[Federal Register Volume 60, Number 111 (Friday, June 9, 1995)]
[Notices]
[Pages 30625-30627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14123]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-21110; 812-9552]
IMG Mutual Funds, Inc., et al.; Notice of Application
June 2, 1995.
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: IMG Mutual Funds, Inc. (the ``Company''); the IMG Equity
Trust (the ``Equity Trust''); The IMG Income Trust (the ``Income
Trust,'' and together [[Page 30626]] with the Equity Trust, the
``Trusts''); Investors Management Group, Ltd. (the ``Adviser''); and
certain persons who may be deemed to be affiliated persons, or
affiliated persons of affiliated persons, of the Company (the
``Affiliated Persons'').
RELEVANT ACT SECTIONS: Order requested under section 17(b) for an
exemption from the provisions of section 17(a).
SUMMARY OF APPLICATION: Applicants seek relief to permit the exchange
of shares of the Company for portfolio securities of two private
investment trusts that are not registered under the Act. After the
exchanges, the Trusts will dissolve and distribute the shares of the
Company they receive pro rata to their participants.
FILING DATES: The application was filed on March 27, 1995 and amended
on May 8, 1995.
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 27, 1995,
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 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, 720 Liberty Building, 418 Sixth Avenue, Des Moines, IA
50309-2410.
FOR FURTHER INFORMATION CONTACT:
Marc Duffy, Senior Attorney, (202) 942-0565, or C. David Messman,
Branch Chief, (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 available for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Company is registered under the Act as an open-end
diversified management investment company consisting of two series, the
Stock Fund and the Bond Fund (together, the ``Funds''). The Company's
registration statement under the Securities Act of 1933 (the
``Securities Act'') has been declared effective but no offering of the
shares of the Funds has commenced. Each Fund will offer shares in three
classes in reliance on rule 18f-3 under the Act. The classes will
differ solely on the basis of minimum and routine investment
requirements, and distribution and shareholder servicing fees. Classes
of shares of the Funds will not be sold with any sales charge but will
pay varying rule 12b-1 distribution fees under certain circumstances.
The Company also may impose contingent deferred sales charges in the
future. The Funds may, from time to time, enlist the assistance of an
outside broker-dealer to market shares in the Funds. The Adviser will
act as investment adviser to the Funds. The Adviser is registered under
the Investment Advisers Act of 1940.
2. The Trusts were formed in 1991 as common law revocable grantor
trusts under the laws of the State of Iowa. The Trusts have not
registered under the Act in reliance on section 3(c)(1) of the Act, and
the interests therein have not been registered under the Securities Act
in reliance on section 4(2) of the Securities Act. Each participant in
the Trust (a ``Participant'') established a separate revocable grantor
trust under an individual Trust Agreement appointing Richard A.
Westcott (``Westcott''), David W. Miles (``Miles'') and James W.
Paulsen (``Paulsen'') to serve as Co-Trustees and authorizing the
commingling of Participant funds in a single account. Westcott, Miles,
and Paulsen are each directors and controlling persons of the Adviser,
and directors of the Company. The Adviser selects the investments for
the Trusts.
3. The Affiliated Persons consist of: (a) directors, principal
shareholders, and employees of the Adviser, (b) spouses of the
foregoing, (c) entities that are owned or controlled by one or more of
the foregoing, and (d) trustees and/or participants in the Trusts who
could be deemed to be affiliated persons, or affiliated persons of
affiliated persons, of the Company under section 2(a)(3) of the Act.
4. Applicants propose that, prior to offering shares of the Stock
Fund to the public, the Stock Fund will acquire portfolio securities of
the Equity Trust in exchange for shares of the Stock Fund equal in
value to the net asset value of the Equity Trust. The Equity Trust then
will dissolve and distribute the Stock Fund shares it receives to its
Participants pro rata, along with cash received from the sale of
portfolio securities, if any, of the Equity Trust not acquired by the
Company. A like exchange of shares of the Bond Fund for portfolio
securities of the Income Trust will take place, followed by the
distribution to Participants and dissolution of the Income Trust
(together, the ``Exchanges''). Participants will receive that class of
shares of the Stock Fund or the Bond Fund with the lowest expenses that
they would otherwise be qualified to purchase based on the value of
their Trust accounts. Following the Exchanges, Participants of the
Trusts will hold all of the shares of each Fund, except for shares
representing seed capital contributed to the Funds by the Adviser or
one of its affiliates pursuant to section 14(a) of the Act.
5. Currently, on an annual basis, the Equity Trust incurs
investment advisory fees of 1.25% and total expenses of 1.50%, and the
Income Trust incurs investment advisory fees of 0.75% and total
expenses of 1.00%. Following the Exchanges, the Stock Fund is expected
to incur investment advisory fees of 0.50% and total expenses, which
will vary among the different classes, of between 0.85% and 1.35%. The
Bond Fund is expected to incur investment advisory fees of 0.30% and
total expenses, which will vary among the different classes, of between
0.60% and 1.00%. Based on current valuations of the Trusts, the Adviser
does not anticipate that any Participant will pay more expenses
directly or indirectly for the Company shares received than what they
are currently bearing as Participants in the Trusts.
6. Applicants would like to covert the Trusts to registered
investment company form because the Trusts have proven to be more
popular than originally anticipated and because of continuing investor
interest in the Trusts. In contrast to the Trusts, which are not
registered under the Act in reliance on section 3(c)(1), the Funds will
not be subject to any limitation on the number of shareholders.
