ii) No notice need be given if, under extraordinary circumstances, 
either--
    (A) There is either a suspension of the redemption of the exchanged 
security under Section 22(e) of the 1940 Act and the rules and 
regulations thereunder, or
    (B) The offering investment company temporarily delays or ceases 
the sale of the security to be acquired because it is unable to invest 
amounts effectively in accordance with applicable investment 
objectives, policies and restrictions.
    Other than in the circumstances set forth in (c)(i) and (c)(ii), 
above, Applicants would dispense with the 60-day notice requirement 
only upon obtaining further relief from the Commission authorizing them 
to do so.

Applicants' Legal Conclusion

    The proposed offers of exchange are consistent with the intent and 
purpose of Section 11 and none of the abuses for which Section 11 of 
the 1940 Act was enacted to prevent are present. The proposed exchanges 
may benefit Contract owners, Plan shareholders and Fund shareholders. 
The proposed offers of exchange as well as the proposed amendment of 
the Commission Order, are consistent with the protection of investors 
and with the purposes fairly intended by the policy and provisions of 
the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30263 Filed 12-8-94; 8:45 am]
BILLING CODE 8010-01-M