[Federal Register Volume 65, Number 18 (Thursday, January 27, 2000)]
[Notices]
[Pages 4449-4451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-1910]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24259; 812-11856


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

January 21, 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 certain 
series of a registered open-end management investment company to 
acquire all of the assets, subject to the liabilities, of certain other 
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 November 17, 1999 and 
amended on January 20, 2000.


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 February 15, 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, 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:  Deepak T. Pai, Senior Counsel, at 
(202) 942-0574 or Mary Kay Frech, 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 
Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C. 20549-0102 (telephone (202) 942-8090).

Applicants' Representations:
    1. FAIF, a Maryland corporation, is registered under the Act as an 
open-end management investment company and is currently comprised of 30 
series, including Intermediate Government Bond Fund, Adjustable Rate 
Mortgage Securities Fund, Regional Equity Fund, and Micro Cap Value 
Fund (the ``Acquired Funds''), and Intermediate Term Income Fund, 
Limited Term Income Fund, and Small Cap Value Fund (the ``Acquiring 
Funds'' and together with the Acquired Funds, the ``Funds'').\1\
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    \1\ Acquired Funds and their corresponding Acquiring Funds are: 
Intermediate Government Bond Fund and Intermediate Term Income Fund; 
Adjustable Rate Mortgage Securities Fund and Limited Term Income 
Fund; Regional Equity Fund and Small Cap Value Fund; and Micro Cap 
Value Fund and Small Cap Value Fund.
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    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. U.S. Bank is a wholly-owned subsidiary of U.S. Bancorp, a bank 
holding company. U.S. Bank Trust National Association (``U.S. Bank 
Trust'' and together with U.S. Bank and their affiliates, ``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% of the outstanding shares of each 
Acquiring Fund and certain Acquired Funds, and they hold or share 
voting discretion with respect to a portion of these Fund shares, or 
have a funding obligation to defined benefit plans which own 5% or more 
of the outstanding shares. The Fund shares held of record by U.S. 
Bancorp Affiliates are held for the benefit of others in a

[[Page 4450]]

trust, agency, custodial or other fiduciary capacity.
    3. On September 8, 1999, 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 (``Disinterested 
Directors''), unanimously approved the proposed reorganizations of the 
respective Acquired Funds with and into the corresponding Acquiring 
Funds (the ``Reorganization Agreements'' and the transactions, the 
``Reorganizations''). The Reorganizations are expected to occur on or 
about February 25, 2000. The Reorganization Agreements provide for: (a) 
the transfer of all of the assets and liabilities of each of the 
Acquired Funds to the corresponding Acquiring Fund in exchange for 
shares of designated classes of the corresponding Acquiring Fund; and 
(b) the distribution of these Acquiring Fund shares to the shareholders 
of each of the Acquired Funds in liquidation of the Acquired Funds. In 
each 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. 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.
    4. Applicants state that the investment objectives of each Acquired 
Fund and its corresponding Acquiring Fund are similar. Class A shares 
of the Acquiring Funds are subject to a front-end sales charge of 2.5% 
for Limited Term Income Fund and Intermediate Term Income Fund, and 
5.25% for the Small Cap Value Fund for purchases of $50,000 or less. 
Class A shares redeemed within 18 months also may be subject to a 
contingent deferred sales charge (``CDSC'') of 1.00%. Class A shares 
are subject to a .25% service fee adopted under a rule 12b-1 
distribution plan. Class B shares of the Small Cap Value Fund are sold 
without a front-end sales charge. Class B shares are subject to a rule 
12b-1 fee of 1.00%. If Class B shares are redeemed within six years 
after purchase, they are subject to a CDSC declining from 5.00% in the 
first year to zero after six years. Class B shares automatically 
convert into Class A shares approximately eight years after purchase. 
Class Y shares of the Funds are sold without any front-end sales charge 
or CDSC. For purposes of calculating CDSCs on Class A and Class B 
shares, shareholders of Class A and Class B shares of the Acquired 
Funds will be deemed to have held Class A and Class B shares of the 
Acquiring Funds since the date the shareholders initially purchased the 
shares of the Acquired Funds. Shareholders of the Acquired Funds will 
not incur any sales charges in connection with the Reorganization. U.S. 
Bank will pay the expenses of the Reorganizations.
    5. The Board, on behalf of each Acquired Fund, found that the 
Reorganization is in the best interests of each Acquired Fund, and that 
the interests of existing shareholders of each Acquired Fund 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 
Funds, economies of scale resulting from Fund growth, and facilitation 
of portfolio management; (b) the tax-free nature of the 
Reorganizations; (c) the terms and conditions of the Reorganization 
Agreements; and (d) the agreement of U.S. Bank to bear the costs 
associated with the Reorganizations.
    6. Each Reorganization is subject to a number of conditions, 
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 applicants will have received exemptive relief from the Commission; 
and (d) the parties' performance in all material respects of their 
respective agreements and undertaking in the Reorganization Agreement. 
Each Reorganization Agreement provides that the Reorganization may be 
abandoned at any time prior to the Effective Time upon the mutual 
consent of the respective Acquired Fund and Acquiring Fund, or if 
determined by the Board that proceeding with the Reorganization is 
inadvisable. Applicants agree not to make any material changes to the 
Reorganization Agreements without prior approval of the Commission.
    7. Registration statements on Form N-14, each containing a combined 
prospectus/proxy statement, were filed with the Commission on October 
20, 1999 and were mailed to shareholders of the respective Acquired 
Funds on December 1, 1999 in connection with the solicitation of their 
proxies for the shareholders meeting scheduled for January 14, 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, 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 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 Reorganizations 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 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 set 
forth in the rule 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 of record 5% or 
more of the outstanding shares of certain Acquiring and Acquired Funds, 
and hold or share voting power and/or investment discretion with 
respect to a portion of these Fund shares, or have a funding obligation 
to defined benefit plans which own 5% or more of the outstanding shares 
of certain Funds.
    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 consummate the Reorganizations. Applicants submit 
that the Reorganizations satisfy the standards of section 17(b) of the 
Act. Applicants state

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that the Board has found that participation in the Reorganizations is 
in the best interests of each Fund, and that the interests of the 
existing shareholders will not be diluted as a result of the 
Reorganizations. In addition, applicants state that the exchange of 
Acquired Funds' shares for Acquiring Funds' 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. 00-1910 Filed 1-26-00; 8:45 am]
BILLING CODE 8010-01-M