[Federal Register Volume 62, Number 215 (Thursday, November 6, 1997)]
[Notices]
[Pages 60113-60115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29354]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22868; 812-10726]
First American Investment Funds, Inc., et al.; Notice of
Application
October 30, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 17(b) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 17(a)
of the Act.
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SUMMARY OF APPLICATION: Order requested to allow certain series of
three registered open-end investment companies to acquire all of the
assets and liabilities of the series of another registered open-end
investment company. Because of certain affiliations, applicants may not
rely on rule 17a-8 under the Act.
APPLICANTS: First American Investment Funds, Inc. (``FAIF''), First
American Funds, Inc. (``FAF''), First American Strategy Funds, Inc.
(``FASF''), First Bank National Association (the ``Adviser''), First
Trust National Association (``First Trust''), The Qualivest Funds (the
``Trust''), Qualivest Capital Management, Inc. (``Qualivest''), and
United States National Bank of Oregon (``U.S. Bank'').
FILING DATES: The application was filed on July 18, 1997. Applicants
have agreed to file an amendment, the substance of which is included in
this notice, 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 November 20,
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 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, FAF, and FASF, Oaks, PA 19546; First Bank
National Association, First Bank Place, 601 Second Avenue South,
Minneapolis, MN 55480; First Trust National Association, 180 East Fifth
Street, St. Paul, MN 55101; The Qualivest Funds, 3435 Stelzer Road,
Columbus, OH 43219-3035; Qualivest, P.O. Box 2758, Portland, OR 97208;
and U.S. Bank, 111 S.W. Fifth Avenue, Suite T-2, Portland, OR 97204.
FOR FURTHER INFORMATION CONTACT: Mary T. Geffroy, Senior Counsel, at
(202) 942-0553, or Christine Y. Greenlees, 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 at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Trust, a Massachusetts business trust, is an open-end
management investment company registered under the Act. The Trust
currently consists or thirteen series (the ``Acquired Funds''),
Qualivest is a subsidiary of U.S. Bank, and is the investment adviser
to the Acquired Funds. U.S. Bank is a wholly-owned subsidiary of U.S.
Bancorp. U.S. Bank and certain of its affiliates hold of record more
than 5% of the outstanding shares of certain Acquired Funds. In
addition, defined benefits plans for which Qualivest, U.S. Bank, or
their affiliates have funding obligations own more than 5% of the
outstanding shares of certain Acquired Funds.
2. FAIF, FAF, and FASF are open-end investment companies registered
under the Act and each offers shares in certain series (some of which
constitute the ``Acquiring Funds''). FAIF \1\, a Maryland corporation,
offers shares in 20 series, four of which are Acquiring Funds.\2\ FAF
\3\, a Minnesota corporation, currently consists of three series, two
of which are Acquiring Funds.\4\ FASF, a Minnesota corporation, offers
shares in four series, each of which is an Acquiring Fund.
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\1\ FAIF was incorporated in 1987 as ``SECURAL Mutual Funds,
Inc.'' an changed its name to ``First American Investment Funds,
Inc.'' in 1991.
\2\ In addition, 2 new shell series are being created in FAIF
and will constitute Acquiring Funds.
\3\ FAF was incorporated under the name ``First American Money
Fund, Inc.'' and changed its name to ``First American Funds, Inc.''
in 1990.
\4\ A new series, the ``Tax Free Obligations Fund,'' is being
created in FAF and will be an Acquiring Fund.
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3. The Adviser is registered under the Investment Advisers Act of
1940 and is the investment adviser for each of the Acquiring Funds. The
Adviser and First Trust are wholly-owned subsidiaries of First Bank
System, Inc. (``FBS''). First Trust and certain of its affiliates hold
of record more than 5% of the outstanding shares of certain Acquiring
Funds. In addition, defined benefit plans for which FBS, the Adviser,
First Trust, or their affiliates have funding obligations own more than
5% of the outstanding shares of certain Acquiring Funds.
4. FBS and U.S. Bancorp entered into an Agreement and Plan of
Merger on March 19, 1997, which provided that U.S. Bancorp would merge
with and into FBS, with FBS continuing as the surviving corporation
(the ``Merger''). The Merger was consummated on or about September 2,
1997. At that time, the Adviser and First Trust became affiliated with
Qualivest and U.S. Bank, and all of those entities became part of a
common control group.
5. On June 4, 1997, the boards of directors of FAIF, FAF, and FASF
(the ``First American Boards''), including their disinterested
directors, unanimously approved the reorganization (the
``Reorganization''), and on June 17, 1997, the Board of Trustees of the
Trust (the ``Trustees'') unanimously approved the Reorganization,
including a draft Agreement and Plan of Reorganization (the
``Reorganization Agreement''). Pursuant to the Reorganization
Agreement, each Acquiring Fund proposes to acquire all of the assets
and assume all of the liabilities of its corresponding Acquired Fund in
exchange for shares of the Acquiring Fund based on the Funds' relative
net asset values. 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 values of one Acquiring Fund share of the
appropriate corresponding class by the net asset value of one Acquired
Fund share of such class, computed as of the close of trading on
[[Page 60114]]
the New York Stock Exchange on the date that the conditions to closing
are satisfied or on a later date as the parties may agree (the
``Effective Time'').
