94-19677. First American Funds, Inc., et al.; Notice of Application  

  • [Federal Register Volume 59, Number 155 (Friday, August 12, 1994)]
    [Unknown Section]
    [Page 0]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 94-19677]
    
    
    [[Page Unknown]]
    
    [Federal Register: August 12, 1994]
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Rel. No. IC-20445; 812-9060]
    
     
    
    First American Funds, Inc., et al.; Notice of Application
    
    August 5, 1994.
    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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    APPLICATIONS: First American Funds, Inc. (``FAF'') and First Bank 
    National Association (the ``Adviser'').
    
    RELEVANT ACT SECTIONS: Order requested. (a) Under section 17(b) 
    granting an exemption from section 17 (a) and (b) permitting certain 
    joint transactions under section 17(d) and rule 17d-1.
    
    SUMMARY OF APPLICATION: Applicants seek an order under section 17(b) 
    for an exemption from section 17(a) and an order under section 17(d) 
    and rule 17d-1 to permit certain series FAF to acquire all of the 
    assets of certain other series of FAF in exchange for shares of the 
    acquiring series.
    
    FILING DATES: The application was filed on June 17, 1994 and amended on 
    August 4, 1994.
    
    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 
    request should be received by the SEC by 5:30 p.m. on August 30, 1994, 
    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, NW., Washington, DC 20549. 
    Applicants: FAF, 680 East Swedesford Road, Wayne, Pennsylvania 19087. 
    The Adviser, First Bank Place, 601 Second Avenue South, Minneapolis, 
    Minnesota 55480.
    
    FOR FURTHER INFORMATION CONTACT:
    John V. O'Hanlon, Senior Attorney, at (202) 942-0578, or C. David 
    Messman, 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. FAF is a open-end management investment company organized as a 
    Minnesota corporation and registered under the Act. FAF currently 
    offers five series of shares: Money Fund, Institutional Money Fund, CT 
    Government Fund, Institutional Government Fund, and CT Treasury Fund. 
    Each series is a money market fund within the meaning of rule 2a-7 
    under the Act. 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 FAF. 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 
    Institutional Money Fund, Institutional Government Fund, and CT 
    Government 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 such shares.
        3. Applicants propose that Money Fund and CT Government Fund (the 
    ``Acquired Funds'') be combined with and into, respectively, 
    Institutional Money Fund and Institutional Government Fund (the 
    ``Acquiring Funds'') in tax free reorganizations (the 
    ``Reorganizations''). In the Reorganizations each Acquiring Fund will 
    acquire all of the assets and liabilities of its respective Acquired 
    Fund in exchange for shares of the Acquiring Fund, which then will be 
    distributed to former shareholders of the Acquired Fund. The investment 
    objectives, policies, and restrictions of each Acquired Fund are 
    identical or substantially similar to those of its respective Acquiring 
    Fund.
        4. The number of Acquiring Fund shares to be issued in exchange for 
    each Acquired Fund share will be determined by dividing the net asset 
    value of one Acquired Fund share as of the effective time of the 
    Reorganization (before giving effect thereto) by the net asset value of 
    one Acquiring Fund share at such time. Because each Acquired Fund and 
    Acquiring Fund computes its net asset value per share using the 
    amortized cost method under rule 2a-7, these procedures will result in 
    a share-for-share and dollar-for-dollar exchange of Acquiring Fund 
    shares for Acquired Fund shares, without adjustment. It is a condition 
    to closing of the Reorganizations that the net asset value per share of 
    each of the Acquiring Funds and the Acquired Funds immediately before 
    the effective time, so computed, be $1.00 per share and that the net 
    asset value per share of each Acquiring Fund immediately after the 
    reorganizations, so computed, be $1.00 per share.
        5. At a meeting on June 8, 1994, the Board of Directors of FAF, 
    including the disinterested directors, made the findings required under 
    rule 17a-8 and unanimously approved the Reorganizations. In doing so, 
    the Board considered: (a) The compatibility of the investment 
    objectives, policies and restrictions of the respective Acquired Funds 
    and Acquiring Funds; (b) the expected advantages to the Acquired Funds 
    and the Acquiring Funds of the Reorganizations; (c) the anticipated 
    tax-free nature of the Reorganizations; (d) the terms and conditions of 
    the Reorganization; (e) the costs associated with the Reorganizations, 
    and the agreement of the Adviser to bear such costs; (f) the 
    anticipated advisory fees before and after the Reorganization and the 
    Adviser's agreement to waive a portion of such fees; and (g) the 
    potential benefits to the Adviser of the Reorganizations.
        6. The differences between the respective Acquiring Funds and 
    Acquired Funds are principally in their respective rule 12b-1 plans and 
    in the customers to whom they are marketed, not in their objectives, 
    policies, and restrictions. The Board has determined that these 
    differences can be accommodated with equal effectiveness by combining 
    the funds that have an identity of objectives, policies, and 
    restrictions and by instituting a ``multiple class'' structure in the 
    surviving funds. These contemplated ``multiple class'' arrangements are 
    not the subject of the application, but their approval by FAF 
    shareholders is a condition to the closing of the Reorganizations.\1\ 
    The Board has further determined that significant advantages may accrue 
    to shareholders of the Acquired Funds and the Acquiring Funds as a 
    result of the proposed combinations.
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        \1\SEI Financial Services Company, the distributor for each 
    series of FAF, has obtained an exemptive order permitting funds 
    distributed by it to issue multiple classes. Investment Company Act 
    Release Nos. 19698 (Sept. 9, 1993) (notice) and 19757 (Oct. 4, 1993) 
    (order).
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        7. The expected advantages to the Acquired Funds and Acquiring 
    Funds considered by the Board include the elimination of certain 
    duplicative expenses of separate funds; spreading of relatively fixed 
    expenses across larger asset bases; potential increased sales of the 
    surviving funds due to the addition of new classes and channels of 
    distribution; and 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 Reorganizations. The Board found that the expected 
    advantages to the Acquiring Funds and the Acquired Funds outweighed the 
    potential benefits to the Adviser.
        8. Applicants agree not to make any material changes to the 
    reorganization agreements that affect the application without the prior 
    approval of the SEC staff. Applicants also have agreed not to waive, 
    amend or modify any provision of the reorganization agreements that is 
    required by state or federal law in order to effect the 
    Reorganizations.
        9. A registration statement on Form N-14 will be filed with the 
    Commission with respect to the Reorganizations. A special meeting of 
    shareholders of FAF will be held to consider and act upon the 
    Reorganizations in accordance with the Act and Minnesota law. At the 
    special meeting, FAF shareholders also will consider and act upon 
    proposals to authorize the issuance of shares of each series of FAF in 
    multiple classes and to institute or modify rule 12b-1 distribution 
    plans with respect to certain of these classes. If these proposals are 
    approved by shareholders and the Reorganizations are consummated, after 
    the Reorganizations FAF will consist of three series: a ``Money Fund'' 
    series (currently Institutional Money Fund); a ``Government Fund'' 
    series (currently Institutional Government Fund); and a ``Treasury 
    Fund'' series (currently CT Treasury Fund), each of which will be 
    offered in three classes.
        10. If the proposed Reorganizations and multiple class structure 
    are approved by shareholders, former shareholders of Money Fund would 
    become shareholders of the new Retail Class of the current 
    Institutional Money Fund, and former shareholders of CT Government Fund 
    would become shareholders of the new Corporate Treasury Class of the 
    current Institutional Government Fund.
        11. Investment advisory fees would remain unchanged at .40% of 
    average daily net assets for former shareholders of Money Fund when 
    they become shareholders of Institutional Money Fund. Investment 
    advisory fees would decrease from .50% to .40% of average daily net 
    assets for former shareholders of CT Government Fund when they become 
    shareholders of Institutional Government Fund. The Adviser has agreed 
    to waive advisory fees and reimburse expenses with respect to the new 
    Retail Class of Institutional Money Fund to the extent that total 
    expenses of such class exceed .75% of average daily net assets, and to 
    waive advisory fees and reimburse expenses with respect to the new 
    Corporate Treasury Class of Institutional Government Fund to the extent 
    that total expenses of such classes exceed .60% of average daily net 
    assets, in each case through July 31, 1995. The differential among 
    classes in the total expense cap agreed to by the Adviser is and will 
    be equal to the differential in rule 12b-1 fees applicable to the 
    respective classes. As a result, through such date former Acquired Fund 
    shareholders will retain the benefit of the fee waivers currently 
    applicable to them following the Reorganization.
    
