[Federal Register Volume 66, Number 151 (Monday, August 6, 2001)]
[Notices]
[Pages 41060-41063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19524]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25095; 812-12538]


First American Investment Funds, Inc., et al.; Notice of 
Application

July 30, 2001.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION:  Notice of application for an order 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 three registered open-end investment companies to 
acquire all of the assets and liabilities of the series of another 
registered open-end investment company. Because of certain 
affiliations, applicants may not rely on rule 17a-8 under the Act.
    Applicants: First American Investment Funds, Inc. (``FAIF''), First 
American Funds, Inc. (``FAF''), First American Strategy Funds, Inc. 
(``FASF''), Firstar Funds, Inc. (``Firstar''), and U.S. Bancorp Piper 
Jaffray Asset Management, Inc. (``Asset Management'').
    Filing Dates: The application was filed on June 1, 2001. 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 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 August 
23, 2001, 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549-
0609. Applicants: FAIF, FAF, FASF, 601 Second Avenue South, 
Minneapolis, MN 55440-1330; Firstar, 615 East Michigan Street, 
Milwaukee, WI 53201-5011; Asset Management, 601 Second Avenue South, 
Minneapolis, MN 55402.

FOR FURTHER INFORMATION CONTACT: Mary Kay Frech, Branch Chief, at (202) 
924-0564 (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 
SEC's Public Reference Branch, 450 5th Street, NW., Washington, DC 
20549-0102 (202)-942-8090).

Applicants' Representations

    1. Firstar, a Wisconsin corporation, FAIF, a Maryland corporation, 
FAF and

[[Page 41061]]

FASF, each a Minnesota corporation, are open-end management investment 
companies registered under the Act. Firstar currently offers shares in 
34 series, 33 of which will participate in the Reorganization (the 
``Acquired Funds''). FAIF currently offers shares in 30 series, 11 of 
which will participate in the Reorganization (the ``Operating FAIF 
Funds''). FAIF also is organizing 14 new shell series, 13 of which will 
participate in the Reorganization (the ``New FAIF Funds,'' and together 
with the Operating FAIF Funds, each a ``FAIF Fund'' and collectively 
the ``FAIF Funds''). FAF currently offers shares in four series, each 
of which will participate in the Reorganization (the ``Operating FAF 
Funds,'' and together with the Operating FAIF Funds, the ``Operating 
Acquiring Funds''). FAF also is organizing two new shell series, each 
of which will participate in the Reorganization (the ``New FAF Funds,'' 
and together with the Operating FAF Funds, each a ``FAF Fund'' and 
collectively the ``FAF Funds''). None of the operating series of FASF 
will participate in the Reorganization, but FASF is organizing one new 
shell series that will participate in the Reorganization (the ``New 
FASF Fund,'' together with the New FAIF Funds and the New FAF Funds, 
the ``Shell Acquiring Funds,'' and together with the FAIF Funds and the 
FAF Funds, the ``Acquiring Funds''). The Acquired Funds and the 
Acquiring Funds are collectively referred to as the ``Funds'' and 
individually as a ``Fund.''
    2. Asset Management, a wholly-owned subsidiary of U.S. Bank 
National Association (``U.S. Bank'' and an indirect subsidiary of U.S. 
Bancorp, is registered as an investment adviser under the Investment 
Advisers Act of 1940 (the ``Advisers Act''). Asset Management is the 
current investment adviser to the Operating Acquiring Funds and the 
Acquired Funds, and will be the investment adviser to the Shell 
Acquiring Funds. U.S. Bank Trust National Association (``U.S. Trust'') 
and Firstar Bank, N.A. (``Firstar Bank'') are also wholly-owned 
subsidiaries of U.S. Bancorp. Asset Management, U.S. Bank, U.S. Trust, 
Firstar Bank and their affiliates constitute a common control group and 
are collectively referred to as the ``U.S. Bancorp Affiliates.''
    3. Currently, the U.S. Bancorp Affiliates hold of record in their 
own name or through a nominee more than 5% (and in some cases more than 
25%) of the outstanding voting securities of certain Acquiring Funds 
and certain Acquired Funds. In addition, defined benefit plans for 
which U.S. Bancorp Affiliates have funding obligations own more than 5% 
of the outstanding shares of certain Acquiring Funds and certain 
Acquired Funds. 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 U.S. Bancorp 
Affiliates may, at times, own economic interests in one or more of the 
FAF or Firstar money market funds for their own account. No individual 
U.S. Bancorp Affiliate currently owns an economic interest of 5% or 
greater in any FAF or Firstar money market fund.
    4. On May 22, 2001, the board of directors of Firstar (the 
``Firstar Board''), including the directors who are not ``interested 
persons'' within the meaning of 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, subject to the satisfaction of certain 
conditions (collectively referred to as the ``Reorganizations'' and 
individually as a ``Reorganization''). On June 1, 2001, each of the 
boards of directors of the Acquiring Funds (collectively, the ``First 
American Boards''), including in each case all of the disinterested 
directors, approved the applicable Reorganization.
    5. Pursuant to the Reorganization agreements between the Acquired 
Funds and each of the Acquiring Funds (the ``Reorganization 
Agreements''), each Acquiring Fund proposes to acquire all of the 
assets and assume all of the liabilities of its corresponding Acquired 
Fund in exchange for shares of designated classes of the Acquiring Fund 
equal to the value of the aggregate net assets of the Acquired Fund 
immediately prior to the effective time of the Reorganization.\1\ 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, computed as of the close of 
business immediately prior to the effective time of the Reorganization. 
The assets of each Acquired Fund and each Acquiring Fund will be valued 
in accordance with their respective valuation procedures as set forth 
in their then current prospectuses and statements of additional 
information. Each Acquired Fund will distribute pro rata to its 
shareholders of record the shares of the corresponding Acquiring Fund 
in exchange for each shareholder's Acquired Fund shares. Afterwards, no 
additional shares representing interests in the Acquired Fund will be 
issued, and the Acquired Fund will be liquidated. The distribution will 
be accomplished by the issuance of the Acquiring Fund shares to open 
accounts on the share records of the Acquiring Fund in the names of the 
Acquired Fund shareholders representing the number of Acquiring Fund 
shares due each shareholder pursuant to the Reorganization Agreement. 
Simultaneously, all issued and outstanding shares of the Acquired Fund 
will be canceled on the books of the Acquired Fund.
---------------------------------------------------------------------------

