[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