[Federal Register Volume 63, Number 130 (Wednesday, July 8, 1998)]
[Notices]
[Pages 36971-36974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18005]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23295; 812-11106]
First American Investment Funds, Inc. et al.; Notice of
Application
June 30, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
[[Page 36972]]
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 a
registered open-end investment company to acquire all of the assets and
liabilities of: (i) certain series of three registered open-end
investment companies, and (ii) five registered closed-end investment
companies. Because of certain affiliations, applicants may not rely on
rule 17a-8 under the Act.
APPLICANTS: First American Investment Funds, Inc. (``FAIF''), U.S. Bank
National Association (``U.S. Bank''), Piper Funds Inc. (``PFI''), Piper
Funds Inc.-II (``PFI-II''), Piper Global Funds Inc. (``PGF''), the
Americas Income Trust Inc. (``XUS''), Highlander Income Fund Inc.
(``HLA''), American Government Income Fund Inc. (``AGF''), American
Government Income Portfolio, Inc. (``AAF''), American Opportunity
Income Fund Inc. (``OIF''), and Piper Capital Management Incorporated
(``Piper Capital'').
FILING DATES: The application was filed on April 15, 1998. Applicants
have agreed to file an additional amendment, the substance of which is
incorporated 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 July 23, 1998
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, Oaks, PA 19456; U.S. Bank, First Bank Place,
601 Second Avenue South, Minneapolis, MN 55480; PFI, PFI-II, PGF, XUS,
HLA, AGF, AAF, OIF, and Piper Capital, 222 South Ninth Street,
Minneapolis, MN 55402-3804.
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. XUS, HLA, AGF, AAF, and OIF, each a Minnesota corporation, are
closed-end management investment companies registered under the Act
(collectively, the ``Piper Closed-End Funds''). PFI, PFI-II, and PGF,
each a Minnesota corporation, are open-end management investment
companies registered under the Act (collectively; the ``Piper Open-End
Funds''). Each of the Piper Open-End Funds offers shares in certain
series, some of which, together with the Piper Closed-End Funds,
constitute the ``Acquired Funds.'' PFI offers shares in 12 series,
seven of which will be Acquired Funds. PFI-II offers a single
portfolio, which will be an Acquired Fund. PGF offers two portfolios,
each of which will be an Acquired Fund.
2. Piper Capital, a wholly-owned subsidiary of Piper Jaffray
Companies Inc. (``Piper Jaffray''), is registered under the Investment
Advisers Act of 1940 (the ``Advisers Act'') and is the investment
adviser to the Acquired Funds. In addition to Piper Capital, Piper
Jaffray's wholly-owned subsidiaries include Piper Jaffray Inc.
(``Piper''), a broker-dealer, and Piper Trust Company (``Piper
Trust''), which provides trust services to individuals and
institutions. Piper Capital, Piper, Piper Trust, and their affiliates,
all of which are part of a common control group (the ``Piper
Affiliates''), hold of record more than 5% of the outstanding shares of
certain Acquired Funds.
3. FAIF, \1\ a Maryland corporation, is an open-end investment
company registered under the Act. FAIF currently offers shares in 24
series, seven of which will be ``Acquiring Funds'' (the ``Existing FAIF
Funds''). FAIF is creating several new series, four of which also will
be Acquiring Funds (the ``New FAIF Funds''). The Acquired Funds and the
Acquiring Funds collectively are referred to as the ``Funds.''
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\1\ FAIF was incorporated in 1987 as ``SECURAL Mutual Funds,
Inc.'' and changed its name to ``First American Investment Funds,
Inc.'' in 1991.
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4. U.S. Bank serves as investment adviser for the Existing FAIF
Funds, and will serve as investment adviser for the New FAIF Funds.
U.S. Bank is exempt from registration under the Advisers Act. U.S. Bank
is a wholly-owned subsidiary of U.S. Bancorp, as is U.S. Bank Trust
National Association (``U.S. Trust''). U.S. Bank, U.S. Trust, and their
affiliates, all of which are part of a common control group (the ``U.S.
