[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Notices]
[Pages 30907-30909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14692]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22694; 812-10584]


State Street Research Financial Trust, et al.; Notice of 
Application

May 30, 1997.
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 Financial Trust (the ``Trust''), 
State Street Research Portfolios, Inc. (the ``Company''), State Street 
Research & Management Company (``SSRM''), State Street Research 
Investment Services, Inc. (``SSRIS''), and GFM International Investors 
Limited (``GFM'').

RELEVANT ACT SECTIONS: Order requested under section 17(b) to exempt 
applicants from the provisions of section 17(a).

SUMMARY OF APPLICATION: Applicants seek an order to permit a 
reorganization between a series of the Trust and a series of the 
Company.

FILING DATES: The application was filed on March 25, 1997. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is incorporated herein.

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 19, 1997, 
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: the Trust, SSRM, and SSRIS, One Financial Center, Boston, 
Massachusetts 02111; the Company, One Madison Avenue, New York, New 
York 10010; and GFM, 5 Upper Street Martins Lane, London WC2H 9EA, 
England.

FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Senior Counsel, at (202) 942-0572, or Mercer E. 
Bullard, Branch Chief, at (202) 942-0564

[[Page 30908]]

(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 Trust is a Massachusetts business trust registered under the 
Act as an open-end management investment company. The Trust consists of 
four series, including the State Street Research Government Income Fund 
(the ``Acquiring Fund''). The Company, which was originally organized 
under the name MetLife Portfolios, Inc., is a Maryland corporation 
registered under the Act as an open-end management investment company. 
The Company consists of two series, including the State Street Research 
International Fixed Income Fund (the ``Acquired Fund'').
    2. SSRM serves as the Acquiring Fund's and, as of March 1, 1997, 
the Acquired Fund's investment adviser. SSRIS serves as the distributor 
of the Acquired Fund and served as investment adviser to the Acquired 
Fund until March 1, 1997. GFM serves as the subadviser for the Acquired 
Fund. SSRM, SSRIS, and GFM are registered as investment advisers under 
the Investment Advisers Act of 1940 and are indirect wholly-owned 
subsidiaries of Metropolitan Life Insurance Company (``MetLife''). As 
of December 31, 1996, MetLife and its affiliates held a record 72% of 
the outstanding shares of the Acquired Fund. In some cases, any of 
MetLife and its affiliates may hold or share voting discretion, 
investment discretion, or both with respect to these shares.
    3. The Acquiring and Acquired Funds both offer 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.
    4. The investment objective of the Acquired Fund is to seek a high 
level of return by investing primarily in high quality debt securities 
of non-U.S. issuers. The investment objective of the Acquired Fund is 
not fundamental and may be changed by the board of directors of the 
Company without a shareholder vote. The investment objective of the 
Acquiring Fund is to seek high current income and under normal 
circumstances the Acquiring Fund will invest at least 65% of the value 
of its total assets in securities that are issued or guaranteed by the 
U.S. Government, U.S. Government agencies or instrumentalities, or 
certain mixed-ownership Government corporations. The investment 
objective of the Acquiring Fund is fundamental and may not be changed 
without a shareholder vote.
    5. The Trust, on behalf of the Acquiring Fund, and the Company, on 
behalf of the Acquired Fund, will enter into an agreement and plan of 
reorganization, which was approved by the board of directors of the 
Company on February 4, 1997 and by the board of trustees of the Trust 
on November 6, 1996. The boards of the Acquiring and Aquired Funds, 
including the members who are not ``interested persons'' as defined by 
the Act, found that the reorganization would be in the best interest of 
the Acquiring and Acquired Funds and their shareholders, respectively, 
and that the interests of the existing shareholders of the respective 
Funds will not be diluted as a consequence thereof. Each board 
considered a number of factors, including the efficiencies resulting 
from combining the operations of a small fund with a large fund; \1\ 
the performance of the Acquired Fund; the size, stability, and strength 
of the Acquiring Fund; and that each Fund uses the same distribution 
and multiple class structure and sales load structure. In addition, in 
reaching its determination that the reorganization was in the best 
interest of the Funds' shareholders, the boards also considered the 
differences in the investment objectives of each Fund and concluded 
that greater portfolio diversification could result from a larger asset 
base. Applicants expect that greater diversification from a portfolio 
of securities of both U.S. and non-U.S. issuers would be beneficial to 
Acquired Fund shareholders because it may reduce the risk associated 
with a portfolio of securities issued only by non-U.S. issuers.
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    \1\ As of October 31, 1996, the Acquired and Acquiring Funds had 
net assets of approximately $33 million and $702 million, 
respectively.
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    6. Upon consummation of the proposed reorganization (the 
``Closing''), the Acquiring Fund will acquire all of the assets of the 
Acquired Fund (subject to the assumption by the Acquiring Fund of all 
liabilities of the Acquired Fund which are reflected on an unaudited 
statement of assets and liabilities on the Valuation Date (as defined 
below)) in exchange for Class A, B, C, and D shares of the Acquiring 
Fund. The number of Class A, B, C, and D shares to be issued to the 
Acquired Fund will be determined by dividing (a) the aggregated net 
assets in each class of shares of the Acquired Fund by (b) the net 
asset value per Class A, B, C, and D share, respectively, of the 
Acquiring Fund, each computed as the close of business on the business 
day next preceding the Closing (the ``Valuation Date''). The Acquired 
Fund will liquidate and distribute shares of the Acquiring Fund to its 
shareholders at or as soon as practicable after the Closing. Holders of 
the Acquiring Fund shares acquired as a result of the reorganization 
will continue to be subject to a contingent deferred sales charge upon 
subsequent redemption to the same extent as if they had continued to 
hold shares of the Acquired Fund. The class of Acquiring Fund shares 
distributed to each shareholder of the Acquired Fund upon the 
liquidation of the Acquired Fund will correspond to the class of shares 
of the Acquired Fund held by such shareholder immediately prior to the 
reorganization.
    7. At or prior to the Closing, the Acquired Fund shall declare a 
dividend or dividends which shall have the effect of distributing to 
the shareholders of the Acquired Fund all of the Fund's investment 
company taxable income for all taxable years ending on or prior to the 
Closing (computed without regard to any deduction for dividends paid) 
and all of its net capital gain realized (after reduction for any 
capital loss carry-forward) in all taxable years ending on or prior to 
the Closing.
    8. The proposed reorganization is subject to approval by an 
affirmative vote of the holders of a majority of the outstanding shares 
entitled to vote of the Acquired Fund. Approval will be solicited 
pursuant to a prospectus/proxy statement, which was sent to 
shareholders of the Acquired Fund on March 17, 1997. Each prospectus/
proxy statement includes pertinent financial information and projected 
expense ratios of the combined funds. A shareholder meeting is 
scheduled to be held on May 30, 1997.
    9. The Acquiring and Acquired Funds each will bear half of the 
costs of entering into and carrying out the provisions of the plan of 
reorganization, whether or not the reorganization is consummated. In 
determining this allocation, the boards of both Funds determined that, 
in the absence of any special advantage of one Fund relative to the 
other, an equal split of expenses was appropriate, and that any 
potential benefits to SSRM, SSRIS, GFM or any of their affiliates as a 
result of the reorganization were outweighed by the

