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Forum Report: Relevance to Farmer Bros. of Court Decision on Investment Company Status

(November 23, 2005)


Sent: Wednesday, November 23, 2005 8:38 AM
Subject: Relevance to Farmer Bros. of court decision on investment company status

Copied below is the SEC's November 4, 2005 Litigation Release summarizing the court ruling that National Presto is an "investment company" as defined in the Investment Company Act of 1940 ("ICA"), requiring compliance with applicable SEC regulations.  A copy of the full decision has been posted on the Forum web site for Farmer Bros. Co.:
The National Presto case has been observed as an expected precedent for SEC enforcement of ICA compliance for situations in which a majority of a company's assets are securities.  The SEC was asked in a January 8, 2004 Forum letter to investigate similar ICA compliance issues in relation to Farmer Bros.
Please let me know if you have any comments or questions about the relevance of this court decision to the interests of Farmer Bros. shareholders.
             - GL
Gary Lutin
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Tel: 212/605-0335
Fax: 212/605-0325

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U.S. Securities and Exchange Commission


Litigation Release No. 19458 / November 4, 2005


The Securities and Exchange Commission (the "Commission") announced that on October 31, 2005, the Honorable Charles R. Norgle of the United States District Court for the Northern District of Illinois granted the Commission's motion for summary judgment against National Presto Industries, Inc. ("National Presto") located in Eau Claire, Wisconsin. The Commission's first amended complaint (the "complaint") alleged that since at least 1994, Presto has been operating as an unregistered investment company in violation of Section 7(a) of the Investment Company Act of 1940 (the "Investment Company Act"). The complaint sought an order requiring National Presto to either register with the Commission as an investment company or in the alternative, to restructure its securities holdings or take such other steps such that National Presto shall come into compliance with the Investment Company Act. The complaint also sought an order of permanent injunction enjoining National Presto from offering, selling or purchasing securities or engaging in any business in interstate commerce while in violation of Section 7 of the Investment Company Act.

Judge Norgle granted the Commission's motion for summary judgment and denied National Presto's cross motion for summary judgment. Judge Norgle ruled that National Presto was an investment company within the meaning of Section 3(a)(1)(C) of the Investment Company Act and that no statutory exemption applied to National Presto. Judge Norgle found that investment securities as a percentage of National Presto's total assets ranged from approximately 61% to 92% during the relevant time period and that National Presto was not primarily engaged in a business other than investing. Accordingly, National Presto was an investment company during the relevant time period and should have been registered with the Commission as an investment company and complied with the provisions of the Investment Company Act. Judge Norgle directed the Commission to submit a proposed Order requiring National Presto to comply with Section 7 of the Investment Company Act and a proposed Order of Permanent Injunction by November 30, 2005.

Modified: 11/4/2005


The Forum is open to all Farmer Bros. shareholders, whether institutional or individual, and to professionals concerned with their investment decisions.  Its purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their evaluations of alternatives.  As stated in the Forum's Conditions of Participation, participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

There is no charge for participation.  Franklin Mutual Advisers, LLC, the manager of funds owning approximately 12.6% of Farmer Bros. shares, provided initial sponsorship for the Forum and arranged for it to be chaired by Gary Lutin.  Continuing support and guidance of the Forum is provided by an Advisory Panel of actively interested shareholders.

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