Federal Register / Vol. 62, No. 232 / Wednesday, December 3, 1997 / Notices 63991

1 First American Investment Strategy Funds, Inc.,

Investment Company Act Release Nos. 22173 (Aug.

26, 1996) (notice) and 22241 (Sept. 23, 1996)

(order).

2 First American Investment Funds, Inc.,

Investment Company Act Release Nos. 21722 (Jan.

30, 1996) (notice) and 21784 (Feb. 27, 1996) (order).

3The Amended Cash Sweep Order also would

delete conditions 3 and 6 in the Fund of Funds

Order.

4The fund of funds series of FASF are not

‘‘Investing Funds’’ as defined in the application,

therefore any investment by them in the Money

Market Funds would be under the Fund of Funds

Order and subject to the conditions of that Order.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 97–31617 Filed 12–2–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–22910; 812–10638]

First American Funds, Inc., et al.

November 25, 1997.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for an

order under section 12(d)(1)(J) of the

Investment Company Act of 1940 (the

‘‘Act’’) exempting applicants from

sections 12(d)(1)(A) and (B) of the Act,

under sections 6(c) and 17(d) of the Act

exempting applicants from section 17(a)

of the Act, and under section 17(d) of

the Act and rule 17d–1 to permit certain

joint transactions.

SUMMARY OF APPLICATION: The requested

order would supersede a prior order to

permit certain registered investment

companies to invest excess cash in

money market funds advised by the

same adviser for cash management

purposes. The order also would amend

a prior order permitting a fund of funds

to purchase shares of certain investment

companies in the same group of

investment companies in excess of the

limits of section 12(d)(1).

Applicants: First American Funds,

Inc. (‘‘FAF’’), First American Strategy

Funds, Inc. (‘‘FASF’’), First American

Investment Funds, Inc. (‘‘FAIF’’),

including each current series and each

subsequently created series of FAF,

FASF and FAIF, U.S. Bank National

Association or any other entity

controlling, controlled by, or under

common control with U.S. Bank

National Association (‘‘U.S. Bank’’), and

other registered investment companies

or their series that are now or in the

future advised by U.S. Bank.

Filing Dates: The application was

filed on April 29, 1997 and amended on

October 1, 1997. Applicants have agreed

to file an additional amendment during

the notice period, the substance of

which is incorporated in this notice.

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 22, 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.

FAF, FASF, and FAIF, Oaks,

Pennsylvania 19456; U.S. Bank, 601

Second Avenue South, Minneapolis,

Minnesota 55402.

FOR FURTHER INFORMATION CONTACT:

J. Amanda Machen, Senior Counsel, at

(202) 942–7120, or Mary Kay Frech,

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, 450 Fifth

Street, N.W., Washington, D.C. 20549

(tel. 202–942–8090).

Applicants’ Representations

1. FAIF is a registered open-end

management investment company that

currently offers twenty-three series,

each of which is a variable net asset

value fund. FAF is a registered openend 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. Each existing series of FAF and

any future money market portfolio of

FAF or FAIF or of other registered

investment companies advised by U.S.

Bank are referred to collectively as

‘‘Money Market Funds.’’ Each existing

series of FAIF and any future variable

net asset value portfolio of FAIF or FAF

or of other registered investment

companies advised by U.S. Bank are

referred to collectively as ‘‘Non-Money

Market Funds.’’ The Money Market

Funds and the Non-Money Market

Funds are referred to as the ‘‘Funds.’’

2. FASF is a registered open-end

management investment company that

currently offers four series, each of

which is a variable net asset value fund.

Under an existing order (‘‘Fund of

Funds Order’’),1 FASF operates as a

‘‘fund of funds,’’ the principal

investments of which are shares of

certain series of FAIF and FAF

(‘‘Underlying Portfolios’’).

3. U.S. Bank, a wholly owned

subsidiary of U.S. Bancorp (‘‘USBC’’), a

bank holding company, serves as

investment adviser for each series of

FAIF, FAF and FASF. U.S. Bank has

retained Marvin & Palmer Associates,

Inc. (‘‘Marvin & Palmer’’) as a subadviser for FAIF’s International Fund

(U.S. Bank, Marvin & Palmer, and any

future sub-adviser to any Fund are

referred to collectively as the

‘‘Investment Advisers’’). First Trust

National Association (the ‘‘Custodian’’)

a wholly owned subsidiary of USBC,

serves as custodian for the assets of each

series of FAIF, FAF, and FASF.

