[Federal Register Volume 60, Number 228 (Tuesday, November 28, 1995)]
[Notices]
[Pages 58705-58707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28930]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21524; 812-9730]


State Street Research Tax-Exempt Fund, et al.; Notice of 
Application

November 20, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'').

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

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APPLICANTS: State Street Research Tax-Exempt Fund (the ``Acquiring 
Fund''), State Street Research California Tax-Free Fund (the 
``California Fund''), State Street Research Florida Tax-Free Fund (the 
``Florida Fund''), State Street Research Pennsylvania Tax-Free Fund 
(the ``Pennsylvania Fund'') (collectively, the California, Florida and 
Pennsylvania Funds are the ``Acquired Funds'' and the Acquiring and 
Acquired Funds are the ``Funds''), and State Street Research & 
Management Company (``State Street'').

RELEVANT ACT SECTIONS: Order requested under section 17(b) of the Act 
to exempt applicants from the provisions of section 17(a). Applicants 
further request an order pursuant to rule 17d-1 under the Act to permit 
certain joint transactions otherwise prohibited by section 17(d) and 
rule 17d-1.

SUMMARY OF APPLICATION: Applicants seek an order to permit applicants 
to effectuate a reorganization between the Acquiring and Acquired 
Funds.

FILING DATES: The application was filed on August 21, 1995, and amended 
on November 1, 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 December 15, 
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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicants, One Financial Center, Boston, Massachusetts 02111.

FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 942-0572, or C. David 
Messman, 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. The Funds are series of State Street Research Tax-Exempt Trust 
(the 

[[Page 58706]]
``Trust''), a Massachusetts business trust registered under the Act as 
a diversified, open-end management investment company. Each Fund offers 
four classes of shares. The classes of shares of the Acquiring Fund 
have identical arrangements with respect to the imposition of initial 
and contingent deferred sales charges and distribution and service fees 
as the comparable classes of shares of each of the Acquired Funds. As 
of July 31, 1995, Metropolitan Life Insurance Company (``Met Life'') 
held with power to vote 10.8%, 43.9%, and 29.4% of the outstanding 
shares of the California, Florida, and Pennsylvania Funds, 
respectively.
    2. State Street serves as each Fund's investment adviser and State 
Street Research Investment Services, Inc. (the ``Distributor'') serves 
as the distributor for each of the Funds. State Street and the 
Distributor are both indirect wholly-owned subsidiaries of Met Life.
    3. The investment objective of the Acquiring Fund is to seek a high 
level of interest income exempt from federal income taxes. The 
Acquiring Fund invests primarily in investment grade tax-exempt debt 
obligations. The investment objective of the California, Florida, and 
Pennsylvania Funds is to seek a high level of interest income exempt 
from federal income taxes and income or property taxes of their 
eponymous states. The California, Florida, and Pennsylvania Funds 
invest primarily in investment grade securities issued by or on behalf 
of their eponymous states.
    4. The board of trustees of the Trust has approved agreements and 
plans of reorganization and liquidation providing for the transfer of 
all of the assets of each of the Acquired Funds to the Acquiring Funds 
in exchange for Acquiring Fund shares. The reorganization is subject to 
the assumption by the Acquiring Fund of all of the liabilities of each 
of the Acquired Funds.
    5. As a result of the reorganization, shareholders of each Acquired 
Fund will receive, in exchange for his or her shares of an Acquired 
Fund, shares of the corresponding class of the Acquiring Fund with an 
aggregate value equal to the value of such shareholder's shares of the 
Acquired Fund, calculated as of the close of business on the business 
day immediately prior to the closing for each Fund. Each Acquired Fund 
will liquidate and distribute shares of the Acquiring Fund to their 
respective shareholders at or as soon as practicable after the relevant 
closing.
    6. At or prior to the relevant closing, each of the Acquired Funds 
shall declare a dividend or dividends which shall have the effect of 
distributing to the shareholders of each Acquired Fund all of the 
respective Fund's investment company taxable income for all taxable 
years ending on or prior to the respective closing (computed without 
regard to any deduction for dividends paid) and all of its net capital 
gain realized in all taxable years ending on or prior to the respective 
closing (after reduction for any capital loss carry-forward).
    7. The board of trustees of the Acquired Funds, including the 
trustees who are not ``interested persons'' as such term is defined by 
the Act, have concluded that the reorganizations would be in the best 
interest of the Acquired and Acquiring Funds and that the interests of 
the existing shareholders of the respective Funds will not be diluted 
as a consequence thereof. In making this determination, the trustees 
considered a number of factors, including the smaller size and higher 
expenses of each of the Acquired Funds compared to the Acquiring Fund 
and, in each case, the efficiencies resulting from combining the 
operations of two separate funds with the same investment manager, the 
same multiple class structure, the same sales load structure, and 
similar investment ohjectives and policies.
    8. The proposed reorganization is subject to approval by the 
holders of a majority (as defined in the Act) of the outstanding shares 
of each Acquired Fund. Approval will be solicited pursuant to a 
prospectus/proxy statement, which was sent to shareholders of each 
Acquired Fund on or about October 20, 1995. Each prospectus/proxy 
statement includes pertinent financial information and projected 
expense ratios of the combined funds based primarily upon the advisory 
agreement as it applies to the Acquiring Fund.
    9. The expenses of each reorganization, whether or not each 
reorganization is consummated, will be apportioned between the 
Distributor and the Funds. Expenses will be allocated to the Acquiring 
and the applicable Acquired Fund in an appropriate manner on the basis 
of identifiable direct costs or otherwise on the basis of relative net 
assets. The Distributor will assume the liability for and pay one-half 
of each Fund's expenses incurred in connection with each 
reorganization.
    10. The consummation of each reorganization is subject to certain 
conditions, including that the parties shall have received from the SEC 
the order requested herein, and the receipt of an opinion of tax 
counsel to the effect that upon consummation of each reorganization and 
the transfer of substantially all the assets of each Acquired Fund, no 
gain or loss will be recognized by the Acquired or Acquiring Funds or 
their shareholders as a result of the reorganization. Applicants will 
not make any material changes adversely affecting the rights of 
shareholders that affect the application without the prior approval of 
the SEC staff.

