67424 Federal Register / Vol. 65, No. 218 / Thursday, November 9, 2000 / Notices

purpose of the National Securities

Markets Improvement Act of 1996

(‘‘NSMIA’’) in amending the Act to

‘‘provide more effective and less

burdensome regulation.’’ Sections 26(e)

and 27(i) were added to the Act to

implement the purposes of NSMIA and

Congressional intent. The application of

Credits to purchase payments under the

Contracts should not raise any questions

as to Principal Life’s compliance with

the provisions of Section 27(i).

However, to avoid any uncertainty as to

full compliance with the Act,

Applicants request an exemption from

Sections 2(a)(32) and 27(i)(2)(A), to the

extent deemed necessary, to permit the

recovery of Credits under the

circumstances described in the

Application with respect to Contracts

and Future Contracts, without the loss

of relief from Section 27 provided by

Section 27(i).

8. Section 22(c) of the Act authorizes

the Commission to make rules and

regulations applicable to registered

investment companies and to principal

underwriters of, and dealers in, the

redeemable securities of any registered

investment company to accomplish the

same purposes as contemplated by

Section 22(a). Rule 22c–1 thereunder

prohibits a registered investment

company issuing any redeemable

security, a person designated in such

issuer’s prospectus as authorized to

consummate transactions in any such

security, and a principal underwriter of,

or dealer in, such security, from selling,

redeeming, or repurchasing any such

security except at a price based on the

current net asset value of such security

which is next computed after receipt of

a tender of such security for redemption

or of an order to purchase or sell such

security. Principal Life’s recovery of

Credits as described in the Application

might arguably be viewed as involving

the redemption of redeemable securities

for a price other than one based on the

current net asset value of the Account.

9. Applicants believe that the

recovery of the Credits does not violate

Section 22c–1 and Rule 22c–1. Such

recovery does not involve either of the

harms that Rule 22c–1 was intended to

eliminate or reduce, namely: (i) The

dilution of the value of outstanding

redeemable securities of registered

investment companies through their

sale at a price below net asset value or

repurchase at a price above it, and (ii)

other unfair results, including

speculative trading practices. These

harms resulted from the practice of

basing the price of a mutual fund share

on the net asset value per share

determined as of the close of the market

on the previous day. Such backward

pricing allowed investors to take

advantage of increases or decreases in

net asset value that were not yet

reflected in the price, thereby diluting

the value of outstanding fund shares.

10. Applicants submit that the

recovery of Credits as described in the

Application does not pose such a threat

of dilution. In effecting recoveries,

Principal Life will redeem interests in a

Contract owner’s Contract at a price

determined on the basis of the current

net asset value of the sub-account(s) to

which the owner’s Contract value is

allocated. The amounts recovered will

equal the Credits that Principal Life has

paid out of general account assets.

Except where state law requires that the

full amount of the purchase payment be

refunded, the Contract owners will be

entitled to retain any investment gains

attributable to the Credits, and the

amounts of such gains will be

determined on the basis of the current

net asset values of the applicable subaccounts. Under these circumstances, in

Applicants’ view, the recovery of the

Credits does not involve dilution.

Applicants further submit that the

second harm that Rule 22c–1 was

designed to address, namely speculative

trading practices calculated to take

advantage of backward pricing, will not

occur as a result of the recovery of

Credits.

11. Applicants contend that, because

neither of the harms that Rule 22c–1

was meant to address are found in the

recovery of Credits, Rule 22c–1 and

Section 22(c) should not be construed as

applicable thereto. However, to avoid

any uncertainty in this regard,

Applicants request an exemption from

the provisions of Section 22(c) and Rule

22c–1 to the extent deemed necessary to

permit them to recover Credits under

the Contracts and Future Contracts as

described in the Application.

12. Applicants submit that their

request for an order that applies to

Future Accounts and Future Contracts

that are substantially similar in all

material respects to the Contracts and

underwritten or distributed by Princor

or Affiliated Broker-Dealers is

appropriate in the public interest. Such

an order would promote

competitiveness in the variable annuity

market by eliminating the need to file

redundant exemptive applications,

thereby reducing administrative

expenses and maximizing the efficient

use of Applicants’ resources. Investors

will not receive any benefit or

additional protection if Applicants are

required repeatedly to seek exemptive

relief presenting no issue under the Act

that has not already been addressed in

the Application. Having Applicants file

additional applications would impair

Applicants’ ability to effectively take

advantage of business opportunities as

they arise. Applicants undertake that

Future Contracts funded by the Account

or by Future Accounts which seek to

rely on the order issued pursuant to this

Application will be substantially similar

in all material respects to the Contracts.