4. Pursuant to an exemptive order, the

Non-Money Market Funds can invest in

the money market series of FAF in

excess of the limits of section 12(d)(1)

of the Act, so long as each Fund’s

aggregate investment in the money

market fund does not exceed the greater

of 5% of the Fund’s total net assets or

$2.5 million (‘‘Cash Sweep Order’’).2

5. Applicants request an order that

would (a) supersede the Cash Sweep

Order to permit (i) each of the Funds

(‘‘Investing Funds’’) to use the cash

reserves that have not been invested in

portfolio securities (‘‘Uninvested Cash’’)

to purchase shares of one or more of the

Money Market Funds, provided that no

Investing Fund will have more than an

aggregate of 25% of its total assets

invested in all Money Market Funds at

any time, and (ii) the Money Market

Funds to sell their shares to, and to

redeem their shares from, the Investing

Funds; and (b) amend the Fund of

Funds Order to permit FASF to invest

in shares of Underlying Portfolios that

will in turn invest in shares of the

Money Market Funds to the extent

permitted by the order sought in this

application (‘‘Amended Cash Sweep

Order’’).3 Because the Amended Cash

Sweep Order will allow the Underlying

Portfolios to invest greater amounts in

the Money Market Funds than is

allowed under the Cash Sweep Order,

condition 2 to the Fund of Funds Order

would be amended to allow FASF to

continue to invest in the Underlying

Portfolios.4

6. Each of the Funds has, or may have,

Uninvested Cash held by its Custodian.
63992 Federal Register / Vol. 62, No. 232 / Wednesday, December 3, 1997 / Notices

5Uninvested Cash does not include cash

collateral received in connection with the Investing

Funds’ securities lending activities.

Uninvested Cash may result from a

variety of sources, including dividends

or interest received on portfolio

securities, unsettled securities

transactions, reserves held for

investment strategy purposes, scheduled

maturity of investments, liquidation of

investment securities to meet

anticipated redemptions, dividend

payments, or new cash received from

investors.5 By investing Uninvested

Cash in the Money Market Funds,

applicants believe that the Investing

Funds will be able to reduce their

transaction costs, create more liquidity,

enjoy greater returns on the Uninvested

Cash and further diversify their

holdings.

Applicants’ Legal Analysis

1. Section 12(d)(1)(A) of the Act

provides that no registered investment

company may acquire securities of

another investment company if the

securities represent more than 3% of the

acquired company’s outstanding voting

stock, more than 5% of the acquiring

company’s total assets, or if the

securities, together with the securities of

other acquired investment companies,

represent more than 10% of the

acquiring company’s total assets.

Section 12(d)(1)(B) of the Act provides

that no registered open-end investment

company may sell its securities to

another investment company if the sale

will cause the acquiring company to

own more than 3% of the acquired

company’s voting stock, or if the sale

will cause more than 10% of the

acquired company’s voting stock to be

owned by investment companies. 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 fund structures.

2. Applicants’ request would permit

the Investing Funds to use Uninvested

Cash to acquire shares of Money Market

Funds in excess of the percentage

limitations set our in section

12(d)(1)(A). Applicants propose that

each Investing Fund be permitted to

invest in shares of the Money Market

Funds so long as no Investing Fund will

have more than an aggregate of 25% of

its total assets invested in all Money

Market Funds at any time. Applicants’

request also would permit Money

Market Funds to sell their securities to

Investing Funds in excess of the

percentage limitations set out in section

12(d)(1)(B). Applicants state that relief

permitting an Investing Fund to invest

up to 25% of its total net assets in shares

of the Money Market Funds is

appropriate because at any given time,

25% or more of an Investing Fund’s

total assets may be comprised of

Uninvested Cash. Applicants also

request amendment of condition 2 to the

Fund of Funds Order to permit the

FASF funds to continue to invest in

shares of Underlying Portfolios, which

in turn invest in shares of the Money

Market Funds, in reliance on the

Amended Cash Sweep Order.

3. Section 12(d)(1)(J) provides that the

SEC can exempt any persons or

transactions from section 12(d)(1) if the

exemption is consistent with the public

interest and the protection of investors.

For the following reasons, applicants

believe the proposed transactions satisfy

this standard.

