[Federal Register Volume 62, Number 132 (Thursday, July 10, 1997)]
[Notices]
[Pages 37084-37086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17983]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22734 ; 812-10666]


The Cascades Trust, et al.; Notice of Application

July 2, 1997.
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: The Cascades Trust on behalf of its series, the Tax-Free 
Trust of Oregon (``Fund''), Qualivest Capital Management, Inc. 
(``Adviser''), and First Bank National Association (``New Adviser'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) granting an 
exemption from section 15(a).

SUMMARY OF APPLICATION: Adviser's parent, U.S. Bancorp, will merge with 
and into New Adviser's parent, First Bank System, Inc. (``FBS''), which 
will result in the assignment, and thus the termination, of the Fund's 
existing advisory agreement with Adviser. Applicants request an order 
to permit the implementation, without shareholder approval, of an 
interim advisory agreement between the Fund and New Adviser (``Interim 
Advisory Agreement'') for a period commencing on the date the merger is 
consummated (but in no event later than September 30, 1997) and 
continuing for a period of up to the earlier of 120 days or the date 
the Interim Advisory Agreement is approved or disapproved by 
shareholders of the Fund (``Interim Period''). The order also would 
permit New Adviser to receive, following shareholder approval of the 
Interim Advisory Agreement, all fees earned during the Interim Period.

FILING DATES: The application was filed on May 14, 1997 and amended on 
June 16, 1997. Applicants have agreed to file an amendment, the 
substance of which is incorporated herein, during the notice period.

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 July 28, 1997 
and should be accompanied by proof of service on 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: The Cascades Trust, 380 Madison Avenue, Suite 2300, 
New York, NY 10017; Adviser, 111 S.W. Fifth Avenue, Suite T-15, 
Portland, OR 97204; New Adviser, 601 Second Avenue South, Minneapolis, 
MN 55402.

FOR FURTHER INFORMATION CONTACT:
Suzanne Krudys, Senior Counsel, at (202) 942-0641, or Mercer E. 
Bullard, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

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. The Cascades Trust is a Massachusetts business trust registered 
as an open-end management investment company under the Act. Adviser, a 
registered investment adviser under the Investment Advisers Act of 
1940, currently serves as investment adviser to the Fund. Adviser is a 
wholly-owned subsidiary of United States National Bank of Oregon, which 
is a wholly-owned subsidiary of U.S. Bancorp. New Adviser serves as the 
investment adviser and manager of the First American Family of Funds 
through its First Asset Management Group. New Adviser is a direct, 
wholly-owned subsidiary of FBS.
    2. On March 20, 1997, FBS and U.S. Bancorp jointly announced the 
signing of a definitive merger agreement for FBS to acquire U.S. 
Bancorp (the ``Merger''). Under the merger agreement U.S. Bancorp 
shareholders will receive 0.755 shares of FBS common stock for each 
share of U.S. Bancorp common stock. FBS will be the surviving 
corporation and will use the name U.S. Bancorp. Applicants expect the 
Merger to be consummated sometime before September 30, 1997, subject to 
the satisfaction of certain conditions, including receipt or certain 
regulatory approvals.
    3. At a meeting on June 6, 1997, the board of trustees of the Fund 
(``Board''), including a majority of its trustees that are not 
``interested persons'' under section 2(a)(19) of the Act (``Independent 
Trustees''), after full evaluation and with the advice and assistance 
of counsel, voted in the manner prescribed by section 15(c) of the Act 
to approve the Interim Advisory Agreement and to recommended that 
shareholders on the Fund approve the Agreement during the 120-day 
period commencing on the earlier of the consummation of the Merger 
(``Effective Date'') or September 30, 1997. The Board was advised that, 
in order to ensure the continued provision of high quality investment 
advisory services to the Fund, on the Effective Date the New Adviser 
will employ several portfolio managers now employed by the Adviser, 
including the manager of the Fund. These portfolio managers, together 
with the investment professionals already employed by New Adviser, then 
would assume management of the Fund on the Effective Date pursuant to 
the New Advisory Agreement between New Adviser and the Fund. Applicants 
state that these arrangements take into account the fact that several 
other portfolio managers, including the Fund's backup portfolio 
manager, have departed or will depart from Adviser by or shortly after 
the Effective Date.
    4. All investment advisory fees paid by the Fund to New Adviser 
during the Interim Period will be paid to an escrow agent (which will 
be an unaffiliated third party institution), and none of such fees held 
in escrow will be paid to New Adviser until the related shareholder 
approval has been obtained. If Fund shareholders fail to approve the 
Interim Advisory Agreement, the escrow agent will pay to the Fund the 
applicable escrow amounts (including interest earned). The escrow agent 
will release the escrow funds only upon receipt of a certificate from 
the officers of The Cascades Trust stating, if the escrow funds are to 
be delivered to New Adviser, that the Interim Advisory Agreement has 
received the requisite shareholder vote, or, if the escrow funds are to 
be delivered to the Fund, that the Interim Period has ended and the 
Interim Advisory Agreement has not received the requisite shareholder 
vote. Before any such certificate is sent, the Independent Trustees of 
the Cascades Trust will be notified.
    5. Applicants request relief from section 15(a) to permit the Fund 
to implement the Interim Advisory Agreement during the Interim Period. 
In the event the Effective Date is later than September 30 1997, the 
Interim Period will commence on September 30, 1997. The Interim 
Advisory Agreement will contain the same terms and conditions as the 
existing advisory agreement between the Fund and Adviser (``Existing 
Advisory Agreement''), except for the effective and termination dates, 
escrow provisions, and the