Conclusion

Section 6(c) of the Act, in pertinent

part, provides that the Commission, by

order upon application, may

conditionally or unconditionally

exempt any persons, security or

transaction, or any class or classes of

persons, securities or transactions, from

any provision or provisions of the Act,

or any rule or regulation thereunder, to

the extent that such 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

that, for the reasons stated in the

Application, their exemptive requests

meet the standards set out in Section

6(c) and that an order should, therefore,

be granted.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 00–28750 Filed 11–8–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Investment Company Act Release No.

24727; 812–12244]

Firstar Funds, Inc., et al.; Notice of

Application

November 3, 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.

Summary of the Application:

Applicants request an order to permit

certain series of Firstar Funds, Inc.

(‘‘Firstar’’) to acquire all of the assets

and liabilities of all of the series of

Firstar Stellar Funds (‘‘Stellar’’),

Mercantile Mutual Funds, Inc.

(‘‘Mercantile’’), and Firstar Select Funds

(‘‘Select’’) (the ‘‘Reorganizations’’).

Because of certain affiliations,

applicants may not rely on rule 17a–8

under the Act.

Federal Register / Vol. 65, No. 218 / Thursday, November 9, 2000 / Notices 67425

1A registration statement for the Shell Acquiring

Funds was filed with the Commission on

September 20, 2000, and it is anticipated that it will

be declared effective on November 17, 2000.

2The Firstar Group does not hold more than 5%

of the outstanding voting securities of the

Mercantile Conning Money Market Portfolio and

the Firstar Conning Money Market Fund.

Applicants will rely on Rule 17a-8 under the Act

and not the requested order for the merger of these

Funds.

3The Acquired Funds and their corresponding

Acquiring Funds are: (1) Stellar Treasury Fund,

Mercantile Treasury Money Market Portfolio and

Firstar U.S. Treasury Money Market Fund; (2)

Stellar Tax-Free Money Market Fund, Mercantile

Tax-Exempt Money Market Portfolio and Firstar

Tax-Exempt Money Market Fund; (3) Mercantile

Bond Index Portfolio, Mercantile Government &

Corporate Bond Portfolio and Firstar Aggregate

Bond Fund; (4) Stellar U.S. Government Income

Fund, Mercantile U.S. Government Securities

Portfolio and Firstar U.S. Government Securities

Fund; (5) Stellar Insured Tax-Free Bond Fund,

Mercantile National Municipal Bond Portfolio and

Firstar National Municipal Bond Fund; (6)

Mercantile Money Market Portfolio and Firstar

Money Market Fund; (7) Mercantile Intermediate

Corporate Bond Portfolio and Firstar Intermediate

Bond Market Fund; (8) Mercantile ShortIntermediate Municipal Portfolio and Firstar TaxExempt Intermediate Bond Fund; (9) Mercantile

Balanced Portfolio and Firstar Balanced Growth

Fund; (10) Mercantile Equity Index Portfolio and

Firstar Equity Index Fund; (11) Mercantile Growth

& Income Equity Portfolio and Firstar Growth &

Income Fund; (12) Mercantile Growth Equity

Portfolio and Firstar Growth Fund; (13) Mercantile

Small Cap Equity Portfolio and Firstar Emerging

Growth Fund; (14) Mercantile International Equity

Portfolio and Firstar Core International Equity

Fund; (15) Stellar Fund and Firstar Balanced

Income Fund; (16) Stellar Capital Appreciation

Fund and Firstar MidCap Index Fund; (17)

Mercantile Conning Money Market Portfolio and

Firstar Conning Money Market Fund; (18)

Mercantile Missouri Tax-Exempt Bond Portfolio

and Firstar Missouri Tax-Exempt Bond Fund; (19)

Mercantile Equity Income Portfolio and Firstar

Equity Income Fund (shell); (20) Mercantile Small

Cap Equity Index Portfolio and Firstar Small Cap

Index Fund (shell); (21) Stellar Ohio Tax-Free

Money Market Fund and Firstar Ohio Tax-Exempt

Money Market Fund (shell); (22) Stellar Strategic

Income Fund and Firstar Strategic Income Fund

(shell); (23) Stellar Growth Equity Fund and Firstar

Large Cap Growth Fund (shell); (24) Stellar Relative

Value Fund and Firstar Relative Value Fund (shell);

(25) Stellar Science & Technology Fund and Firstar

Science & Technology Fund (shell); (26) Stellar

International Equity Fund and Firstar Global Equity

Fund (shell); and (27) Select Fund and Firstar REIT

Fund (shell).

Applicants: Firstar, Stellar,

Mercantile, Select, Firstar Investment

Research & Management Company, LLC

(‘‘FIRMCO’’), and Firstar Bank, N.A.

(‘‘Firstar Bank’’).