    \1\ The Acquired Funds and their corresponding Acquiring Funds 
are: (1) Firstar Money Market Fund and FAF Prime Obligations Fund; 
(2) Firstar Institutional Money Market Fund and FAF Prime 
Obligations Fund; (3) Firstar Tax-Exempt Money Market Fund and FAF 
Tax Free Obligations Fund; (4) Firstar Ohio Tax-Exempt Money Market 
Fund and FAF Ohio Tax Free Obligations Fund; (5) Firstar U.S. 
Government Money Market Fund and FAF Government Obligations Fund; 
(6) Firstar U.S. Treasury Money Market Fund (Retail A shares) and 
FAF Treasury Reserve Fund; Firstar U.S. Treasury Money Market Fund 
(Institutional shares) and FAF Treasury Obligations Fund; (7) 
Firstar Short-Term Bond Fund and FAIF Limited Term Income Fund; (8) 
Firstar Intermediate Bond Fund and FAIF Intermediate Term Income 
Fund; (9) Firstar Bond IMMDEX Fund and FAIF Bond IMMDEX Fund; (10) 
Firstar U.S. Government Securities Fund and FAIF U.S. Government 
Securities Fund; (11) Firstar Aggregated Bond Fund and FAIF Fixed 
Income Fund; (12) Firstar Strategic Income Fund and FAIF Corporate 
Bond Fund; (13) Firstar Tax-Exempt Intermediate Bond Fund and FAIF 
Intermediate Tax Free Fund; (14) Firstar Missouri Tax-Exempt Bond 
Fund and FAIF Missouri Tax Free Fund; (15) Firstar National 
Municipal Bond Fund and FAIF Tax Free Fund; (16) Firstar Balanced 
Income Fund and FAIF Balanced Fund; (17) Firstar Balanced Growth 
Fund and FAIF Balanced Fund; (18) Firstar Growth & Income Fund and 
FAIF Growth & Income Fund; (19) Firstar Equity Income Fund and FAIF 
Equity Income Fund; (20) Firstar Relative Value Fund and FAIF 
Relative Value Fund; (21) Firstar Equity Index Fund and FAIF Equity 
Index Fund; (22) Firstar Large Cap Core Equity Fund and FAIF Large 
Cap Core Fund; (23) Firstar Large Cap Growth Fund and FAIF Capital 
Growth Fund; (24) Firstar International Value Fund and FAIF 
International Fund; (25) Firstar International Growth Fund and FAIF 
International Fund; (26) Firstar MidCap Index Fund and FAIF Mid Cap 
Index Fund; (27) Firstar MidCap Core Equity Fund and FAIF Mid Cap 
Core Fund; (28) Firstar Small Cap Index Fund and FAIF Small Cap 
Index Fund; (29) Firstar Small Cap Core Equity Fund and FAIF Small 
Cap Core Fund; (30) Firstar Science & Technology Fund and FAIF 
Science & Technology Fund; (31) First MicroCap Fund and FAIF Micro 
Cap Fund; (32) Firstar REIT and FAIF Real Estate Securities Fund; 
(33) Firstar Global Equity Fund and FASF Strategy Global Growth 
Allocation Fund.
---------------------------------------------------------------------------