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substitution of New Adviser in place of Adviser. Applicants also 
request an exemption to permit New Adviser to receive from the Fund, 
subject to shareholder approval of the Interim Advisory Agreement and 
to the escrow arrangement described in the application, any and all 
fees earned during the Interim Period under such Interim Advisory 
Agreement. The fees to be paid during the Interim Period will be 
unchanged from the fees to be paid under the Existing Advisory 
Agreement.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides that it shall be unlawful for 
any person to serve or act as an investment adviser of a registered 
investment company, except pursuant to a written contract that has been 
approved by the vote of a majority of the outstanding voting securities 
of such company. Section 15(a) further requires that such written 
contract provide for automatic termination in the event of its 
assignment. Section 2(a)(4) of the Act defines ``assignment'' to 
include any direct or indirect transfer of a contract by the assignor. 
Applicants state that, on the Effective Date, the Adviser will become a 
wholly-owned subsidiary of the surviving corporation. Applicants 
therefore believe that the Merger will result in the ``assignment'' of 
the Existing Advisory Agreement.
    2. Rule 15a-4 under the Act provides that, if an investment 
advisory contract with an investment company is terminated by 
assignment, an investment adviser may act as such for the company 
during the 120 day period following such termination pursuant to a 
written contract that has not been approved by the company's 
shareholders, provided that (a) the new contract is approved by the 
company's board of directors, including a majority of the non-
interested directors, (b) the compensation to be paid under the new 
contract money does not exceed the compensation that would have been 
paid under the contract most recently approved by company's 
shareholders, and (c) neither the adviser nor any controlling person of 
the adviser ``directly or indirectly receive(s) money or other 
benefit'' in connection with the assignment. Applicants state that they 
may not be permitted to rely on rule 15a-4 because of the benefits U.S. 
Bancorp's shareholders will receive from the Merger.
    3. Applicants contend that, because the Fund did not have 
sufficient advance notice of the Merger, it will not be possible to 
obtain shareholder approval of the Interim Advisory Agreement in 
accordance with section 15(a) prior to the closing of the Merger. 
Applicants state that the terms and timing of the Merger were 
determined by FBS and U.S. Bancorp in response to a number of factors 
relating principally to their commercial banking and other similar 
business concerns.
    4. Applicants state that the Board determined that retention of New 
Adviser to provide advisory services to the Fund during the Interim 
Period was in the best interests of Fund shareholders because it would 
(a) provide that the Fund will continue to be managed by one of the 
same individuals who now manage it; (b) ensure that, regardless of any 
further personnel changes which may take place at Adviser during the 
Interim Period, the Funds would be managed during such period by a 
group of investment professionals which the Board has determined can 
provide the appropriate scope and quality of advisory services; and (c) 
avoid the need for the Board to consider on an ad hoc basis whether and 
how to proceed under rule 15a-4 if further personnel changes were to 
take place at Adviser during the Interim Period.
    5. The Board noted that, at the Effective Date, the business 
operations of Adviser will be greatly reduced or eliminated altogether. 
Applicants state that, of approximately $9.7 billion of assets under 
management by Adviser (excluding assets of the Fund), New Adviser will 
assume management of approximately $9.45 billion on the Effective Date. 
The Board also noted that the remaining portfolio managers of Adviser 
who advise other mutual funds are expected to become employees of New 
Adviser. Thus, applicants state that most or all of the current 
operations of Adviser, apart from those relating to the Fund, will be 
effectively transferred to New Adviser on the Effective Date. Under 
these circumstances, the Board believed that New Adviser's investment 
management staff and support personnel and systems would be much better 
equipped to provide ongoing services to the Fund than whatever staff, 
support personnel and systems, if any, may remain in place at Adviser 
following the Effective Date.
    6. Applicants submit that the Fund will receive during the Interim 
Period substantially comparable investment advisory services, provided 
in substantially the same manner, as it received prior to the Effective 
Date. Applicants anticipate that New Adviser will employ one of the co-
managers who managed the Fund prior to the announcement of the Merger. 
In the event there is any material change in personnel providing 
advisory services under the Interim Advisory Agreement during the 
Interim Period, applicants state that New Adviser will apprise and 
consult the Board to ensure that such Board, including a majority of 
the Independent Trustees, is satisfied that the services provided by 
New Adviser will not be diminished in scope and quality.
    7. Applicants submit that to deprive New Adviser of its customary 
fees during the Interim Period for no reason, other than the fact that 
the Merger may be deemed to result in an assignment of the Existing 
Advisory Agreement, would be unduly harsh and unreasonable penalty to 
impose upon an investment adviser. New Adviser submits that, in good 
faith and consistent with the Act and the spirit of rule 15a-4, it 
seeks to promote the interests of the Fund and its shareholders by 
undertaking the fee and other arrangements described in the 
application. Applicants state that the fees payable to New Adviser 
under the Interim Advisory Agreement have been approved by the Board, 
including a majority of the Independent Trustees, in accordance with 
their fiduciary and other obligations under the Act, and that such fees 
will not be released by the escrow agent without the approval of the 
Fund's shareholders.
    8. Section 6(c) provides that the SEC may exempt any person, 
security, or transaction from any provision of the Act, 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. 
Applicants believe that the relief requested satisfied this standard.

