SEC Division of Investment Management staff letter: Norwest Funds - Municipal Money Market Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20549

DIVISION OF

INVESTMENT MANAGEMENT
ACT rC/l l-D

SEON August 8, 1995
/7 Let )
RULE
PUBLIC

Mr. Anthony C. J. Nuland, Esq. AVAILABILIT 8/8 /9 l.

( Seward & Kissel
1200 G Street, N.W.
Waslugton, D.C. 20005

Re: Norwest Funds - Municipal Money Market Fund

Dear Mr. Nuland:

Your letter of August 8, 1995, requests our assurace that we would not recommend that the Securities and Exchange Commission (the "Commission") tae any enforcement action under sections 17(a) and 17(d) of the Investment Company Act of 1940 ("1940 Act") "\ and the rules thereunder if Norwest Funds (the "Trust"), Norwest Corporation ("Norwest"), the parent of the Trust's investment adviser, Norwest Ban Minesota, N.A. (the "Adviser") and the Municipal Money Market Fund (the "Fund"), a portolio of the Trust, effect the trasaction summar below and more fully describe in your letter. The Fund is a money market fund that seeks to maita a stable net asset value per share of $1.00, and uses the amortiz cost method of valuation in valuing its portolio securities as permitted by rule 2a-7 under the 1940 Act. The Fund holds ta and revenue anticipation notes issued by Orage County, Calorna in the pricipal amount of $8,000,000 that mature on August 10, 1995 (the "Notes"), which constitute approxiately 2.3 percent of

net assets of the Fund. The Notes pay interest at a rate equal to 70 percent of one-month LIOR. Asa result of the Orage County banptcy filg on Decmber 6, 1994, the Fund was unable to obta reliable market quotes for the Notes, they were determined by the Fund's Trustees to be ilquid, and they were priced based on a fai value determination of

the Fund's Trustees.
In December 1994, the Fund purchased an irevocable standby letter of credit (the "LOC") from Trust Company Bank ("TCB") in order to avoid any potential losses to

shareholders of the Fund on the Notes then held by reason of the nonpayment by Orange County of principal and interest thereon at maturity. 1 The LOC provides for the full payment to the Fund of pricipal and accrued unpaid interest upon default of the Notes at TCB had an A-I + short-term rating from Standard & Poor's and a P-I short-tenn rating from Moody's.

Mr. Anthony C.J. Nuland

maturity. Norwest would be obligated to reimburse TCB for any amounts paid to the Fund under the LOC and, in consideration for that payment the Fund would trsfer the Notes to

Norwest. The LOC was entered into afer the sta of the Division of Investment Management inormed the Fund, Norwest, and the Adviser on Decmber 28, 1995, that it would not recmmend enforcement action' to the Commission if the WC wàs effected. The Fund continues to hold the Notes as indicated above and values them based on the LOC. Orage County, in al lieliood, wil not make the scheduled pricipal payment due on the Notes on August 10, 1995. Rather, Orage County has proposed, the Banptcy Court has approved, and holders of cert short-term notes issued by Orage County have agree to, a mandatory amendment of the Notes ("Amendment") that wil, among other tlugs, extend the maturity date of the Notes to June 30, 1996 ("Extended Notes"). Under the Amendment, Orage County has agree to pay in cash by August 10, 1995, al interest on the Notes accrued through that date. The Extended Notes would continue to ea interest at the sae rate as the Notes, plus 95 basis points to be paid at maturity (" Additional Interest"). Seventy-four percent of the interest on the Extended Notes would be paid periodicay in cash, and the balance of the interest (including the Additional Interest) would accrue and be paid at maturity. In addition, if interest on the Extended Notes is determined to be taable, the Amendment provides for an increase in the interest rate payable on the Extended Notes to 100 percent of LIOR. As a result of these developments, you state that the Fund, the Adviser, and Norwest plan to establish anew LOC argement wíth TCB or a comparbly rated ban (the "Ban") in the amount of $8,800,000, of which $8,00,00 represents pricipal and $800,000 represents interest, which extends through June 30, 1996 (the "New LOC").2 Under the New LOC, the Fund would have the right to drw on the New LOC both if scheduled pricipal and interest payments are not paid when due under any circumstaces, including a repudiation by Orage County of its obligations under the Amendment or a faiure to pay that is premised on violations of cert provisions of the Calorna state constitution and Calorna law. Norwest Corporation would be obligated to reimburse the Ban for any amounts paid to the Fund under the New LOC, and, in consideration for that payment, the Fund would trasfer the Extended Notes to Norwest. The Adviser has concluded that the amount of the New LOC would cover al amounts due at the maturity of the Extended Notes, including the Additional Interest and any accrued but unpaid interest. Norwest has agree to In your letter of August 8, 1995, you represent that the short-term debt obligations of any Bank issuing the New LOC would be rated in the highest rating category by the "Requisite NRSROs" (as defined in paragraph (a)(13) of rule 2a-7 under the 1940 Act), and that the Bank would not be an "affiliated person" (as that temi is defined in
section 2(a)(3) of the 1940 Act) of Norwest.
2

