[Federal Register Volume 63, Number 40 (Monday, March 2, 1998)]
[Notices]
[Pages 10250-10251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5205]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23035; 812-11008]
The Monitor Funds, et al.; Notice of Application
February 24, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under section 17(b) of the
Investment Company Act of 1940 (the ``Act'') from section 17(a) of the
Act.
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SUMMARY OF APPLICATION: Applicants seek an order to permit the
reorganization of certain series of a registered open-end management
investment company into certain series of another registered open-end
management investment company.
APPLICANTS: The Monitor Funds (``Monitor Funds''), FMB Funds, Inc.
(``FMB Funds''), and The Huntington National Bank (``Bank'').
FILING DATES: The application was filed on February 12, 1998.
Applicants have agreed to file an amendment to the application during
the notice period, the substance of which is included in this notice.
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 March 23, 1998,
and should be accompanied by proof of service on the 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, N.W., Washington, D.C.
20549. Applicants: Bank, 41 South High Street, Columbus, Ohio 43287;
Monitor Funds and FMB Funds, One Freedom Valley Road, Oaks,
Pennsylvania 19456.
FOR FURTHER INFORMATION CONTACT: Joseph B. McDonald, Jr., Senior
Counsel, at (202) 942-0533, or Mary Kay Frech, 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, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicants' Representations
1. Monitor Funds, a Massachusetts business trust consisting of
eleven series, is an open-end management investment company registered
under the Act. Monitor Growth Fund, Monitor Intermediate Government
Income Fund, Monitor Michigan Tax-Free Fund and Monitor Money Market
Fund (collectively, ``Monitor Portfolios'') are series of Monitor
Funds. FMB Funds, a Maryland corporation consisting of four series
(``FMB Portfolios''), is an open-end management investment company
registered under the Act.
The Bank, a national banking association, is the investment adviser
for both Monitor Funds and FMB Funds. As a national banking
association, the Bank is not required to register under the Investment
Advisers Act of 1940 (``Advisers Act''), pursuant to section
202(a)(11)(A) of the Advisers Act.
2. The Bank, as a fiduciary for its customers, owns of record or
controls, or holds with power to vote, 5% or more of the outstanding
securities of each of the FMB Portfolios. In addition, the Bank owns
more than 5% of the outstanding voting securities of the Monitor Growth
Fund and the Monitor Money Market Fund.
3. On December 9, 1997, the board of directors of FMB Funds,
including a majority of the disinterested directors, approved and
authorized an agreement and plan of reorganization (``Reorganization
Agreement'') pursuant to which each of the Monitor Portfolios will
acquire a corresponding series of the FMB Portfolios with similar
investment objectives. On December 17, 1997, the board of trustees of
Monitor Funds, including a majority of the disinterested directors,
approved and authorized the Reorganization Agreement. Pursuant to the
terms of the Reorganization Agreement, FMB Funds has agreed to sell all
of the assets and certain stated liabilities of each FMB Portfolio to a
corresponding Monitor Portfolio in exchange for shares of that Monitor
Portfolio (``Reorganization''). The number of shares of each class of
the Monitor Portfolio to be issued in exchange for each FMB Portfolio
share of each class will be determined by dividing the net asset value
of the Monitor Portfolio share of the appropriate corresponding class
by the net asset value of one FMB Portfolio share of such class.
4. Holders of Institutional Shares of the FMB Portfolios will
receive Trust Shares of the corresponding Monitor Portfolio and holders
of Consumer Service Shares will receive Investment Shares of the
corresponding Monitor Portfolios. Each class of shares of the Monitor
Portfolios has distribution-related fees, if any, which are equal to or
less than the distribution-related fees of the shares of the
corresponding class of the FMB Portfolio held prior to the
Reorganization. No sales charge will be imposed in connection with
Investment Shares of the Monitor Portfolio received by FMB Portfolio
shareholders in the Reorganization.
5. The investment objective of each FMB Portfolio and its
corresponding Monitor Portfolio are substantially equivalent. The
investment policies and restrictions of each FMB Portfolio and its
corresponding Monitor Portfolio are substantially similar, but in some
cases involve differences that reflect the differences in the general
investment strategies utilized by the Monitor Funds.
6. The boards of directors/trustees (the ``Boards'') of the Monitor
Funds and the FMB Funds approved the Reorganization as in the best
interests of existing shareholders and determined that the interests of
existing shareholders will not be diluted as a result of the
Reorganization. The Bank will be responsible for the expenses incurred
in connection with the Reorganization.
