[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