6. The Acquiring Funds generally offer shares in three classes
(Classes A, B, and C). Only Class A and Class C shares will be issued
in the Reorganization. Class A shares generally are sold with a front-
end sales charge. Purchases of $1 million or more of Class A shares
that are sold within 24 months after purchase are subject to a
contingent deferred sales charge. Class A shares are not subject to any
other contingent deferred sales charge, other sale charge, or any
redemption fee. Class A shares are subject to shareholder servicing
fees under a rule 12b-1 plan. Class C shares are not subject to a
front-end, contingent deferred, or other sales charge, a redemption
fee, or rule 12b-1 distribution or shareholder servicing fees.
7. The Acquired Funds offer shares in four classes (Classes A, C,
Y, and Q). Class A shares generally are subject to a front-end sales
charge, and under certain circumstances, a contingent deferred sales
charge is imposed. Class A shares are subject to distribution fees
under a rule 12b-1 plan. Class C shares of certain of the Acquired
Funds may be subject to a contingent deferred sales charge, or
distribution and shareholder services fees under a rule 12b-1 plan.
Class Y shares are not subject to a contingent deferred sales charge or
any other sales charge. These shares are offered only through trust
departments of banks and other institutional investors for monies that
are held in a fiduciary, agency, custodial, or similar capacity. Class
Q shares are offered with no sales charge and no contingent deferred
sales charge. Class Q shares generally are subject to rule 12b-1 fees.
As a result of the Reorganization, holders of Class A shares and Class
C shares of the Acquired Funds will become holders of Class A shares of
the Acquiring Funds, and holders of Class Q shares and Class Y shares
of the Acquired Funds will become holders of Class C shares of the
Acquiring Funds, and will be subject to the sales charges, and the rule
12b-1 distribution and shareholder servicing fees applicable to the
class of Acquiring Fund shares issued to them (as well as fund level
expenses, such as investment advisory fees, of the relevant Acquiring
Fund). In applying the deferred sales charge applicable to purchases of
Class A shares with respect to which the front-end sales charge was
waived, and applicable purchases of Class C shares, credit will be
given for the period an Acquired Fund shareholder who is subject to the
deferred sales charge held his or her shares of the Acquired Fund.
8. Each Fund pays the Adviser an investment advisory fee annually,
which the Adviser currently is waiving to the extent that total fund
expenses exceed the average daily net assets of the respective
Acquiring Funds. In addition, certain classes of each Fund pay annual
distribution fees based on a percentage of the Fund's average daily net
assets.
9. The investment objectives of each Acquired Fund and its
corresponding Acquiring Fund are similar. The investment restrictions
and limitations of each Acquired Fund and corresponding Acquiring Fund
are substantially similar, but in some cases involve differences that
reflect the differences in the general investment strategies utilized
by the Funds.
10. On or before the Effective Time, the Acquired Fund will have
declared a dividend and/or other distribution so that it will have
distributed all of its investment company taxable income, exempt-
interest income, and realized net capital gain, if any, for the taxable
year ending on or prior to the Effective Time.
11. The Reorganization Agreement provides that, at the Effective
Time of the Reorganization, each Acquiring Fund will issue and
distribute to its corresponding Acquired Fund's shareholders of record,
determined as of the Effective Time, the Acquiring Fund shares issued
in exchange for the Acquired Fund shares. Afterwards, no additional
shares representing interests in the Acquired Fund will be issued, and
the Acquired Fund will be liquidated. The distribution will be
accomplished by the issuance of the Acquiring Fund shares to open
accounts on the share records of the Acquiring Fund in the names of the
Acquired Fund shareholders representing the number of Acquiring Fund
shares due each shareholder pursuant to the Reorganization Agreement.
Simultaneously, all issued and outstanding shares of the Acquired Fund
will be canceled on the books of the Acquired Fund. No sales charge
will be incurred by Acquired Fund shareholders in connection with their
acquisition of Acquiring Fund shares pursuant to the Reorganization
Agreement.
12. In considering the Reorganization, the First American Boards,
including the disinterested directors, and the Trustees, including the
disinterested trustees, found that participation in the Reorganization
is in the best interests of each Acquired Fund and Acquiring Fund, and
that the interests of existing shareholders of the Funds will not be
diluted as a result of the Reorganization.
13. The First American Boards and the Trustees considered a number
of factors in making their findings, including: (a) the terms and
conditions of the Reorganization; (b) the tax-free nature of the
Reorganization; (c) the costs of the Reorganization to the Funds; (d)
the compatibility of the objectives, policies, and restrictions of the
Funds; (e) the investment advisory fees, rule 12b-1 fees, and the sales
charges that would become applicable to former shareholders of the
Acquired Funds; and (f) the potential benefits to the Adviser. The
First American Boards and the Trustees noted also that the larger size
of the Acquiring Funds enables the Acquired Funds to achieve certain
economies of scale, and potentially may increase operating efficiencies
and facilitate portfolio management.