Applicants' Conditions

    Applicants agree as conditions to the issuance of the exemptive 
order requested by the application that:
    1. The Interim Advisory Agreement will have the same terms and 
conditions as the Existing Advisory Agreement, except for the effective 
and termination dates, escrow provisions, and the substitution of New 
Adviser in place of Adviser.
    2. Fees earned by New Adviser and paid by the Fund during the 
Interim Period in accordance with the Interim Advisory Agreement will 
be maintained with an unaffiliated financial institution in an 
interest-bearing escrow account, and amounts in such account (including 
interest earned on such amounts) will be paid to New Adviser only upon 
approval of the shareholders of the Fund or, in the absence of 
approvals by such shareholders, to the Fund.

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    3. The Fund will hold a meeting of shareholders to vote on approval 
of the Interim Advisory Agreement for the Fund on or before the 120th 
day following the earlier of the termination of the Existing Advisory 
Agreement on the Effective Date or September 30, 1997.
    4. New Adviser will pay the costs of preparing and filing this 
application. New Adviser will pay the costs relating to the 
solicitation of approval of the Interim Advisory Agreement necessitated 
by the Merger.
    5. New Adviser will take all appropriate actions to ensure that the 
scope and quality of advisory and other services provided to the Fund 
under the Interim Advisory Agreement will be at least equivalent, in 
the judgment of the Board including a majority of the Independent 
Trustees, to the scope and quality of services provided under the 
Existing Advisory Agreement. In the event of any material change in 
personnel providing services pursuant to the Interim Advisory 
Agreement, New Adviser will apprise and consult the Board to assure 
that the Board, including a majority of the Independent Trustees, is 
satisfied that the services provided by New Adviser will not be 
diminished in scope or quality.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-17983 Filed 7-9-97; 8:45 am]
BILLING CODE 8010-01-M