Mr. Anthony C.J. Nuland

reimburse the Fund for the amount of any interest (including Additional Interest) due on the Extended Notes not covered by the New LOC. , You represent that the Adviser believes that the provisions of the Amendment would enable the Fund to recive a higher yield on the Extended Notes than would currently be

avaiable through investments of similar qualty and that holding the Extended Notes would be in the best interest of Fund shareholders. The Adviser recmmended that the Trustees approve the Fund's acceptace of the Extended Notes and the New LOC. You represent that the Trustees Of the Fund, including a majority of the Trustees who are not "interested persons" as defined in section 2(a)(l9) of the 1940 Act, have determined that it is in the best interests of the Fund and its shareholders not to draw on the current LOC, but, rather, to accpt the Extended Notes and the New LOC. Ths determination was based, in par, on an evaluation of the credit qualty of the Bank, and the interest rate to be paid under the Extended Notes. You also represent that the Trustees of the Fund have determined that the Extended Notes, together with the New. LOC, are "Eligible Securities" as defined in pargraph (a)(5) of rule 2a-7 and present minal credit risks as required by pargraph (c)(3) of that rule. On the basis of the facts and representations in your letters of August 8, 1995 and Decmber 28, 1994, we wil not recommend enforcement action under sections 17(a) and l7(d) of the1940 Act and the rules thereunder if the Fund accpts the Extended Notes and enters into and cares out the terms of the New LOC. You should note that any diferent facts or representations might require a diferent conclusion. Moreover, this response expresses the Division's position on enforcement action only and does not express any legal conclusions on the issues presented. Sincerely, ~01ß Kenneth J. Berman Assistant Director

08/08/95 16:05 -d202 737 5184 SEWAR KISSEL ~UU2/UUi) £:UG£:N£: P. SOUTH£:R SEWAR & KISSEL GEORGI: C. 8EWAfO. ..LAIS£: G. IA. PASORY SENIOR COUNSE:L ALaERT A. WALSH￾ARRIAL S. COBAN 1200 G ~ë'T, N. W. L£STt:R KISS¡:i. "RUC£: O. &ENZEL RICHAD H. VALENTINE MA.tI"ENI: D.. OANCli:15 WASHIGTON, D. C. 20005 ECWAftD W. IIEUCHI:Fl JAMES H. HACOcK" ROeE:"T ... SIMON A,THONY il; "NANSFIIELD. KEITH H. EU.lS. ANTHONY C..1. HUl.O. TELEPHONE: (202) 737-ee33 ALBEft L. CALAFI:Ll ... WILUAM MUNNO RICHARD H. MaSCH ~£T1l E. PftNT FACSIMILE: (202) 737-5/84 "RANels S. RATH. OAL£ c. CI1~fSTJNSEH. .JR. COUNSEL HADLi s. ftOE RUSSELL C. PlllNCE CRAIG T. HICKERNELL ONE BATTE..'I PARK PLA ROBERT A. WALD!:" N!:W 'lORK, N.Y. 1004 JOHN E. TAV55 T£L£PHOHl:: (;:IZ) 57~-f200 WILUAM F. KUNTZ, II r"'CSIHIU:: (212) 4&0-8-42( CAViD L. FO.£5 ~ J. WOLF£:

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MARK A. BROoy
PAUL M. OOTTJ:.
JOHN .J. CLeA
MICHAEL J. NcHAMARA
IU'IAN CA
JOHN f". ftl"NEY
PATRICIA"'. POOUNCO
.AOMITTEO IN' DISTRICT OF COLUMBIA August 8, 1995