    6. Four classes of shares of the FAIF Funds (Class A, Class B, 
Class S and Class Y), three classes of shares of the FAF Funds (Class 
A, Class I and Class S), and two classes of shares of the FASF Strategy 
Global Growth Allocation Fund (Class S and Class Y) will be issued in 
conjunction with the Reorganizations.
    7. The Firstar non-money market funds currently offer shares in 
four classes (Retail A, Retail B, Y, and

[[Page 41062]]

Institutional), except that Firstar Short-Term Bond Fund and Firstar 
Intermediate Bond Fund offer shares in three classes (Retail A, Y, and 
Institutional), and only two classes of shares in the case of the 
Firstar Tax-Exempt Intermediate Bond Fund, Firstar Missouri Tax-Exempt 
Bond Fund, Firstar National Municipal Bond Fund (Retail A and 
Institutional), and Firstar Global Equity Fund (Y and Institutional). 
The Firstar Money Market Fund currently offers shares in one class 
(Retail A), and the Firstar Institutional Money Market Fund offers 
shares in one class (Shares). The remaining Firstar money market funds 
offer shares in two classes (Retail A and Institutional).
    8. In each Reorganization of an Acquired Fund into a corresponding 
FAIF Fund, shareholders of Retail A, Retail B, Y, and Institutional 
shares of the Acquired Fund will receive Class A, Class B, Class S, and 
Class Y shares, respectively, of the corresponding FAIR Fund. In each 
Reorganization of an Acquired Fund into a corresponding FAR Fund, 
shareholders of Retail A and Institutional shares will receive Class A 
and Class S shares, respectively, of the corresponding FAR Fund.\2\ 
Shareholders of the Firstar Institutional Money Market Fund will 
receive Class I shares of the FAR Prime Global Equity Fund will receive 
Class S and Class Y shares, respectively, of the FASF Strategy Global 
Growth Allocation Fund. Applicants state that the rights and 
obligations of the Acquired Funds are substantially similar to those of 
the corresponding class of shares of the Acquiring Funds into which 
they will be reorganized.
---------------------------------------------------------------------------

    \2\ Shareholders of Retail A shares of the Firstar U.S. Treasury 
Money Market Fund will receive Class A shares of the FAF Treasury 
Reserve Fund, and shareholders, of Institutional shares of the 
Firstar U.S. Treasury Money Market Fund will receive Class S shares 
of the FAF Treasury Obligations Fund.
---------------------------------------------------------------------------

