[Federal Register Volume 65, Number 186 (Monday, September 25, 2000)]
[Notices]
[Pages 57631-57633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-24546]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24645]


First American Investment Funds, Inc. and U.S. Bank National 
Association; Notice of Application

September 19, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an 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: Applicants request an order to permit a series 
of a registered open-end management investment company to acquire all 
of the assets, subject to the liabilities, of another series of the 
investment company. Because of certain affiliations, applicants may not 
rely on rule 17a-8 under the Act.

APPLICANTS: First American Investment Funds, Inc. (``FAIF'') and U.S. 
Bank National Association (``U.S. Bank'').

FILING DATES: The application was filed on September 11, 2000. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in this notice.

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 by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 10, 2000 and should be accompanied by proof of service 
on applicants, in the form of an affidavit, or, for lawyers, a 
certificate of service. Hearing request 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549-0609; Applicants: c/o Thomas A. Berreman, Esq., U.S. Bank 
National Association, U.S. Bank Place, MPFP 2016, 601 Second Avenue 
South, Minneapolis, MN 55402.

FOR FURTHER INFORMATION CONTACT: Deeptak T. Pai, Senior Counsel, at 
(202) 942-0574 or Janet M. Grossnickle, Branch Chief, at (202) 942-
0564, (Division of Investment Management, Office of Investment Company 
Regulation).

[[Page 57632]]


SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C. 20549-0102 (telephone (202) 942-8090).

Applicants' Representation

    1. FAIF, a Maryland corporation, is registered under the Act as an 
open-end management investment company and is currently comprised of 
thirty series, including the International Index Fund (the ``Acquired 
Fund'') and the International Fund (the ``Acquiring Fund'' and together 
with the Acquired Fund, the ``Funds'').
    2. U.S. Bank is the investment adviser for the Funds. U.S. Bank is 
a national banking association and currently is exempt from 
registration as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act''). The Acquiring Fund is subadvised by 
Marvin & Palmer Associates, Inc. (the ``Subadviser'') which is a 
registered investment adviser under the Advisers Act. The Subadviser is 
not an affiliated person of U.S. Bank.
    3. U.S. Bank is a wholly-owned subsidiary of U.S. Bankcorp, a 
publicly-owned multistate bank holding company. U.S. Bank Trust 
National Association (``U.S. Bank Trust'' and together with U.S. Bank 
and any entity controlling, controlled by, or under common control 
(within the meaning of section 2(a)(9) of the Act) with U.S. Bank, 
``U.S. Bancorp Affiliates'') is also a wholly-owned subsidiary of U.S. 
Bancorp. U.S. Bancorp Affiliates, directly or through a nominee, are 
record holders of more than 5% (and in the case of the Acquiring Fund, 
more than 25%) of the outstanding shares of each of the Funds, and they 
hold or share voting power and/or investment discretion with respect to 
a portion of these shares, or have a funding obligation to defined 
benefit plans which own 25% or more of the outstanding shares of the 
Acquired Fund. The Fund shares held of record by U.S. Bancorp 
Affiliates are held for the benefit of others in a trust, agency, 
custodial or other fiduciary or representative capacity.
    4. On May 18, 2000, the board of directors of FAIf (the ``Board''), 
including all of the directors who are not ``interested persons'' as 
defined in section 2(a)(19) of the Act (``Independent Directors''), 
unanimously approved the proposed reorganization of the Acquired Fund 
with and into the Acquiring Fund (the ``Reorganization Agreement'' and 
the transaction, the ``Reorganization''). The Reorganization is 
expected to occur on or about October 13, 2000. The Reorganizaion 
Agreement provides for: (a) the transfer of all of the assets and 
liabilities of the Acquired fund to the Acquiring Fund in exchange for 
shares of designated classes of the Acquiring Fund; and (b) the 
distribution of these Acquiring Fund shares to the shareholders of the 
Acquired Fund in liquidation of the Acquired Fund. In the 
Reorganization, Acquired fund shareholders will receive Acquiring Fund 
shares of the class which corresponds to that of their class of 
Acquired Fund shares, and which have an aggregate net asset value 
equal, at the effective time of the Reorganization (the ``Effective 
Time''), to the aggregate net asset value of their Acquired Fund 
shares. As soon as practicable after the Effective Time, the Acquired 
Fund will distribute these shares pro rata to its share holders of 
record, determined as of the Effective Time, and will liquidate. The 
value of the assets of the Funds will be determined in the manner set 
forth in the Funds' then current prospectuses and statements of 
additional information.
    5. Applicants state that the investment objectives, policies, and 
restrictions of the Acquired Fund are similar to those of the Acquiring 
Fund. Each of the Funds ha four classes of shares. The classes of 
shares of the Acquiring Fund to be issued in the Reorganization are 
subject to the identical distribution fees and charges as the Acquired 
Fund. For purposes of calculating any contingent deferred sales 
charges, the Acquired Fund shareholders will be deemed to have held 
shares of the Acquiring Fund since the date the shareholders initially 
purchased the shares of the Acquired Fund. No sales charge will be 
imposed upon the Acquired Fund shareholders in connection with the 
Reorganization.
    6. The Board found that the Reorganization is in the best interests 
of each of the Funds and their shareholders and that the interests of 
existing shareholders of the Funds will not be diluted as a result of 
the Reorganization. The Board considered among other things: (a) The 
advantages which may be realized by the Acquired Fund, consisting of 
the potential for enhanced investment performance; (b) the 
Reorganization is a way to avoid significant adverse tax consequences 
to the Acquired Fund shareholders in the event that the defined benefit 
plans exchanged acquired Fund shares for Acquiring Fund shares; (c) the 
tax-free nature of the Reorganization; (d) the terms and conditions of 
the Reorganization Agreement; and (e) the agreement of U.S. Bank to 
bear the costs associated with the Reorganization.
    7. The Reorganization is subject to a number of conditions 
precedent, including: (a) approval of the Reorganization Agreement by 
the shareholders of the Acquired Fund; (b) the receipt of an opinion of 
counsel with respect to the tax-free nature of the Reorganization; (c) 
the receipt of certain certificates from the parties concerning the 
continuing accuracy of the representations and warranties in the 
Reorganization Agreement; (d) the receipt of exemptive relief from the 
Commission; and (e) the parties' performance in all material respects 
of their respective agreements and undertaking in the Reorganization 
Agreement. The Reorganization Agreement provides that the 
Reorganization may be abandoned at any time prior to the Effective Time 
upon the mutual consent of the Funds, or if determined by the Board 
that proceeding with the Reorganization is inadvisable. Applicants 
agree not to make any material changes to the Reorganization Agreement 
without prior approval of the Commission.
    8. A registration statement on Form N-14, containing a combined 
prospectus/proxy statement, was filed with the Commission on July 3, 
2000 and was mailed to shareholders of the Acquired Fund on August 10, 
2000. The Reorganization was approved by the shareholders on September 
15, 2000.