    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 Commission 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 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.
        5. As noted above, the Acquiring Funds and the Acquired Funds have 
    a common investment adviser. Thus, the Reorganizations would be exempt 
    from the provisions of section 17(a) by virtue of rule 17a-8, but for 
    the fact that the Acquiring Funds and the Acquired Funds may be 
    affiliated for reasons other than those set forth in the rule. First 
    Trust, 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 nominees more than 5% of the outstanding voting securities of 
    each of the Acquiring Funds and one of the Acquired Funds and hold or 
    share voting and/or investment discretion with respect to a portion of 
    such shares. Because of this 5% ownership, each 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 each Acquired Fund under 
    Section 2(a)(3)(E) by virtue of its investment advisory relationship 
    with these funds. Therefore, each Acquiring Fund is an affiliated 
    person of an affiliated person of each Acquired Fund.
        6. Section 17(d) of the Act 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 Commission 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 under the Act provides that no joint 
    transaction covered by the rule may be consummated unless the 
    Commission 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 each Acquired Fund to its 
    respective Acquiring Fund and the related transactions involved in the 
    Reorganizations 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 Reorganizations meet the standards 
    for relief under section 17(b) and rule 17d-1, in that the terms of the 
    Reorganizations, 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 Reorganizations are consistent with the 
    policy of each Acquired Fund and Acquiring Fund; the Reorganizations 
    are consistent with the general purposes of the Act; the participation 
    of the Acquired Funds and the Acquiring Funds in the Reorganizations 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. 94-19677 Filed 8-11-94; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
08/12/1994
Department:
Securities and Exchange Commission
Entry Type:
Uncategorized Document
Action:
Notice of Application for Exemption under the Investment Company Act of 1940 (the ``Act'').
Document Number:
94-19677
Dates:
The application was filed on June 17, 1994 and amended on August 4, 1994.
Pages:
0-0 (1 pages)
Docket Numbers:
Federal Register: August 12, 1994, Rel. No. IC-20445, 812-9060