7. After the Exchanges, the Adviser intends for the foreseeable
future to manage the assets of the Funds in substantially the same
manner as it did for the Trusts, except as may be necessary or
desirable: (a) To qualify the Funds as regulated investment companies
under the Internal Revenue Code; (b) to comply with investment
restrictions adopted by the Funds in accordance with the requirements
of the Act or securities laws of states where shares in the Company
will be offered; or (c) in light of changed market conditions.
8. The Exchanges will be effected under agreements and plans of
exchange (the ``Plans'') to be approved by the Participants of the
Trusts, in accordance with the respective Trust Agreements and the laws
of the State of Iowa. A [[Page 30627]] registration statement under the
Securities Act on Form N-14 relating to the Exchanges has been filed on
behalf of the Company. Consent of the Participants of the Trusts for
approval of the Plans will be made by means of a prospectus/information
statement that forms part of the Form N-14 registration statement. The
prospectus/information statement will describe the nature of and
reasons for the Exchanges, the tax and other consequences to the
Participants, and other relevant matters, including comparisons of the
Funds and the Trusts in terms of their respective investment objectives
and policies, fee structures, management structures, and other aspects
of their operations, as well as the financial information required by
Form N-14.
9. The Exchanges will not cause taxable gain or loss to be
recognized by the Participants. As a result of the Exchanges, however,
the Funds may acquire securities that have anticipated in value or that
have depreciated in value from the date they were acquired. If
appreciated securities were sold after the Exchanges, the amount of the
gain would be taxable to future shareholders as well as Participants.
10. No brokerage commission, fee, or other remuneration will be
paid in connection with the Exchanges. Neither Participants nor the
Adviser or the Affiliated Persons will receive any financial benefit
from the Exchanges (except as described in paragraph 9 above), apart
from their pro rata interests in Company shares and other property
distributed by the Trusts upon dissolution.
11. The Exchanges will not be effected unless and until each of the
following conditions is satisfied: (a) The Company's Form N-1A and Form
N-14 registration statements have been declared effective; (b) the
Plans have been approved by the Participants of the Trusts; (c) the SEC
has issued an order relating to this application; and (d) the
Participants have received a favorable opinion of counsel regarding the
tax consequences of the Exchanges.
12. The Adviser will assume all costs of the Exchanges, including
the cost of transferring portfolio securities to the Company's
custodian and the issuance costs (except registration and filing fees)
of the Company's shares issued in the Exchanges, as well as the legal
fees and expenses relating to this application and obtaining the
opinion of counsel on certain tax matters.
13. A majority of the members of the Board of Directors of the
Company (the ``Board'') are not ``interested persons'' as that term is
defined in the Act. The Board has considered the desirability of the
Exchanges from the point of view of the Company and the Trusts, and a
majority of the Board, including a majority of the non-interested
members of the Board, have concluded that: (a) The Exchanges are in the
best interest of the respective Funds, the Trusts, and the
Participants; (b) the Exchanges will not dilute the respective
interests of the Participants of the Trusts when their interests are
converted into Company Shares; and (c) the terms of the Exchanges as
reflected in the Plans will be reasonable and fair, will not involve
overreaching, and will be consistent with the policies of the Funds and
the Trusts.
Applicants' Legal Conclusions
1. Applicants seek an exemption under section 17(b) of the Act from
the provisions of section 17(a) to the extent necessary to permit the
Funds to acquire the assets of the Trusts in exchange for shares of the
Funds. Section 17(a), in pertinent part, prohibits an affiliated person
of a registered investment company, or an affiliated person of such
person, from selling to or purchasing from such investment company any
security or other property.
2. Section 2(a)(3) of the Act defines an ``affiliated person'' of
another person to include any person directly or indirectly
controlling, controlled by, or under common control with, such other
person. The Trusts may be considered affiliated persons of the Company
because the Trusts and the Company may be deemed to be under the common
control of the Adviser. Similarly, the Affiliated Persons may require
relief from section 17(a) because they could be deemed to be affiliated
persons of the Trusts and therefore affiliated persons of affiliated
persons of the Company.
3. Section 17(b) authorizes the SEC to exempt any person from the
provisions of section 17(a) if evidence establishes that: (a) The terms
of the proposed transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned; (b) the proposed transaction is
consistent with the policy of the registered investment company; and
(c) the proposed transaction is consistent with the general purposes of
the Act. Applicants assert that each of these standards is met.
4. Given the similarity of investment objectives and policies of
the Funds and their corresponding Trusts, each Fund will be attempting
to assemble a portfolio of securities substantially similar to that
held by the corresponding Trust. The Funds will acquire portfolio
securities, for which market quotations are readily available, from the
Trusts at their independent ``current market price,'' as defined in
rule 17a-7 under the Act. Neither the participants nor the Adviser or
the Affiliated Persons will be in a position to influence the valuation
of the securities acquired by the Funds. Further, the Funds have the
opportunity to purchase the portfolio securities of the Trusts with
lower transaction costs than would have been possible purchasing such
securities in the open market.
5. The proposed Exchanges do not give rise to the abuses that
section 17(a) was designed to prevent. After the Exchanges,
Participants will hold substantially the same assets as shareholders of
the Funds as they had previously held as Participants. In this sense,
the Exchanges can be viewed as a change in the form in which assets are
held, rather than a disposition giving rise to section 17(a) concerns.
For the SEC by the Division of Investment Management, under
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-14123 Filed 6-8-95; 8:45 am]
BILLING CODE 8010-01-M