[Federal Register Volume 61, Number 24 (Monday, February 5, 1996)]
[Notices]
[Pages 4295-4297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2327]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21722; 812-9884]
First American Investment Funds, Inc., et al.; Notice of
Application
January 30, 1996.
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''), First
American Funds, Inc. (``FAF''), each existing and future series of FAIF
and FAF, and existing and future registered investment companies or
series thereof that, now or in the future, are advised by First Bank
National Association (collectively, the `'Funds''); and First Bank
National Association (``First Bank'').\1\
\1\ All existing Funds that presently intend to rely on the
requested order are named as applicants. Any Funds that may, in the
future, rely on the requested order will only do so in accordance
with the terms and conditions thereto.
RELEVANT ACT SECTIONS: Order requested under section 6(c) for an
exemption from section 12(d)(1)(A)(ii), under sections 6(c) and 17(b)
for an exemption from section 17(a)(1) and 17(a)(2), and under rule
17d-1 to permit certain transactions in accordance with section 17(d)
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and rule 17d-1.
SUMMARY OF APPLICATION: Applicants seek an order that would permit
certain Funds to use their cash reserves to purchase shares of
affiliated money market funds.
FILING DATE: The application was filed on December 8, 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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on February 26,
1996 and should be accompanied by proof of service on the applicant, 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, NW., Washington, DC 20549.
FAIF and FAF, 680 East Swedesford Road, Wayne, Pennsylvania 19087;
First Bank, 601 Second Avenue South, Minneapolis, Minnesota 55402.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Wagman, Staff Attorney, at (202) 942-0654, or Alison E. Baur,
Branch Chief, at (202) 942-0464 (Division of Investment Management,
Office of Investment Company Regulation).
[[Page 4296]]
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. FAIF is an open-end management investment company that currently
offers twenty series, each of which is a variable net asset value fund
(a ``Non-Money Market Fund''). FAF is an open-end management investment
company that currently offers three series, each of which is a money
market fund subject to the requirements of rule 2a-7 under the Act (a
``Money Market Fund'').
2. First Bank serves as investment adviser to each series of FAIF
and FAF. Marvin & Palmer Associates, Inc. serves as subadviser to the
International Fund, a series of FAIF (together with First Bank and any
future sub-adviser to a Fund, the ``Advisers''). First Trust National
Association (the ``Custodian'') serves as custodian for the assets of
each series of FAIF and FAF.
3. The Money Market Funds seek current income, liquidity, and
capital preservation by investing exclusively in short-term money
market instruments, such as U.S. government securities, bank
obligations, commercial paper, municipal obligations, and repurchase
agreements secured by government securities. These short-term debt
securities are valued at their amortized cost in accordance with the
requirements of rule 2a-7. The Non-Money Market Funds invest in a
variety of debt and/or equity securities in accordance with their
respective objectives and policies.
4. Applicants request an order that would permit each of the Funds
to utilize cash reserves that have not been invested in portfolio
securities (``Uninvested Cash'') to: (a) Purchase shares of one or more
of the Money Market Funds (each such Fund, including Money Market
Funds, purchasing shares of a Money Market Fund is an ``Investing
Fund''), and (b) each Money Market Fund to sell shares to, and redeem
such shares from, an Investing Fund. Applicants also request relief
that would permit the Funds to invest Uninvested Cash in a Money Market
Fund in excess of the percentage limitations set out in section
12(d)(1)(A)(ii) of the Act. Applicants propose that each Fund be
permitted to invest in shares of a Money Market Fund provided that each
Fund's aggregate investment in such Money Market Fund does not exceed
the greater of 5% of such Fund's total net assets or $2.5 million.
Applicants will comply with all other provisions of section 12(d)(1).
5. By investing Uninvested Cash in the Money Market Funds,
applicants believe that the Investing Funds will be able to combine
these cash balances and thereby reduce their transaction costs, create
more liquidity, enjoy greater returns, and further diversify their
holdings. The policies of the Funds either now permit, or will be
amended to permit (pursuant to any required shareholder vote), the
Funds to purchase money market instruments, including shares of a Money
Market Fund.
6. The shareholders of the Investing Funds would not be subject to
the imposition of double advisory fees. Each Adviser will remit to the
respective Investing Fund or waive the investment advisory fees that it
earns as a result of the Investing Fund's investments in the Money
Market Funds, to the extent such fees are based upon the Investing
Fund's assets invested in shares of the Money Market Funds. Further,
the Money Market Funds, or any underwriter, will not charge a sales
charge, contingent deferred sales charge, a distribution fee under a
plan adopted in accordance with the requirements of rule 12b-1 under
the Act, or other underwriting or distribution fees to the Investing
Funds with respect to the purchase or redemption of Money Market Fund
shares. If a Money Market Fund offers more than one class of shares,
each Investing Fund will invest only in the class with the lowest
expense ratio at the time of the investment.