Mr. Robert E. P laze
Assistant Director

Office of Disclosure and

Investment Adviser Regulation

Division of Investment Management

U.S. Securities and Exchange Commission

450 Fifth Street, N.W.

Mail Stop 10-6

Washington, DC 20549

Re: Norwest Funds - Municipal Money Market Fund

Dear Mr. P laze:
We are counsel to Norwest Funds, a Delaware

business trust (the "Trust") registered with the Securities

and Exchange Commission (the "Commission") as an open-end

management investment company under the Investment Company

Act of 1940 (the "1940 Act"). We are writing on behalf of

the Trust and Norwest Corporation, the parent of the Trust's

investment adviser, Norwest Bank Minnesota, N. A. (the

"Adviser") to obtain assurance from the staff of the

Division of Investment Management (the "Division") that it

will not recommend enforcement action to the Commission

under Sections 17 (a) and 17 (d) of the 1940 Act, or the rules

thereunder, if the Trust and Norwest Corporation enter into

and carry out the arrangement described below.

The Municipal Money Market Fund (the "Fund") is a

portfolio of the Trust and, as a money market fund, seeks to

maintain a stable net asset value per share of $1.00 using

the amortized cost method of valuing portfolio securities

pursuant to Rule 2a-7 under the 1940 Act. Currently the

08/08/95 16 :Ö6 'B202 737 5184 SEWAR KISSEL ~ 003/005.
Mr. Robert E. P laze 2 - August 8, 1995
Fund has approximately 2.3 percent of its assets invested in

$8,000, 000 principal amount of State of California, County

of Orange, 1994-95 Tax and Revenue Anticipation Notes,

Series B (CUSIP No. 684201EN2) due August 10, 19~5 (the

"Notes") .
As a result of the filing for bankruptcy by Orange

County, the Fund was unable to obtain reliable market quotes

for the Notes, they were determined by the Fund's Trustees

to be illiquid and they were priced based on ~ fair value

determination of the Fund's Trustees. Subsequently, the

Fund sought and obtained no-action assurance from the staff

of the Division for the Fund to purchase an irrevocable

standby letter of credit (the "LOC") from the Trust Company

Bank, a Georgia banking corporation ("TCB") which has an A￾1+ short-term rating from Standard & Poor' sCorporation and

a P-l short-term rating from Moody's Investors Service Inc.

The Fund continues to hold the Notes and values them based

on the LOC. The LaC expires August 31, 1995 and provides for payment to the Fund of the principal and accrued unpaid

interest upon default of the Notes at maturity. Norwest

Corporation would be obligated to reimburse TCE for any

amounts paid to the Fund under the LOC and, in consideration

for that payment, the Fund would transfer the Notes to

Norwest Corporation.
The Fund has been informed that Orange County in

all likelihood will not make the scheduled principal

payments due on the Notes on August 10, 1995. Under a Note

Modification and Extension Agreement dated as of June 2,

1995 (the "Extension Agreement ") approved by the bankruptcy

court, Orange County intends to extend the maturity on the

Notes until June 30, 1996 (the "Extended Notes"). Under the

Extension Agreement Orange County has agreed to pay in cash

by August 10, 1995 all interest on the Notes accrued through

that date. The Extended Notes would continue to earn

interest at the same rate as the Notes (70% of LIBOR), plus

95 basis points to be paid at maturity ("Additional

Interest"). 7 4 percent of the interest on the Extended

Notes would be paid periodically in cash, and the balance of

the interest (including the Additional Interest) would

accrue and be paid at maturity. In addition, if interest on

the Extended Notes is determined to be taxable, the

Extension Agreement provides for an increase in the interest

rate payable on the Extended Notes to 100 percent of LIBOR.