4. Applicants believe that none of the

concerns underlying section 12(d)(1) are

presented by the proposed transactions.

Applicants state that, because the

Investment Advisers and their affiliates

will not derive any investment advisory

or other fees in connection with the

Investing Funds’ purchase or sale of

shares of the Money Market Funds, the

Investment Advisers are not susceptible

to undue influence in their management

of the Money Market Funds because of

threatened redemptions from the Money

Market Funds or loss of fees.

5. Applicants maintain that the

proposed arrangement would not result

in the inappropriate layering of either

sales charges or investment advisory

fees. Shares of the Money Market Funds

sold to and redeemed by the Investing

Funds will not be subject to a sales load,

redemption fee, distribution fee under

rule 12b–1 under the Act, or service fee.

In addition, each Investment Adviser

will credit to the respective Investing

Fund, or waive, the investment advisory

fees that it earns based on the Investing

Fund’s investments in the Money

Market Funds to the extent the fees are

based upon the Investing Fund’s assets

invested in shares of the Money Market

Funds.

6. Regarding the complexity of the

proposed structure, applicants note that

the net asset value of each current

Money Market Fund is, and has been

since its inception, maintained at a

constant $1.00 per share. Therefore,

applicants submit that the value of the

Investing Funds’ investments in the

Money Market Funds will be easily

determinable. In addition, applicants

maintain that the Fund of Funds Order

already permits FASF to invest in

Underlying Portfolios, which invest in

Money Market Funds, provided that the

Underlying Portfolios comply with

certain conditions. As a result,

applicants submit that no additional

complexity will be created by amending

the Fund of Funds Order to reflect the

Amended Cash Sweep Order.

7. Section 17(a) of the Act makes it

unlawful for any affiliated person of a

registered investment company, acting

as principal, to sell or purchase any

security to or from the company.

Section 2(a)(3) of the Act defines an

affiliated person of an investment

company to include any investment

adviser of the investment company and

any person directly or indirectly

controlling, or under common control

with, the investment adviser. Under

section 2(a)(3), each series within FAIF,

FASF, and FAF may be deemed to be

under common control with each of the

others, and thus an affiliated person of

each of the other series of FAIF, FASF,

and FAF. As a result, section 17(a)

would bar the sale of shares of the

Money Market Funds to the Investing

Funds, and the redemption of the shares

by the Money Market Funds.

8. Section 17(b) of the Act 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, and the proposed

transaction is consistent with the policy

of each investment company concerned

and the general purposes of the Act.

Section 6(c) of the Act permits the SEC

to exempt persons or transactions from

any provision of the Act, if the

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

submit, for the reasons discussed below,

that their request for relief satisfies these

standards.

9. Applicants submit that the

proposed transactions will not involve

overreaching because the Investing

Funds retain their ability to invest their

Uninvested Cash directly in money

market instruments, as authorized by

their respective investment objectives

and policies, if they believe they can

obtain a higher return or for any other

reason. Similarly, 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 the sales would

adversely affect its portfolio

management and operations. In

addition, applicants note that shares of

the Money Market Funds will be

purchased and redeemed at their net

asset value, the same consideration paid
Federal Register / Vol. 62, No. 232 / Wednesday, December 3, 1997 / Notices 63993

and received for these shares by any

other shareholder.

10. Section 17(d) and rule 17d–1

prohibit an affiliated person of a

registered investment company, acting

as principal, from participating in any

joint arrangement with the investment

company unless the SEC has issued an

order authorizing the arrangement. In

determining whether to grant an

exemption under rule 17d–1, the SEC

considers whether the investment

company’s participation in the joint

enterprise 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. Applicants state that

each Investment Fund, by purchasing

shares of the Money Market Funds, each

Investment Adviser, by managing the

assets of the Investing Funds, and each

of the Money Market Funds, by selling

shares to the Investing Funds, could be

deemed to be participants in a joint

enterprise. Applicants assert that

investments by the Investing Funds in

shares of the Money Market Funds will

be on the same basis and will be

indistinguishable from that of any other

participant or shareholder and that the

transactions will be consistent with the

Act. In addition, applicants state that

the proposed transactions may result in

cost savings for the Investing Funds.

