[Federal Register Volume 60, Number 238 (Tuesday, December 12, 1995)]
[Notices]
[Pages 63748-63749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30223]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21570; 812-9820]
EAI Select Managers Equity Fund, et al.; Notice of Application
December 6, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an Order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANTS: EAI Select Managers Equity Fund (``Fund''), Evaluation
Associates Capital Markets, Incorporated (``Manager''), EAI Partners,
L.P. (``EAI''), Evaluation Associates, Incorporated 401(K) Plan and
Trust (``EAI Plan''), Harding Service Corporation, et al. Profit
Sharing Plan and Trust (``Harding Plan''), and Stockwood VII, Inc. 401K
Plan (``Stockwood Plan'', and, together with the EAI Plan and the
Harding Plan, the ``Affiliated Plans'').
RELEVANT ACT SECTIONS: Order requested under section 17(b) of the Act
exempting applicants from section 17(a) of the Act and pursuant to
section 17(d) of the Act and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: The requested order would permit a collective
investment account sponsored by EAI to transfer its securities to the
Fund.
FILING DATES: The application was filed on October 16, 1995 and amended
on December 1, 1995. Applicants agree 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 December 28,
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 Fifth Street, N.W., Washington, D.C.
20549. Applicants: EAI, 200 Connecticut Avenue, Suite 700, Norwalk,
Connecticut 06854-1958; Harding Plan and Stockwood Plan, 300 South
Street, P.O. Box 1975, Morriston, New Jersey 07962-1975.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Buescher, Staff Attorney, at (202) 942-0573, or Alison E.
Baur, 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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Fund is an open-end management investment company organized
as a Massachusetts business trust. The Fund has filed a registration
statement under the Securities Act of 1933 which will become effective
prior to the consummation of the transactions described in this
application. The Manager is the investment adviser of the Fund and
presently owns all of the Fund's outstanding shares. EAI is the parent
of the Manager and is the sponsor of the EAI Plan, an in-house employee
benefit plan for employees of EAI, the Manager, and their affiliates.
2. The Harding Plan is an employee benefit plan for employees of
Harding Service Corporation (``Harding''). The Stockwood Plan is an
employee benefit plan for employees of Stockwood VII, Inc.
(``Stockwood''). Certain trustees of the Harding Plan and the Stockwood
Plan have a greater than five percent direct or indirect equity
interest in EAI. In addition, certain officers, employees and/or
affiliates of Harding and Stockwood have a greater than five percent
direct or indirect equity interest in EAI.
3. The Affiliated Plans and certain other participant-directed
employee benefit plans (collectively, the ``Plans'') currently invest
in The EAI Small Managers Equity Fund Trust, a collective investment
account (``Account''). EAI is the investment adviser of the Account.
The Account has not registered under the Act in reliance on the
exception from the definition of ``investment company'' under section
3(c)(1) of the Act. Section 3(c)(1) provides that an issuer whose
outstanding securities are beneficially owned by not more than one
hundred persons and which is not making and does not propose to make a
public offering of its securities is not an investment company. In The
PanAgora Group Trust (pub. avail. April 29, 1994), the staff stated
that, for purposes of section 3(c)(1), the staff would consider a
defined contribution plan participant who decides whether or how much
to invest in a private investment company to be a beneficial owner of
the company's securities. Participants in the Plans have discretion to
direct investment of their assets, and there are more than 100 such
participants. Therefore, the Account may no longer rely on the
exception in section 3(c)(1) unless the Plans' investment in the
Account is terminated by December 31, 1995.\1\
\1\ See Latham & Watkins (pub. avail. Dec. 28, 1994).
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4. EAI believes that the Fund is a suitable alternative investment
vehicle for the Plans. Applicants contemplate that the Account would
make an in-kind distribution of securities held in the Account's
portfolio to the Plans and that those Plans choosing to invest in the
Fund would purchase shares of the Fund by contributing the distributed
securities to the Fund in exchange for Fund shares. The Account would
remain available to employee benefit plans whose participants cannot
direct asset investment.
5. Upon its withdrawal from the Account, each Plan would receive
securities equal in value to its pro rata beneficial interest in the
Account. Each Plan purchasing shares of the Fund by contribution of the
securities distributed to it would receive shares of the Fund having a
net asset value equal to the value of the securities contributed.
Assets of the Plans used to purchase Fund shares would be valued at
``current market value'' as defined in rule 17a-7(b). The assets of the
Fund would be invested with the same objectives and in the same manner
as the assets of the Account are presently invested.