As a result of these developments, the Fund, the

Adviser and Norwest Corporation propose to establish a new

08/08/95 16: 07 -d202 737 5184 SEWAl KISSEL ~UU4/UUi):
Mr. Robert E. P laze 3 AugUst 8, 1995
LOC arrangement with TCB or a comparably rated bank (t~e

"Bankll) in the amount of $8,800,000, of which $8,000,000

represents principal and $800, 000 represents intIrest, which

would run through June 30, 1996 (the "New LOC"). \ Under the New LOC, the Fund would have the right to draw on. the Bank

both if scheduled principal and interest payments are not

paid when due under any circumstances, including a

repudiation by Orange County of its obligations under the

Extension Agreement or a failure to pay that is premised on

violations of certain provisions of the California State

Constitution and California law. Norwest Corporation would

be obligated to reimburse the Bank for any amounts paid to

the Fund under the New LOC, and, in consideration for that

payment, the Fund would transfer the Extended Notes to Norwest Corporation. The Adviser has concluded that the amount of the New LOC would cover all amounts due at the

maturity of the Extended Notes, including the Additional

Interest and any .accrued but unpaid interest. Norwest

Corporation has agreed to reimburse the Fund for the amount

of any interest (including Additional Interest) due on the

Extended Notes not covered by the New LOC.

The Adviser believes that the provisions of the

Extension Agreement would enable the Fund to receive a

higher yield on the Extended Notes than would currently be

avaiiable through investments of similar quality and that

holding the Extended Notes would be in the best interests of

Fund shareholders and has recommended that the Trustees

approve the Fund's acceptance of the Extended Notes and. the

New LOC. At a meeting held on July 24, 1995, the Trustees

of the Fund, including a majority of the Trustees who are

not "interested persons" of the Fund as that term is defined

in Section 2 (a) (19) of the 1940 Act, determined that it would be in the best interests of the Fund and its shareqolders not to draw on the current LOC and to accept the Extended Notes and the New LOC. This determination was based in part on an evaluation of the credit quality of the Bank and the interest rate to be paid under the Extended Notes. The Trustees have also determined that the Extended Note~, together with the New LOC, are "eligible securities, ~
l. The Fund represents that the short-term debt obligations

of any Bank issuing the New LOC would be rated in the

highest rating category by the "Requisite NRSROs," as

that term is defined in paragraph (a) (13) of Rule 2a-7,

and that the Bank would not be an "affiliated person,"

as that term is defined in Section 2 (a) (3) 0 f the i 940 Act, of Norwest Corporation.

08/08/95 16: 08 U'202 737 5184 SEWARD KISSEL . , tm005/005 Mr. Robert E. P laze 4 August 8, 1995

as that term is defined in paragraph (a) (5) of Rule 2a~7

under the 1940 Act, and present minimal credit risks as required by paragraph (c) (3) of that rule. For the above reasons, we request that the.. Staff confirm that it would not recommend any enforcement action

to the Commission under Section 17 (a) and 17 (d) and any rules thereunder if the Fund were to accept the Extended

Notes and enter into and carry out the terms of the New LOC.

In view of the Notes' August 10 maturity, we would

appreciate receiving the staff's response prior to that

date. We would appreciate also having the opportunity to

discuss this matter further if the staff is considering a

negative response to this request. Please telephone the

undersigned at (202) 737-8833 if you have any questions.

Anthony C. J. Nuland
KMroadwater : trg
47180160.CK1

SEWARD KISSEL
~002
12123/94 17: 53 '6202 737 5184
SEWARD & KISSEL
GEORO£ C. SEWARO. Gt:NE: P. SOUTHCfI SENIOR COUNS£L ~IS£ Q. A. PA.o," .!~RT A. WALSH. 1200 G STRET, N. W. LUTER KISSEL .ARtAL S. COGAN R'CHAAD H. VALENTIN£ B~UC£ O. SENZEL WAS~OTON, D. C. 2CK~ EOWAAO W. .EUC14EAT ....RL"N" O. O"N'''LS _EAT .. .,MOH JAMES H. HANCOCK' KEITH H. ELUS' ANTHONY A. NASf'IELO' ALBEATO ~ CALAI'ELL ANTHONY C. oJ. NULANO. TELEPHONE: (202) 737-8833 RICHAAD H. M£TSCH M. WIWAW MUNNO BRADFORD.J. RACE, .JR. I"..C5IMIL&:: (202) 737-5184 COUNSEL PS:TS:R E. PRONT" DAt. C. CHIII.TENSEN, JR.