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 
such a person, acting as principal, form selling any security to, or 
purchasing any security from, the company. Section 2(a)(3) for the Act 
defines an ``affiliated person'' of another person to include (a) any 
person directly or indirectly owning, controlling, or holding with 
power to vote 5% or more of the outstanding voting securities of the 
other person; (b) any person 5% or more of whose 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. Applicants state that the Funds may be deemed affiliated 
persons and thus the Reorganization may be prohibited by section 17(a).
    2. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) mergers, consolidations, or purchases or

[[Page 57633]]

sales of substantially all of the assets of registered investment 
companies that are affiliated persons, or affiliated persons of an 
affiliated person, solely by reason of having a common investment 
adviser, common directors, and/or common officers, provided that 
certain conditions are satisfied.
    3. Applicants state that they may not rely on rule 17a-8 because 
the Funds may be deemed to be affiliated for reasons other than those 
set forth in the rule. U.S. Bancorp Affiliates hold a record 5% or more 
of the outstanding shares of each of the Funds, and hold or share 
voting power and/or investment discretion with respect to a portion of 
these shares, or have a funding obligation to defined benefit plans 
which own 5% or more of the outstanding shares of the Acquired Fund.
    4. Section 17(b) of the Act provides that the Commission may exempt 
a transaction from the provisions of section 17(a) if the evidence 
establishes that the terms of the proposed transaction, including the 
consideration to be paid, are reasonable and fair and do not involve 
overreaching on the part of any person concerned, and that the proposed 
transaction is consistent with the policy of each registered investment 
company concerned and with the general purposes of the Act.
    5. Applicants request an order under section 17(b) of the Act 
exempting them from section 17(a) of the Act to the extent necessary to 
permit applicants to complete the Reorganization. Applicants submit 
that the Reorganization satisfies the standards of section 17(b) of the 
Act. Applicants state that the Board has found that participation in 
the Reorganization Agreement is in the best interests of each Fund and 
its shareholders, and that the interests of the existing shareholders 
will not be diluted as a result of the Reorganization. In addition, 
applicants state that the exchange of Acquired Fund shares for 
Acquiring Fund shares will be based on net asset value.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-24546 Filed 9-22-00; 8:45 am]
BILLING CODE 8010-01-M