[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