DAVIO L. I'O."S ONE _TTEAY ,"11K ~ HADLEY So IIE NEW YO," N.Y. 1004

RUSS£:U. C. ",,"'NC" TEL.llHOfE' ia.a) 574-.aoo CRAIO T. HICKERNnL FACSIMILE: ca.i. .ao",11 J"NET R. ZlMME'" "OIlERT Â. WALOE" ,JOHN E. TAVas REPAUEHTATIVE OFFICE WILLIAM F. KUNTz. II HÁOO UTCA II GARY.J. WO..E 105' aU_",iiaT, HUNClIl LAWRENCE AUTKOWSKI TC~"HONir: (a... laa-7U. IONALO L. COWEN ""C..NILI: .~.u Ula-7e40 MARK .J. HYLAND P'AUL T. CLARK. JON"TH"N .EAGEII THO....S G. M4CDONALD MARK ... .AOD' PAUL M. OOTTL'''II JOHN J. CLU.AY frlCHA.L oJ. MCNAMARA KALYAN gA JOHN f'. RIGNi. Decemer 28, 1994 PAT..ICIA A. POGLINCO -"OMITT£O IN OISTRICT or COLUloalA

VIA FACSnULB

Mr. Kenneth J. Berm
Deputy Chief
Office of Disclosure and Investment

Adviser Regulation

Division of Investment Management

u. S. Securities and Exchange Commission

450 Fifth street, N.W.

Mail Stop 10-6

Washington, D. C. 20549

Re: Norwest Funds Municipal Money Market Fund

Dear Mr. Bermn:
We are counsel to Norwest Funds, a Delaware trust

(the Trust.) registered with the Securities and Exchange

Commission (the .Commission.) as an investment company

pursuant to the Investment Company Act of 1940, as amended

(the "Actll). We are writing on behalf of the Trust and Norwest Corporation, the parent of the Trust i s investment advi s er i Norwes t Bank Minnesota, N. A. ( the "Inves tmen t Adviser") to obtain assurance from the staff of the Division

of Investment Management (NDivision.) that it will not

recommend enforcement action to the Commssion under

Sections 17 (a) and 17 (d) of the Act, or the rules

thereunder, if the Trust and Norwest Corporation enter into

the arrangement described below.

SEWARD KI SSEL 12/28/94 18: 27 '8202 737 5184 ~002 December 28 i 1994 Mr. Kenneth J. Bermn Page 2 The Municipal Money Market Fund (the II Fund ") is a portfolio of the Trust and, as a money market fund, seeks to

maintain a stable net asset value per share of $1.00 using

the amortized cost method of valuing portfolio securities.

Currently, the Fund had approximately 2.52 percent of its

net assets invested in $8,000,000 principal amunt of state

of California, County of Orange, 1994-95 Tax and Revenue

Anticipation Notes, Series B (CUSIP No. 68420lEN2) due August 10, 1995 (the -Notes-). As a result of the filing for bankruptcy by Orange

County, the Fund is concerned that the Notes may not. be paid

at maturity and is purchasing an irrevocable standby letter

of credit (the -letter of credit") from the Trust Company

Bank, a Georgia banking corporation (the "Bank-) which has

an A-l+ short-te~ rating from Standard & poor's and a P-l

short-term rating from Moody's. The letter of credit

provides for payment to the Fund of principal and accrued

unpaid interest upon default of the Notes at maturity. The

letter of credit would protect shareholders of the Fund from

potential loss on the Notes. Norwest Corporation would

reimburse the Bank for any amounts paid to the Fund under

the letter of credit and would have the Notes transferred to

it in the event of a payment under the letter of credit.

The Trustees of the Trust have approved the proposed

arrangement as being in the best interests of the Fund and

its shareholders and directed the Investment Adviser to draw

on the letter of credit in the event of a default on the

Notes at maturity.
The Trust and Norwest Corporation are requesting

assurances form the staff of the Division because, as an

affiliate of the investment adviser (which is an affiliated person of the fund within the meaning of Section 2 (a) (3) of the Act) Norwest Corporation's participation in the

arrangement could be deemed to fall within the prohibitions

of Section 17(a) and 17(d) of the Act, which make it

unlawful for any affiliated person of an affiliated person

of an investment company to effect certain transactions with

the investment company or to which it is a party.

If you have any questions concerning the foregoing

arrangement, please telephone the undersigned at (202) 737
8833. j~ Anthony C. J. Nuland

ACJN: akd
0555C.AQ7