7. Several of the Funds have voluntary expense cap arrangements
with First Bank for the purpose of keeping each Fund's total expenses
below a certain predetermined percentage amount (an ``Expense
Waiver''). To the extent actual expenses of the Funds exceed these
caps, First Bank waives or reimburses a Fund in the amount of the
excess. Any applicable Expense Waiver will not limit the advisory fee
waiver or remittance discussed above.
Applicants' Legal Analysis
1. Section 17(a)(1) and 17(a)(2) makes it unlawful for any
affiliated person of a registered investment company, or an affiliated
person of such affiliated person, acting as principal, to sell any
security to, or purchase any security from, such investment company.
Because each Fund may be deemed to be under common control with the
other Funds, it is an ``affiliated person,'' as defined in section
2(a)(3) of the Act, of the other Funds. Accordingly, the sale of shares
of the Money Market Funds to the Investing Funds and the redemption of
such shares of the Money Market Funds from the Investing Funds, would
be prohibited under section 17(a).
2. Section 17(b) authorizes the SEC to exempt a transaction from
section 17(a) if the terms of the proposed transaction, 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
proposed transaction is consistent with the policy of each investment
company concerned, and the proposed transaction is consistent with the
general purposes of the Act. Under section 6(c), the SEC may exempt a
series of transactions from any provision of the Act or any rule or
regulation thereunder if, and to the extent that, such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the Act. Thus, applicants request relief under
sections 6(c) and 17(b) because they wish to engage in a series of
transactions rather than a single transaction.
3. The Investing Funds will retain their ability to invest their
cash balances directly in money market instruments if they believe they
can obtain a higher return. Each of the Money Market Funds has the
right to discontinue selling shares to any of the Investing Funds if
its board of directors determines that such sales would adversely
affect the portfolio management and operations of such Money Market
Fund. Therefore, applicants believe that the proposal satisfies the
standards for relief.
4. Section 17(d) and rule 17d-1 prohibit an affiliated person of an
investment company, acting as principal, from participating in or
effecting any transaction in connection with any joint enterprise or
joint arrangement in which the investment company participates. Each
Investing Fund, each Investment Adviser of an Investing Fund, and each
of the Money Market Funds could be considered participants in a joint
enterprise or other joint arrangement within the meaning of section
17(d)(1) and rule 17d-1.
5. Under rule 17d-1, the SEC may permit a proposed joint
transaction if participation by a registered investment company is
consistent with the provisions, policies, and purposes of the Act, and
not on a basis different from or less advantageous than that of the
other participants. Applicants believe that their proposal satisfies
these standards.
6. Section 12(d)(1)(A)(ii) prohibits a registered investment
company from acquiring the securities of another investment company if,
immediately
[[Page 4297]]
thereafter, the acquiring company would have more than 5% of its total
assets invested in the securities of the selling company. Applicants
request an exemption from section 12(d)(1)(A)(ii) to permit each Fund
to invest in a Money Market Fund the greater of 5% of such Fund's total
net assets or $2.5 million. The perceived abuses section 12(d)(1)
sought to address include undue influence by an acquiring fund over the
management of an acquired fund, layering of fees, and complex
structures. Applicants believe that none of these concerns are
presented by the proposed transactions and that the proposed
transactions meet the section 6(c) standards for relief.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. The shares of the Money Market Fund sold to and redeemed from
the Investing Funds will not be subject to a sales load, redemption
fee, or distribution fee under a plan adopted in accordance with rule
12b-1.
2. Applicants will cause the Investment Advisers, in their
capacities as advisers for the Money Market Funds, to remit to the
respective Investing Fund or waive an amount equal to all investment
advisory fees received by them under their respective advisory
agreements with the Money Market Funds to the extent such fees are
based upon the Investing Fund's assets invested in shares of the Money
Market Funds. Any of these fees remitted or waived will not be subject
to recoupment by the Funds' Investment Advisers at a later date.
3. For the purpose of determining any amount to be waived and/or
expenses to be borne to comply with any Expense Waiver, the adjusted
fees for an Investing Fund (gross fees minus Expense Waiver) will be
calculated without reference to the amount waived or remitted pursuant
to condition 2. Adjusted fees will then be reduced by the amount waived
pursuant to condition 2. If the amount waived pursuant to condition 2
exceeds adjusted fees, the applicable Money Market Fund's Investment
Adviser also will reimburse the Investing Fund in an amount equal to
such excess.
4. Each of the Investing Funds will be permitted to invest
Uninvested Cash in, and hold shares of, a Money Market Fund only to the
extent that the Investing Fund's aggregate investment in the Money
Market Fund does not exceed the greater of 5% of the Investing Fund's
total net assets or $2.5 million.
5. The Investing Funds will vote their shares of each of the Money
Market Funds in the same proportion as the votes of all other
shareholders in such Money Market Funds.
6. The Investing Funds will receive dividends and bear their
proportionate share of expenses on the same basis as other shareholders
of such Money Market Funds. A separate account will be established in
the shareholder records of each of the Money Market Funds for each of
the acquiring Investing Funds.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2327 Filed 2-2-96; 8:45 am]
BILLING CODE 8010-01-M