14. The Adviser will be responsible for the expenses incurred in
connection with the Reorganization and any unamortized organizational
expenses of the Acquired Funds existing at the Effective Time.
15. The Reorganization Agreement may be terminated by the mutual
consent of the relevant First American Boards and the Trustees at any
time prior to the Effective Time.
16. On August 8, 1997, applicants filed with the SEC a registration
statement on Form N-14 containing a combined prospectus/proxy
statement. Applicants sent the prospectus/proxy statement to
shareholders of each Acquired Fund on or about September 15, 1997.
17. The consummation of the Reorganization is subject to the
following conditions set forth in the Reorganization Agreement: (a) the
shareholders of the Acquired Fund will have approved the Reorganization
Agreement; (b) applicants will have received exemptive relief from the
SEC with respect to the issues that are the subject of the application;
(c) an opinion of counsel with respect to the federal income tax
aspects of the Reorganization will have been received by applicants;
and (d) the Adviser, or an affiliate of the Adviser, will have paid any
unamortized organizational expenses on the books of the relevant
Acquired Fund, and those expenses will not be reflected in the net
asset value calculations made in connection with the Reorganization.
Applicants agree not to make any material changes to the Reorganization
Agreement that affect the application without prior SEC approval.
[[Page 60115]]
Applicants' Legal Analysis
1. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or any affiliated person of
that person, acting as principal, from selling any security to, or
purchasing any security from the company. Section 2(a)(3) of the Act
defines an ``affiliated person'' of another person to include any
person that owns 5% or more of the outstanding voting securities of the
other person, and any person directly or indirectly controlling,
controlled by, or under common control with the other person; or, if
the other person is an investment company, any investment adviser of
the investment company.
2. 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/trustees, and/or common officers, provided
that certain conditions are satisfied.
3. Applicants believe that they may not rely upon rule 17a-8
because the Funds may be affiliated for reasons other than those set
forth in the rule. First Trust and its affiliates hold of record more
than 5% of the outstanding shares of certain Acquiring Funds and hold
or share voting power and/or investment discretion with respect to a
portion of those shares.\5\ In addition, U.S. Bank and its affiliates
hold of record more than 5% of the outstanding shares of certain
Acquired Funds and hold or share voting power and/or investment
discretion with respect to a portion of those shares.\6\ Because of
these ownership interests, the Acquiring Fund may be deemed an
affiliated person of an affiliated person of the Acquired Fund, and
vice versa, for reasons not based solely on their common adviser.
Consequently, applicants are requesting an order pursuant to section
17(b) of the Act exempting them from section 17(a) to the extent
necessary to consummate the Reorganization.
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\5\ Applicants state that the Acquiring Funds in which First
Trust does not hold of record more than 5% of the outstanding shares
also are unable to rely on rule 17a-8 because they are affiliated
with the Acquired Funds for reasons other than those set forth in
the rule. Applicants state that these Funds are affiliated with the
Acquired Funds because they are affiliated with the Adviser under
section 2(a)(3)(E) and, after the Merger (in which U.S. Bank and the
Adviser will be merged), the Adviser will be an affiliate of the
Acquired Funds under section 2(a)(3)(A) by virtue of U.S. Bank's
ownership of more than 5% of the outstanding shares of certain of
the Acquired Funds.
\6\ Applicants state that the one Acquired Fund (the U.S.
Treasury Money Market Fund) that U.S. Bank does not hold of record
5% or more of the outstanding shares also is unable to rely on rule
17a-8 because it is affiliated with the Acquiring Fund for reasons
other than those set forth in rule 17a-8. Applicants state that the
Acquired Fund is affiliated with the Adviser under section
2(a)(3)(E) and, after the Merger, the Adviser will be an affiliate
of the Acquiring Funds under section 2(a)(3)(C).
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4. Section 17(b) of the act provides that the SEC may exempt a
transaction from the provisions of 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 registered investment company
concerned; and the proposed transaction is consistent with the general
purposes of the Act.
5. Applicants submit that the terms of the Reorganization satisfy
the standards set forth in section 17(b), in that the terms are fair
and reasonable and do not involve overreaching on the part of any
person concerned. Applicants note that the First American Boards and
the Trustees, including the disinterested directors and trustees, found
that participation in the Reorganization is in the best interests of
each Fund and that the interests of the existing shareholders of each
Fund will not be diluted as a result of the Reorganization. Applicants
also note that the exchange of the Acquired Funds' shares for the
Acquiring Funds' shares will be based on the Funds' relative net asset
values.
For the SEC, by the Division of Investment Management, under
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-29354 Filed 11-5-97; 8:45 am]
BILLING CODE 8010-01-M