Bancorp Affiliates'') hold of record more than 5% of the outstanding
shares of certain Acquiring Funds. In addition, defined benefit plans
for which the U.S. Bancorp Affiliates have funding obligations own more
than 5% of the outstanding shares of certain Acquiring Funds.\2\
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\2\ 5% or more of the outstanding shares of each Acquired Fund
and its corresponding Acquiring Fund are owned by the Piper
Affiliates, the U.S. Bancorp Affiliates, or both, except for AAF and
FAIF Fixed Income Fund. AAF and FAIF Fixed Income Fund cannot rely
on rule 17a-8 because defined benefit plans to which the U.S.
Bancorp Affiliates have funding obligations own more than 5% of FAIF
Fixed Income Fund.
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5. On May 1, 1998, U.S. Bancorp acquired Piper Jaffray (the
``Merger''). As a result of the Merger, Piper Capital became an
indirect wholly-owned subsidiary of U.S. Bancorp. In addition, U.S.
Bank and U.S. Trust became affiliated with Piper Jaffray, Piper
Capital, Piper Trust, and Piper, and all of these entities became part
of a common control group.
6. On February 23, 1998, the board of directors of FAIF (the ``FAIF
Board''), including the disinterested directors, unanimously approved
each of the reorganizations (the ``Reorganizations''). On April 13,
1998, the boards of directors of the Piper Open-End Funds, XUS and HLA,
including in each case the disinterested directors, unanimously
approved the Reorganizations, including draft versions of the
reorganization agreements between FAIF and the Acquired Funds (the
``Reorganization Agreements''). On April 27, 1998, the boards of
directors of AGF, AAF, and OIF, including in each case the
disinterested directors, unanimously approved the Reorganizations. The
consummation of the Reorganizations is expected to occur on or about
July 24, 1998, for XUS and HLA, July 31, 1998, for the Piper Open-End
Funds, and August 31, 1998, for AGF, AAF, and OIF (each, a
``Closing'').
7. Pursuant to the Reorganization Agreements, 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 designated
classes of the Acquiring Fund based on the Funds' relative net asset
values.\3\
[[Page 36973]]
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 the appropriate
corresponding class by the net asset value of one Acquired Fund share
of that class, computed as of the close of trading on 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'').
Each Reorganization Agreement provides that, at the Effective Time,
each Acquiring Fund will issue and distribute pro rata 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.
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\3\ The Acquired Funds and the corresponding Acquiring Funds
are: (i) PFI Small Company Growth Fund and FAIF Small Cap Growth
Fund; (ii) PFI Emerging Growth Fund and FAIF Mid Cap Growth Fund;
(iii) PFI Growth Fund and FAIF Large Cap Growth Fund; (iv) PFI
Growth and Income Fund and FAIF Large Cap Value Fund; (v) PFI
Balanced Fund and FAIF Balanced Fund; (vi) PFI Intermediate Bond
Fund and FAIF Intermediate Term Income Fund; (vii) PFI Government
Income Fund and FAIF Fixed Income Fund; (viii) PGF Pacific European
Growth Fund and FAIF International Fund; (ix) PGF Emerging Markets
Growth Fund and FAIF Emerging Markets Fund; (x) PFI-II Adjustable
Rate Mortgage Securities Fund and FAIF Adjustable Rate Mortgage
Securities Fund; (xi) The Americas Income Trust and FAIF Strategic
Income Fund; (xii) Highlander Income Fund and FAIF Strategic Income
Fund; (xiii) American Government Income Fund and FAIF Fixed Income
Fund; (xiv) American Government Income Portfolio and FAIF Fixed
Income Fund; and (xv) American Opportunity Income Fund and FAIF
Fixed Income Fund.