[[Page 10251]]
7. The Board of FMB Funds considered a number of factors in
authorizing the Reorganization, including: (a) the investment advisory
and other fees paid by the Monitor Portfolios and the lower historical
and projected expense ratios of the Monitor Portfolios as compared to
the historical expense ratios of the FMB Portfolio; (b) the potential
economies of scale that may result from the Reorganization and the
potential related cost-savings; (c) the historical investment
performance records of the Monitor Portfolios and the FMB Portfolios;
(d) the sales load structure applicable to the Investment Shares of the
Monitor Portfolios as compared to the higher sales load structure of
the Consumer Service Shares of FMB Portfolios; (e) the greater number
of investment portfolio options that would be available to shareholders
of FMB Portfolios after the Reorganization due to the exchange
privileges available within the family of Monitor Funds; (f) the fact
that the Reorganization will constitute a tax-free reorganization and
that the interests of shareholders will not be diluted as a result of
the Reorganization; and (g) the Bank's agreement to pay all expenses in
connection with the Reorganization.
8. The Reorganization is subject to a number of conditions
precedent, including requirements that: (a) the Reorganization
Agreement has been approved by the shareholders of each FMB Portfolio;
(b) the FMB Funds and the Monitor Funds have received opinions of
counsel stating, among other things, that the Reorganization will
constitute a ``reorganization'' under section 368 of the Internal
Revenue Code of 1986, as amended, and, as a consequence, the
Reorganization will not result in federal income taxes for the FMB
Funds or their shareholders; and (c) the FMB Portfolios and the Monitor
Portfolios have received from the SEC an order exempting the
Reorganization from the provisions of the Act as requested in the
application. Applicants agree not to make any material changes to the
proposed Reorganization that affect the applicant without prior SEC
approval.
Applicants' Legal Analysis
1. Section 17(a) of the Act provides that it is unlawful for any
affiliated person of a registered investment company, or any affiliated
person of such person, knowingly: (a) to sell any security or other
property to such registered company; or (b) to purchase from such
registered company any security or other property. Section 2(a)(3) of
the Act defines the term ``affiliated person'' of another person to
include: (a) any person 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 controlling,
controlled by, or under common control with, such other person; and (d)
if such other person is an investment company, any investment adviser
of the person.
2. Rule 17a-8 under the Act exempts from the prohibitions of
section 17(a) of the Act mergers, consolidations, or purchases or sales
of substantially all of the assets of registered investment companies
that are affiliated persons, or affiliated persons of an affiliated
person, solely by reason of having a common investment adviser, common
directors, and/or common officers, provided that certain conditions are
satisfied. Applicants believe that the proposed transactions may not be
exempt under rule 17a-8 because the Monitor Funds and FMB Funds may be
affiliated for reasons other than those set forth in the rule. The FMB
Portfolios may be affiliated persons of the Bank because the Bank, as
fiduciary for its customers, owns of record or controls or holds with
the power to vote 5% or more of the outstanding securities of each FMB
Portfolio. The Bank, in turn, is an affiliated person of the Monitor
Portfolios because the Bank serves as investment adviser to the Monitor
Funds and also owns more than 5% of the outstanding voting shares of
Monitor Growth Fund and Monitor Money Market Fund. Consequently,
applicants are requesting an order pursuant to section 17(b) of the Act
exempting them from section 17(a) to the extent necessary to complete
the Reorganization.
3. Section 17(b) of the Act provides that the SEC may exempt a
transaction from section 17(a) of the Act if evidence establishes that
(a) 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; (b) the proposed transaction is
consistent with the policy of each registered investment company
concerned; and (c) the proposed transaction is consistent with the
general purposes of the Act.
4. Applicants submit that the Reorganization satisfies the
provisions of section 17(b) of the Act. The Boards, including the
independent directors/trustees, have determined that the Reorganization
is in the best interests of the shareholders of the Monitor Funds and
the FMB Funds. In approving the Reorganization Agreement, the Boards
considered: (a) that the interests of shareholders will not be diluted;
(b) that the Funds' investment objectives and policies are generally
substantially identical; (c) that no sales charges will be imposed; (d)
that the conditions and policies of rule 17a-8 will be followed; and
(e) that no overreaching by any affiliated person is occurring.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-5205 Filed 2-27-98; 8:45 am]
BILLING CODE 8010-01-M