[[Page 30909]]

potential benefits to each Fund and its shareholders.
    10. The consummation of each reorganization is subject to certain 
conditions, including that the parties shall have received from the SEC 
the order requested in the application, 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 amend, waive, or supplement any 
term of the plan of reorganization without the prior approval of the 
SEC if such amendment, waiver, or supplement would materially alter the 
plan from the description of the plan in the application.

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 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote by such other person, (c) any person directly or 
indirectly controlling, controlled by, or under common control with 
such other person, and, (d) 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. Applicants 
state they may not be able to rely on rule 17a-8 because MetLife and 
its affiliates hold or share direct or indirect ownership of more than 
5% of the outstanding shares of the Acquired Fund, that the adviser of 
the Acquiring Fund is a wholly-owned subsidiary of MetLife which, 
therefore, could be deemed to control the Acquiring Fund, and that the 
Acquiring Fund, therefore, may be deemed an affiliated person of an 
affiliated person of the Acquired Fund, 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 each registered investment 
company concerned and with the general purposes of the Act.
    5. Applicants submit that the terms of the proposed reorganization 
satisfy the standards set forth in section 17(b). Applicants note that 
the exchange of the Acquired Fund's assets and liabilities for shares 
of the Acquiring Fund will be based on each Fund's relative net asset 
value, and that the proposed reorganization is expected to be effected 
on a tax-free basis, so that neither the Acquiring Fund, the Acquired 
Fund, nor the shareholders of the Acquired Fund will recognize taxable 
gains or losses as a result of the proposed reorganization.
    6. Applicants submit that the terms of the proposed reorganization 
are fair and reasonable and do not involve overreaching on the part of 
any person concerned and that the proposed reorganization is consistent 
with the policies of the Acquiring and Acquired Funds.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14692 Filed 6-4-97; 8:45 am]
BILLING CODE 8010-01-M