6. Each Plan choosing to purchase Fund shares by an in-kind
contribution of securities would do so only upon written direction of
the Plan fiduciaries. A party independent of EAI would provide such
direction for the Affiliated Plans. EAI and/or the Manager would
provide each Plan fiduciary with the Fund's current prospectus and a
written statement disclosing the fee structure under which the Manager
would be paid. Because the total expenses to be paid by the Fund will
be higher than those paid by the Account, a Plan purchasing shares of
the Fund would
[[Page 63749]]
incur greater total expenses, and this would be disclosed in a written
statement to the Funds.
7. Applicants represent that investments in the Fund by the Plans
would provide the plans with several benefits that are not presently
available with the Account. The Plan participants would enjoy the
protections of the Securities Act and the Act. In addition, investment
of Plan assets in the Fund allows the Plan's participants and sponsors
to monitor more easily the performance of their investments, as
information concerning the investment performance of the Fund generally
would be available in daily newspapers.
Applicants' Legal Analysis
1. Section 17(a) of the Act, in relevant part, prohibits an
affiliated person of a registered investment company, or an affiliated
person of such person, acting as principal, from selling to or
purchasing from such investment company any security or other property.
Section 2(a)(3) of the Act, in relevant part, defines ``affiliated
person'' to include: (a) Any person directly or indirectly owning,
controlling, or holding with the 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.
2. Although the SEC has taken a no-action position with respect to
certain collective investment fund conversions, that position is
conditioned on affiliated persons, or second-tier affiliates, of the
Fund having no beneficial interest in the proposed transactions.
Federated Investors (pub. avail. April 21, 1994). In the case of the
EAI Plan, the transaction involves assets belonging to an employee
benefit plan established for employees of EAI or other affiliated
persons that could be considered second-tier affiliates of the Fund. In
the case of the Harding Plan and Stockwood Plan, the transactions
involve assets belonging to employee benefit plans with trustees,
officers, employees, and/or affiliates of the sponsoring entities
having a greater than five percent ownership interest in EAI.
Applicants request an exemptive order to permit the Fund to accept in-
kind transfers of the assets of the Affiliated Plans.
3. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) The
terms of the proposed transaction are reasonable and fair and do not
involve overreaching; (b) the proposed transaction is consistent with
the policies of the registered investment company involved; and (c) the
proposed transaction is consistent with the general provisions of the
Act.
4. Applicants represent that the proposed transactions meet the
requirements of section 17(b). Because the value of the shares each
Plan receives in the Fund would be equal to fair market value of that
Plan's pro rata share of assets in the Account, applicants represent
that the transactions are fair to all involved and do not involve
overreaching on the part of any person. In addition, applicants
represent that because the investment policies and objectives of the
Fund are identical to those of the Account, the transactions would be
consistent with the portfolio objectives and policy of the Fund.
Because the transactions would bring the Plans' investments under the
supervision of the SEC, applicants represent that the transactions
would be consistent with the provisions of the Act.
5. Applicants represent that the proposed transactions would comply
with rule 17a-7 under the Act in most respects. Rule 17a-7 exempts
certain purchase and sale transactions otherwise prohibited by section
17(a) if, among other requirements, the transactions are affected at an
``independent market price'' and the investment company's board of
directors reviews the transactions for fairness. Applicants would
comply with rule 17a-7 to the extent possible, as stated in the
conditions to the requested order.
6. Section 17(d) prohibits an affiliated person of a registered
investment company, or an affiliated person of such person, acting as
principal, from effecting any transaction in which such investment
company is a joint, or joint and several, participant with such person
in contravention of SEC rules and regulations. Rule 17d-1 under the Act
provides that no joint transaction covered by the rule may be
consummated unless the SEC issues an order upon application. In passing
upon such applications, the SEC considers whether participation by a
registered investment company is consistent with the provisions,
policies, and purposes of the Act, and is not on a basis less
advantageous than that of other participants.
7. Because EAI, as sponsor of the EAI Plan, may have legal title to
the EAI Plan's assets invested in the Account, EAI may be viewed as
acting as a principal in the proposed transactions. Applicants
represent that, since the fiduciaries of each Plan would make an
independent determination as to whether to invest in the Fund and
assets used to purchase shares of the Fund would be valued at current
market prices, the terms received by the Affiliated Plans would not be
more or less advantageous than those available to other investors. In
addition, as discussed previously, applicants represent that the
transactions would be consistent with the Act and the rules thereunder.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. The purchase transactions will comply with the provisions of
rule 17a-7(b)-(f).
2. The purchase transactions will not occur unless and until the
Board of Trustees of the Fund (including a majority of Trustees that
are not interested persons of the Fund) and the Plans' fiduciaries (or,
in the case of the Affiliated Plans, parties independent of EAI) find
that the transactions are in the best interest of the Fund and the
Plans, respectively. In the case of the Fund, this determination and
the basis on which it is made will be recorded fully in the records of
the Fund.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30223 Filed 12-11-95; 8:45 am]
BILLING CODE 8010-01-M