Applicants’ Conditions

Applicants agree that the order

granting the requested relief will be

subject to the following conditions:

1. Shares of the Money Market Funds

sold to and redeemed from the Investing

Funds will not be subject to a sales load,

redemption fee, distribution fee under a

plan adopted in accordance with rule

12b–1, or service fee (as defined in rule

2830(b)(9) of the National Association of

Securities Dealer’s Rules of Conduct).

2. No Money Market Fund will

acquire securities of any other

investment company in excess of the

limits contained in section 12(d)(1) of

the Act.

3. 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 all Money Market Funds taken as a

group does not exceed 25% of the

Investing Fund’s total assets.

4. Each Fund shall be advised by U.S.

Bank or a person controlling, controlled

by, or under common control with U.S.

Bank.

5. Investment by an Investing Fund in

shares of a Money Market Fund will be

consistent with each Investing Fund’s

respective investment restrictions and

policies as set forth in its prospectuses

and statements of additional

information.

6. The 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.

7. FASF may continue to rely on the

Funds of Funds Order, subject to

compliance with the conditions it

contains, except for conditions 3 and 6,

which are deleted. Condition 2 to the

Fund of Funds Order is amended to

read as follows: ‘‘No Underlying

Portfolio will acquire securities of any

other investment company in excess of

the limits contained in section

12(d)(1)(A) of the Act, except to the

extent that the Underlying Portfolio

other than a Money Market Fund

acquires securities of another

investment company under exemptive

relief from the Commission permitting

the Underlying Portfolio to purchase

securities of an affiliated money market

fund for short-term cash management

purposes.’’

For the SEC, by the Division of Investment

Management, under delegated authority.

Margareet H. McFarland,

Deputy Secretary.

[FR Doc. 97–31619 Filed 12–2–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–22906; File No. 812–10752]

Fortis Benefits Insurance Company, et

al.; Notice of Application

November 24, 1997.

AGENCY: Securities and Exchange

Commission (the ‘‘SEC’’ or the

‘‘Commission’’).

ACTION: Notice of Application for an

order pursuant to Section 26(b) of the

Investment Company Act of 1940 (the

‘‘1940 Act’’).

SUMMARY OF APPLICATION: Applicants

seek an order approving the substitution

of shares of the Limited Maturity Bond

Portfolio of the Neuberger & Berman

Advisers Management Trust (‘‘N & B

Bond Portfolio’’) for shares of the Strong

Advantage Fund II series (‘‘Strong

Advantage Portfolio’’) of the Strong

Variable Insurance Funds, Inc. (‘‘Strong

Funds’’) and the substitution of shares

of the Federated Fund for U.S.

Government Securities II portfolio of

Federated Insurance Series (‘‘Federated

Government Portfolio’’) for shares of the

Strong Government Securities Fund II

series of the Strong Funds (‘‘Strong

Government Portfolio’’).

Applicants: Fortis Benefits Insurance

Company (‘‘Fortis Benefits’’) and

Variable Account D of Fortis Benefits

Insurance Company (the ‘‘Variable

Account’’).

Filing Date: The application was filed

on August 11, 1997, and amended on

October 31, 1997 .

Hearing or Notification of Hearing: An

order granting the application will be

issued unless the Commission orders a

hearing. Interested persons may request

a hearing on this application by writing

to the Secretary of the SEC and serving

Applicants with a copy of the request,

in person or by mail. Hearing requests

must be received by the Commission by

5:30 p.m. on December 19, 1997, and

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 requester’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 Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, N.W., Washington, D.C. 20549.

Applicants, 500 Bielenberg Drive,

Woodbury, Minnesota 55125.

FOR FURTHER INFORMATION CONTACT:

Susan M. Olson, Attorney, or Kevin M.

Kirchoff, Branch Chief, Office of

Insurance Products, Division of

Investment Management, at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application. The

complete application is available for a

fee from the Public Reference Branch of

the SEC, 450 Fifth Street, N.W.,

Washington, D.C. 20549 (tel. (202) 942–

8090).

Applicants’ Representations

1. Fortis Benefits, a stock life

insurance company organized under the

laws of Minnesota, is qualified to sell

life insurance contracts in the District of

Columbia and all states except New

York. Fortis Benefits is an indirect

wholly-owned subsidiary of Fortis, Inc.,

which is owned, indirectly, 50% by

Fortis AMEV and 50% by Fortis AG.

Fortis AMEV is a diversified financial