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8. The Existing FAIF Funds offer shares in three classes (Classes
A, B, and Y). The New FAIF Funds will offer shares in two classes
(Classes A and Y). Only Class A and Class Y shares will be issued in
the Reorganizations. Class A shares are not subject to a front-end
sales charge. Purchases of $1 million or more are not subject to an
initial sales charge, but are subject to a contingent deferred sales
charge (``CDSC'') if redeemed within 24 months after purchase. Class A
shares are subject to shareholder servicing fees under a rule 12b-1
plan. Class Y 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.
9. The Piper Open-End Funds offer shares in three classes (Classes
A, B and Y). Class A shares are subject to a front-end sales charge.
Purchases of $500,000 or more are not subject to an initial sales
charge, but are subject to a CDSC if the shares are redeemed within a
certain time period from the date of purchase. Class A shares of some
of the Acquired Funds are subject to distribution and shareholder
servicing fees under rule 12b-1 plans. Class B shares are subject to a
front-end sales charge but may be subject to a CDSC. Class B shares are
subject to shareholder servicing fees under rule 12b-1 plans. Class Y
shares are not subject to either a front-end, contingent deferred, or
other sales charge, a redemption fee, or rule 12b-1 distribution or
shareholder servicing fees. Each Piper Closed-End Fund has one class of
shares, which is traded on the New York Stock Exchange (except shares
of HLA, which are traded on the American Stock Exchange). Investors
thus incur brokerage commissions when purchasing and selling these
shares.
10. As a result of the Reorganizations, holders of Class A and B
shares of the Piper Open-End Funds will become holders of Class A
shares of the corresponding Acquiring Funds, and holders of Class Y
shares of the Piper Open-End Funds will become holders of Class Y
shares of the corresponding Acquiring Funds. Shareholders of the Piper
Closed-End Funds will receive Class A shares of the corresponding
Acquiring Funds. No sales charge will be imposed on any of the
Acquiring Fund shares to be issued to Acquired Fund shareholders in the
Reorganizations.
11. The Funds pay to their respective investment advisers annual
investment advisory fees. U.S. Bank has agreed that, for a two year
period commencing on the Closing, it will waive fees and reimburse
expenses to the Acquiring Funds to the extent necessary so that no
Acquiring Fund will have total operating expenses in excess of those
currently applicable to the corresponding Acquired Fund, except with
respect to the Class Y shares of Piper Intermediate Bond Fund and OIF.
12. The investment objectives of each Acquired Fund and its
corresponding Acquiring Fund are similar. The investment policies and
restrictions of each Acquired Fund and its corresponding Acquiring Fund
also are similar, but in some cases involve differences that reflect
the differences in the general investment strategies utilized by the
Funds.
13. The FAIF Board and the boards of directors of the Piper Open-
End Funds and the Piper Closed-End Funds (collectively, the ``Piper
Boards,'' and together with the FAIF Board, the ``Boards''), including
in each case a majority of their disinterested directors, found that
participation in the Reorganizations is in the best interests of each
Acquired Fund and Acquiring Fund, and that the interests of existing
shareholders of those Funds will not be diluted as a result of the
Reorganizations.
14. In approving the Reorganizations, the Boards considered, among
other things: (a) the compatibility of the investment objectives,
policies, and restrictions of each Acquired Fund and its corresponding
Acquiring Fund; (b) the advantages of each Reorganization; (c) the tax-
free nature of the Reorganizations; (d) the terms and conditions of the
Reorganization Agreements; (e) costs associated with the
Reorganizations; and (f) investment advisory fees, rule 12b-1 fees, and
sales charges that would become applicable to Acquired fund
shareholders as a result of the Reorganizations.\4\
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\4\ The Boards noted that no sales charge will be imposed on any
of the Acquiring Fund shares to be issued in the Reorganizations.