Applicants' Legal Analysis

    1. Section 17(a) of the Act provides, in pertinent part, that it is 
unlawful for any affiliated person of a registered investment company, 
or any affiliated person of such an affiliated person, acting as 
principal, knowingly to sell or purchase securities to or from such 
registered company.
    2. Section 2(a)(3) of the Act defines the term ``affiliated 
person'' of another person to include, in pertinent part, (a) any 
person directly or indirectly owning, controlling, or holding with 
power to vote 5% or more of the outstanding voting securities of such 
other person, (b) any person directly or indirectly controlling, 
controlled by, or under common control with such other person, and (c) 
if such other person is an investment company, any investment adviser 
thereof.
    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. Met Life 
indirectly owns 100% of the outstanding voting shares of State Street, 
the adviser to each Fund. Met Life also owns with power to vote more 
than 5% of the outstanding shares of each of the Acquiring Funds. 
Accordingly, the Acquiring Fund may be deemed an affiliated person of 
an affiliated person of each of the Acquired Funds, and vice versa, for 
reasons not based solely on their common adviser.
    4. Section 17(b) of the Act provides that the SEC may exempt a 
transaction from the prohibitions 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.

[[Page 58707]]

    5. Applicants believe that the reorganizations are consistent with 
the policies and purposes of the Act. In addition, applicants state 
that the exchange of assets will be based on each Fund's relative net 
asset values. Further, applicants state that the trustees, including 
the non-interested trustees, have concluded that any potential benefits 
to Met Life, State Street, the Distributor, and their affiliates as a 
result of the reorganizations are on balance outweighed by the 
potential benefits to each Fund and its shareholders. Although income 
from the Acquiring Fund will be subject to taxation at the state level, 
whereas income from each Acquired Fund is exempt from taxation in the 
eponymous state, the trustees have determined that the benefits of the 
reorganization substantially offset the loss of this tax benefit to the 
shareholders of each Acquired Fund.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28930 Filed 11-27-95;8:45am]
BILLING CODE 8010-01-M