[Federal Register Volume 60, Number 220 (Wednesday, November 15, 1995)]
[Notices]
[Pages 57471-57473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28167]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21484; 812-9826]
First American Investment Funds, Inc. and First Bank National
Association; Notice of Application
November 8, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: First American Investment Funds, Inc. (``FAIF'') and First
Bank National Association (the ``Adviser'').
RELEVANT ACT SECTIONS: Order requested under section 17(b) granting an
exemption from section 17(a), and pursuant to section 17(d) and rule
17d-1.
SUMMARY OF APPLICATION: Applicants request an order under section 17(b)
granting an exemption from section 17(a), and pursuant to section 17(d)
and rule 17d-1 to permit the Stock Fund, a series of FAIF, to acquire
all of the assets of the Limited Volatility Stock Fund, another series
of FAIF. Because of certain affiliations, the two funds may not rely on
rule 17a-8 under the Act.
FILING DATES: The application was filed on October 18, 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 4,
1995, 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: FAIF, 680 East Swedesford Road, Wayne, Pennsylvania
19087. The Adviser, First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55480.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Wagman, Staff Attorney, at (202) 942-0654, or Alison E. Baur,
Branch Chief, at (202) 942-0564 (Office of Investment Company
Regulation, Division of Investment Management).
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. FAIF is an open-end management investment company organized as a
Maryland corporation and registered under the Act. FAIF currently
offers twenty-two series of shares. The Adviser acts as investment
adviser to each series. The Adviser is a wholly-owned subsidiary of
First Bank System, Inc. (``FBS'').
2. First Trust National Association (``First Trust'') also is a
wholly-owned subsidiary of FBS, and acts as custodian for FAIF. First
Trust and its affiliates hold of record in their own name and in the
name of their nominee more than 5% of the outstanding shares of the
Limited Volatility Stock Fund and the Stock Fund, and they hold or
share voting and/or investment discretion with respect to a portion of
such shares. All such shares are held for the benefit of others in a
trust, agency, custodial, or other fiduciary or representative
capacity. First Trust and its affiliates do not have any economic
interest in any of the shares.
3. Applicants propose that the Limited Volatility Stock Fund (the
``Acquired Fund'') be combined with and into the Stock Fund (the
``Acquiring Fund;'' the Acquired Fund and the Acquiring Fund
collectively are referred to as the ``Funds'') in a tax-free
reorganization (the ``Reorganization''). In the Reorganization, the
Acquiring
[[Page 57472]]
Fund will acquire all of the assets and liabilities of the Acquired
Fund in exchange for shares of the Acquiring Fund, which then will be
distributed pro rata to former shareholders of the Acquired Fund.
4. The Acquiring Fund and the Acquired Fund both offer shares in
three classes: Class A, Class B, and Class C. Each class of the
Acquiring Fund has the same charges and fee structure as the
corresponding class of the Acquired Fund. In the Reoganization, Class A
shares of the Acquired Fund would be exchanged for Class A shares of
the Acquiring Fund, Class B shares would be exchanged for Class B
shares, and Class C shares would be exchanged for Class C shares. The
number of Acquiring Fund shares to be issued in exchange for each
Acquired Fund share of each class will be determined by dividing the
net asset value of one Acquiring Fund share of such class by the net
asset value of one Acquired Fund share of the same class as of the
effective time of the Reorganization (before giving effect thereto).
5. At a meeting on September 13, 1995, the Board of Directors of
FAIF, including the disinterested directors, and the findings required
under rule 17a-8 and unanimously approved the proposed Reorganization.
In doing so, the Board considered (a) the compatibility of the
investment objectives, policies and restrictions of the Acquired Fund
and the Acquiring Fund; (b) the expected advantages of the
Reorganization to the Acquired Fund and the Acquiring Fund; (c) the
tax-free nature of the Reorganization; (d) the terms and conditions of
the Reorganization; (e) the costs associated with the Reorganization,
and the agreement of the Adviser to bear such costs; (f) the investment
advisory and rule 12b-1 fees, and the sales charges applicable to the
Acquired Fund and the Acquiring Fund; and (g) the potential benefits to
the Adviser of the Reorganization.
6. In considering the compatibility of the two Funds, the Board
noted that the investment objectives of the Acquired Fund and the
Acquiring Fund are similar, in that both Funds seek capital
appreciation and income. The principal difference in objectives is that
the Acquired Fund seeks to maintain a five-year historical performance
relative to the S&P 500 at a beta level no greater than .95 and to
provide current income at a level that exceeds that of the S&P 500,
while the Acquiring Fund's objectives are not stated with such a degree
of specificity. Nevertheless, the Board noted that during the five
years ended June 30, 1995, the Acquiring Fund met the Acquired Fund's
objective with respect to beta relative to the S&P 500. In addition,
the investment policies and restrictions of the Fund are substantially
similar.
7. The expected advantages to the Acquired Fund and Acquiring Fund
that the Board considered include the expected benefits to shareholders
of the Acquired Fund of the Acquiring Fund's lower expense ratio; the
elimination of certain duplicative expenses of separate funds; the
spreading of relatively fixed expenses across a larger asset base; and
the facilitation of portfolio management. The potential benefits to the
Adviser considered by the Board include potentially reduced expenses
for advisory fee waivers to the extent that the total expense ratios
before waivers of the combined Funds decrease as a result of the
Reorganization. The Board found that the expected advantages to the
Acquiring Fund and the Acquired Fund outweighed the potential benefits
to the Adviser.