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15. In addition, the Piper Boards considered, among other things:
(a) the potential effect of the Reorganizations on the shareholders of
the Acquired Funds; (b) the capabilities of U.S. Bank and other service
providers to the Acquiring Funds; (c) the investment advisory and other
fees paid by the Acquiring Funds, and the historical and projected
expense ratios of the Acquiring funds as compared to those of the
Acquired funds; (d) the potential economies of scale that may result
from the Reorganization, given the fact that each of the Acquiring
Funds, except for the New FAIF Funds, is larger than the corresponding
Acquired Fund; (e) U.S. Bank's agreement to pay the expenses incurred
in connection with the Reorganizations (except as described below), and
to waive fees and reimburse expenses for the two year period commencing
on the Closing; and (f) the effect on the shareholders of the Piper
Closed-End Funds of a change from a closed-end investment company to a
series of an open-end investment company. Also, with respect to the
Piper Closed-End Funds, the board of directors of the Piper Closed-End
Funds considered alternative structures.
16. U.S. Bank will be responsible for the expenses incurred in
connection
[[Page 36974]]
with the Reorganizations, except the normal expenses incurred for
regular annual meetings of the Piper Closed-End Funds, which will be
borne by the Piper Closed-End Funds.
17. The Reorganization Agreements may be terminated prior to the
Closing upon the mutual consent of both the respective Acquired Fund
and FAIF, or by either the respective Acquired Fund or Acquiring Fund
if its board of directors determines that proceeding with the
Reorganization is inadvisable.
18. Registration statements on Form N-14 (``N-14 Registration
Statements'') were filed with the SEC on behalf of PFI, PFI-II, PGF,
XUS and HLA on April 15, 1998. An N-14 Registration Statement was filed
on behalf of AGF, AAF and OIF on May 18, 1998. Applicants mailed a
prospectus/proxy statement to shareholders of the Acquired Funds
(except AGF, AAF and OIF) on May 29, 1998. Applicants expect to mail a
prospectus/proxy statement to shareholders of AGF, AAF and OIF on or
about June 30, 1998.
19. Each Reorganization is subject to a number of conditions,
including: (a) the Acquired Fund shareholders will have approved the
Reorganization Agreement; (b) the Acquired Fund will have received an
opinion of counsel with respect to the federal income tax aspects of
the Reorganization; (c) applicants will have received exemptive relief
from the SEC with respect to the issues that are the subject of the
application; (d) the N-14 Registration Statements will have become
effective; and (e) each Acquired Fund will have declared a dividend
and/or other distribution in order to distribute all of its investment
company taxable income, exempt-interest income, and realized net
capital gain, if any for the taxable year. Applicants agree not to make
any material changes to the Reorganization Agreements that affect the
application without prior SEC approval.
Applicants' Legal Analysis
1. Section 17(a) of the act generally prohibits an affiliated
person of a registered investment company, or an 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 (a) any
person that directly or indirectly owns, controls, or holds with power
to vote 5% or more of the outstanding voting securities of the other
person; (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote by the other person; (c) any person directly or
indirectly controlling, controlled by, or under common control with the
other person; and (d) if the other person is an investment company, any
investment adviser of that 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 set forth in the rule are satisfied.
3. Applicants believe that they may not rely on rule 17a-8 because
the Funds may be affiliated for reasons other than those set forth in
the rule. The U.S. Bancorp 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. In addition, defined benefit plans to which the U.S.
Bancorp Affiliates have funding obligations own more than 5% of certain
Acquiring Funds. The Piper 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. Because of these ownership interests, and the fact that,
as a result of the Merger, the U.S. Bancorp Affiliates are ``affiliated
persons'' of the Acquired Funds and the Piper Affiliates are
``affiliated persons'' of the Acquiring Funds because they are under
the common control of U.S. Bancorp, the Acquiring Funds may be deemed
affiliated persons of affiliated persons of the Acquired Funds, 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.
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, and the proposed transaction is
consistent with the policy of each registered investment company
concerned and with the general purposes of the Act.
5. Applicants submit that the terms of the Reorganizations 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 Boards, including in each
case a majority of their disinterested directors, found that
participation in a Reorganization is in the best interests of each
Acquired Fund and its corresponding Acquiring fund, and the intersts of
existing shareholders of the Funds will not be diluted as a result of
the Reorganizations. 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 Manangement, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18005 Filed 7-7-98; 8:45 am]
BILLING CODE 8010-01-M