Filing Dates: The application was

filed on September 13, 2000. Applicants

have agreed to file an amendment to the

application 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 November 24, 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 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

Commission’s Secretary.

ADDRESSES: Secretary, Commission, 450

Fifth Street, NW., Washington, DC

20549–0609. Applicants: Firstar, Stellar,

and Mercantile, 615 East Michigan

Street, Milwaukee, WI 53201–3011;

Select, 431 North Pennsylvania Street,

Indianapolis, IN 46204; FIRMCO, Firstar

Center, 777 East Wisconsin Avenue,

Suite 800, Milwaukee, WI 53202; and

Firstar Bank, 425 Walnut Street,

Cincinnati, OH 45202.

FOR FURTHER INFORMATION CONTACT:

Susan K. Pascocello, Senior Counsel, at

(202) 942–0674, or Michael W. Mundt,

Branch Chief, at (202) 942–0578

(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 from the

Commission’s Public Reference Branch,

450 Fifth Street, NW., Washington, DC

20549–0102 (telephone (202) 942–8090).

Applicants’ Representations

1. Stellar, a Massachusetts business,

Select, an Ohio business trust, and

Mercantile, a Maryland corporation, are

registered under the Act as open-end

management investment companies and

are comprised of 12, 1 and 19 series

respectively (the ‘‘Acquired Funds’’).

Firstar, a Wisconsin corporation, is

registered under the Act as an open-end

management investment company.

Firstar is comprised of 36 series, 27 of

which will participate in the

Reorganizations. Sixteen of the

participating series are currently

operating (the ‘‘Existing Acquiring

Funds’’) and eleven are newly organized

shell series (the ‘‘Shell Acquiring

Funds,’’ and together with the Existing

Acquiring Funds, the ‘‘Acquiring

Funds’’). 1 The Acquiring Funds and the

Acquired Funds are collectively referred

to as the ‘‘Funds.’’

2. FIRMCO is registered under the

Investment Advisers Act of 1940

(‘‘Advisers Act’’) and is the investment

adviser for Stellar, Mercantile and the

Existing Acquiring Funds, and will

serve as the investment adviser to the

Shell Acquiring Funds. Firstar Bank,

N.A. (‘‘Firstar Bank’’) serves as

investment adviser to Select’s series, the

Select REIT-Plus Fund (the ‘‘Select

Fund’’), and is exempt from registration

under the Advisers Act. FIRMCO and

Firstar Bank are subsidiaries of Firstar

Corporation.

3. FIRMCO, Firstar Bank and certain

of their affiliated companies that are

under common control with Firstar

Corporation (the ‘‘Firstar Group’’), hold

of record in their name, and in the

names of their nominees, more than 5%

(and with respect to certain Funds more

than 25%) of the outstanding voting

securities of certain of the Funds.2 All

of these securities are held for the

benefit of others in a trust, agency,

custodial, or other fiduciary or

representative capacity, except that

certain of the companies of the Firstar

Group may, at times, own economic

interests in certain money market Funds

for their own account. Some of these

securities are held for the benefit of

employee benefit plans for employees of

Firstar Corporation and its affiliates.

4. On June 6, 7, 13, 16, July 11, 13,

20, and August 15, 2000, the boards of

directors or trustees of Firstar, Stellar,

Select and Mercantile (together, the

‘‘Boards’’), including the directors or

trustees who are not ‘‘interested

persons,’’ as defined in section 2(a)(19)

of the Act (‘‘Independent Directors’’),

unanimously approved Plans of

Reorganization (each a ‘‘Plan’’ and

collectively, the ‘‘Plans’’) between

Firstar and Stellar, Select and

Mercantile. Pursuant to the Plans, each

Acquiring Fund will acquire all of the

assets and liabilities of the

corresponding Acquired Fund in

exchange for shares of the Acquiring

Fund.3

5. The various Funds have multiple

classes of shares. The number of

Acquiring Fund shares to be issued to

shareholders of the Acquired Fund will

be determined by dividing the aggregate

net assets of each Acquired Fund class

by the net asset value per share of the

corresponding Acquiring Fund class,

each computed as of the close of

business immediately prior to the

effective time of the Reorganization

(‘‘Effective Time’’). Applicants state that

the matching of classes was done in a

way that provides the closest alignment

between distribution channels and/or

servicing and distribution-related

expenses of each Acquired Fund and

Acquiring Fund share class. In addition,

Applicants represent that the rights and

obligations of each class of shares of the

Acquired Funds are substantially

67426 Federal Register / Vol. 65, No. 218 / Thursday, November 9, 2000 / Notices

4The two classes of Select Fund will be

reorganized into one class of Firstar REIT Fund,

which, unlike the classes of Select Fund, is not

subject to a distribution or shareholder servicing

plan.

similar to those of the corresponding

class of shares of the Acquiring Funds

into which they will be reorganized.4

For purposes of calculating the deferred

sales charges of shares of Acquiring

Fund classes that charge a contingent

deferred sales load, shareholders of the

Acquired Funds will be deemed to have

held the shares of the corresponding

Acquiring Fund since the date the

shareholders initially purchased the

shares of the Acquired Fund.