8. Applicants agree not to make any material changes to the
Reorganization agreement that affect the application without the prior
approval of the SEC. Applicants also agree not to waive, amend, or
modify any provision of the Reorganization agreement that is required
by state or federal law in order to effect the Reorganization.
9. A registration statement on Form N-14 with respect to the
proposed Reorganization will be filed with the SEC. A special meeting
of shareholders of the Acquired Fund will be held to consider and act
upon the Reorganization.
10. As a result of the proposed Reorganization, former holders of
Class A shares, Class B shares, and Class C shares of the Acquired Fund
would become holders of classes of shares in the Acquiring Fund that
are subject to the same sales charges, rule 12b-1 distribution and
shareholder servicing fees, and investment advisory fees as the
Acquired Fund shares that they formerly held. Shareholders who formerly
held classes of shares of the Acquired Fund that were subject to a
contingent deferred sales charge would receive credit for the period
that they held such shares in calculating the time period with respect
to the contingent deferred sales charge applicable to shares of the
corresponding classes of the Acquiring Fund received in the
Reorganization.
11. The Adviser currently waives its fee for both the Acquired Fund
and the Acquiring Fund under certain circumstances. The Adviser
represents that its current advisory fee waivers will remain in effect
through January 31, 1996, which is the earliest date upon which the
proposed Reorganization would take effect. The Adviser has not yet
determined what fee waivers, if any, will be in effect after that date.
However, if any waiver is made after that date, the Adviser intends
that the total expense caps thereunder would be the same for the
Acquired Fund and the Acquiring Fund. Thus, in no event will the
shareholders of the Acquired Fund become subject to a less advantageous
total expense cap as a result of the Reorganization. In addition, the
differential among classes in the total expense cap agreed to by the
Adviser will be equal to the differential in rule 12b-1 fees applicable
to the respective classes.
Applicants' Legal Analysis
1. Section 2(a)(3) of the Act provides, in pertinent part, that any
person directly or indirectly owning, controlling, or holding with
power to vote 5% or more of the outstanding voting securities of any
other person is an affiliated person of that person.
2. Section 17(a), in pertinent part, prohibits an affiliated person
of a registered investment company, or any affiliated person of such a
person, acting as principal, from selling to or purchasing from such
registered company, or any company controlled by such registered
company, any security or other property.
3. Section 17(b) provides that the SEC may exempt a transaction
from the provisions 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.
4. Rule 17a-8 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.
5. As noted above, the Acquiring Fund and the Acquired Fund have a
common investment adviser. Thus, the Reorganization would be exempt
from the provisions of section 17(a) by virtue of rule 17a-8, but for
the fact that the Acquiring Fund and the Acquired Fund may be
affiliated for reasons other than
[[Page 57473]]
those set forth in the rule. First Thrust, which is under common
ownership and control with the Adviser, and its affiliates hold of
record in their own name and in the name of their nominee more than 5%
of the outstanding voting securities of the Acquiring Fund and the
Acquired Fund and hold or share voting and/or investment discretion
with respect to a portion of such shares. Because of this greater than
5% holding, the Acquiring Fund is an affiliated person of First Trust
under section 2(a)(3)(B). First Trust, in turn, is an affiliated person
of the Adviser under section 2(a)(3)(C) by virtue of their common
ownership and control by FBS. The Adviser, in turn, is an affiliated
person of the Acquired Fund under Section 2(a)(3)(E) by virtue of its
investment advisory relationship with the Funds. Therefore, the
Acquiring Fund is an affiliated person of an affiliated person of the
Acquired Fund.
6. Section 17(d) prohibits any affiliated person of, or principal
underwriter for, a registered investment company, or any affiliated
person of such a person, acting as principal, from effecting any
transaction in which such registered company is a joint, or joint and
several, participant with such person in contravention of such rules
and regulations as the SEC may prescribe for the purpose of limiting or
preventing participation by such registered company on a basis
different from, or less advantageous than, that of such other
participant. Rule 17d-1 provides that no joint transaction covered by
the rule may be consummated unless the SEC grants exemptive relief
after considering whether the participation of the investment company
is consistent with the provisions, policies and purposes of the Act and
the extent to which the participation is on a basis different from, or
less advantageous than, that of other participants.
7. The proposed sale of assets by the Acquired Fund to the
Acquiring Fund and the related transactions involved in the
Reorganization might be deemed to be a joint enterprise or other joint
arrangement in which a registered investment company and affiliated
person of such company are participants.
8. Applicants submit that the Reorganization meets the standards
for relief under section 17(b) and rule 17d-1, in that the terms of the
Reorganization, including the consideration to be paid or received, are
reasonable and fair and do not involve overreaching on the part of any
person concerned; the Reorganization is consistent with the policy of
the Acquired Fund and the Acquiring Fund; the Reorganization is
consistent with the general purposes of the Act; the participation of
the Acquired Fund and the Acquiring Fund in the Reorganization on the
basis proposed is consistent with the provisions, policies, and
purposes of the Act; and the extent to which such participation is on a
basis different from or less advantageous than that of other
participants does not outweigh the advantages of such participation.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28167 Filed 11-14-95; 8:45 am]
BILLING CODE 8010-01-M
