[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]
-----------------------------------------------------------------------
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'').
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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