6. Applicants state that the

investment objectives, policies, and

restrictions of each Acquiring Fund are

substantially similar to those of its

corresponding Acquired Fund. No sales

charge will be imposed in connection

with the Reorganizations. The Plans

provide that Acquiring Fund shares will

be distributed pro rata to the

shareholders of record in the applicable

Acquired Fund class, determined as of

the close of business immediately prior

to the Effective Time, in complete

liquidation of each Acquired Fund.

Applicants anticipate that the

Reorganizations will be completed on or

about November 27, 2000.

7. The Boards, including the

Independent Directors, unanimously

found that participation in the

Reorganizations is in the best interest of

each Fund and its shareholders and that

the interests of existing shareholders of

the Funds will not be diluted as a result

of the Reorganizations. In approving the

Reorganizations, the Boards considered,

among other things, (a) the potential

effect of the Reorganizations; (b) the

expense ratios of the Acquiring Funds

and the Acquired Funds; (c) the

compatibility of the investment

objectives and investment strategies of

the Acquiring Funds and the Acquired

Funds; (d) the terms and conditions of

the Plans; and (e) the tax-free nature of

the Reorganizations. FIRMCO or one of

its affiliates (not the Funds) will assume

all expenses incurred by the Funds in

connection with the Reorganizations.

8. The Plans may be terminated by

mutual written consent of the Acquiring

Funds and Acquired Funds at any time

prior to the Effective Time. In addition,

either party may terminate the Plans in

writing without liability to the

terminating party if certain conditions

are not satisfied prior to the Effective

Time.

9. The registration statement on Form

N–14 for Firstar (which contains a

combined prospectus/proxy statement

for each of Stellar and Mercantile) was

filed with the Commission on

September 7, 2000, and the registration

statement was declared effective on

October 7, 2000. The combined

prospectus/proxy statements contained

in the N–14 registration statement were

mailed to shareholders of Stellar and

Mercantile on October 23, 2000. The

definitive proxy materials for Select

were filed with the Commission on

October 6, 2000, and were sent to the

shareholders of Select on October 11,

2000. A special meeting of shareholders

of Select to consider the Reorganizations

is to be held on November 8, 2000, and

special meetings of the shareholders of

Stellar and Mercantile are to be held on

November 24, 2000.

10. The consummation of the

Reorganizations is subject to certain

conditions, including: (a) A registration

statement under the Securities Act of

1933 for the Acquiring Funds will have

become effective; (b) the Acquired Fund

shareholders will have approved the

Plans; (c) applicants will have received

exemptive relief from the Commission

to permit the Reorganizations; (d) the

Funds will have received an opinion of

counsel concerning the tax-free nature

of the Reorganizations; and (e) each

Acquired Fund that is not reorganizing

into a corresponding Shell Acquiring

Fund will have declared a dividend to

distribute substantially all of its

investment company taxable income

and net capital gain, if any, to its

shareholders. Applicants agree not to

make any material changes to the Plans

that affect the application without prior

Commission 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 such a 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; and (c) any

person directly or indirectly controlling,

controlled by, or under common control

with the other person.

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, or affiliated

persons of an affiliated person, 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 state that the Firstar

Group holds of record more than 5%

(and in some cases more than 25%) of

the outstanding voting securities of

certain Funds. Because of this

ownership, applicants state that these

Funds may be deemed affiliated persons

for reasons other than those set forth in

rule 17a–8 and therefore unable to rely

on the rule. Applicants request an order

pursuant to section 17(b) of the Act

exempting them from section 17(a) to

the extent necessary to consummate the

Reorganizations.

4. Section 17(b) of the Act provides

that the Commission may exempt a

transaction from the provisions of

section 17(a) if 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 submit that the terms of

the Reorganizations satisfy the

standards set forth in section 17(b).

Applicants note that the Boards,

including all of the Independent

Directors, found that participation in the

Reorganizations is in the best interests

of each Fund and its shareholders and

that the interests of the existing

shareholders of each Fund will not be

diluted as result of the Reorganizations.

Applicants also note that the

Reorganizations will be based on the

Funds’ relative net asset value.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–28795 Filed 11–8–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–24728; File No. 812–12068]

National Life Insurance Company, et

al.; Notice of Application

November 3, 2000.

AGENCY: Securities and Exchange

Commission (‘‘Commission’’).

ACTION: Notice of Application for an

order under the Investment Company