    9. No sales charges will be incurred by Acquired Fund shareholders 
in connection with their acquisition of Acquiring Fund shares pursuant 
to the applicable Reorganization Agreement. For purposes of calculating 
any deferred sales charge, holders of Retail A or Retail B shares of an 
Acquired Fund will be deemed to have held the Class A shares or Class B 
shares of the Acquiring Fund received in the Reorganization since the 
date such shareholders initially purchased the shares of the Acquired 
Fund.
    10. The Firstar Board and the First American Boards, including all 
of their disinterested directors, found that participation in the 
Reorganizations is in the best interest of each of the Funds, and that 
the interests of existing shareholders in each of the Funds will not be 
diluted as a result of the Reorganizations. In approving the 
Reorganizations, the Firstar Board and the First American Boards 
considered, among other factors: (a) The potential effect of the 
Reorganizations on the shareholders of the Funds; (b) the capabilities, 
practices, and resources of FAAM and Asset Management; (c) the 
investment advisory and other fees paid by the Acquiring Funds, and the 
historical and projected expense ratios of the Acquiring Funds as 
compared with those of the Acquired Funds; (d) the investment 
objectives, policies, and limitations of the Acquiring Funds and their 
relative compatibility with those of the Acquired Funds; (e) the terms 
and conditions of the Reorganization Agreements; (f) the anticipated 
tax-free status of the Reorganizations; and (g) the number of 
investment portfolio options that would be available to Acquired Fund 
shareholders after the Reorganizations. U.S. Bancorp has agreed to pay 
(or cause one of its affiliates to pay) the customary expenses incurred 
by the Funds in connection with the Reorganizations.
    11. The Closing is expected to occur in mid to late September 2001. 
Each Reorganization Agreement may be terminated prior to the Closing 
upon the mutual consent of both parties, or by one party if certain 
conditions are not met and a majority of the party's board of directors 
votes to terminate the Reorganization Agreement.
    12. Three separate registration statements on Form N-14, each 
containing a combined prospectus/proxy statement, were filed with the 
Commission on June 1, 2001 with respect to the Reorganizations of 
certain Acquired Funds into FAIF Funds, the Reorganizations of certain 
Acquired Funds (or a particular class of shares of such Acquired Fund) 
into FAF Funds, and the Reorganization of the Firstar Global Equity 
Fund into the FASF Strategy Global Growth Allocation Fund, 
respectively. It is expected that each prospectus/proxy statement will 
be sent to the shareholders of the relevant Acquired Funds on or about 
July 31, 2001. Three separate registration statements for shares of the 
New FAIF Funds, the New FAF Funds, and the FASF Strategy Global Growth 
Allocation Fund, respectively, were filed with the Commission on June 
27, 2001, and will each become effective on or about September 10, 
2001. A combined meeting of the Acquired Funds' shareholders is 
expected to be held on August 30, 2001 to approve the Reorganization 
Agreements.
    13. Each Reorganization is subject to a number of conditions, 
including: (a) The Acquired Fund shareholders (or, in the case of the 
Firstar U.S. Treasury Money Market Fund, the shareholders of Retail A 
shares and Institutional shares, separately) will have approved the 
Reorganization Agreements; (b) the Acquired Fund will have received an 
opinion of counsel with respect to the federal income tax aspects of 
the Reorganization; (c) applicants will have received exemptive relief 
from the SEC with respect to the issues in the application; (d) a 
registration statement under the Securities Act of 1933 for the 
Acquiring Funds will have become effective; and (e) each Acquired Fund 
that is not reorganizing into a Shell Acquiring Fund will have declared 
a dividend or dividends to distribute substantially all of its 
investment company taxable income and realized net capital gain, if 
any, for the taxable year. Applicants agree not to make any material 
changes to the Reorganization Agreements that affect the application 
without prior SEC 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; (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 thee Reorganizations may be 
prohibited by section 17(a) of the Act.
    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 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 believe that they may not rely on rule 17a-8 because 
the

[[Page 41063]]

Funds may be affiliated for reasons other than those set forth in the 
rule. By virtue of the direct or indirect ownership by U.S. Bancorp 
Affiliates of more than 5% of the outstanding voting securities of 
certain of the Acquired Funds and certain of the Operating Acquiring 
Funds, each Acquiring Fund may be deemed an affiliated person of an 
affiliated person of the corresponding Acquired Fund, and vice versa, 
for reasons not based solely on their common adviser, common trustees 
and/or common officers. In addition, where the U.S. Bancorp Affiliates' 
ownership, with power to vote, exceeds 25%, the Acquired Funds and the 
Operating Acquiring Funds may be presumed to be under common control 
and, therefore, affiliated persons under section 2(a)(3)(C) of the Act. 
Accordingly, the Reorganization may not meet the ``solely by reason 
of'' requirement of rule 17a-8 under the Act.
    4. Section 17(b) of the Act provides that the SEC 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 Reorganization. Applicants submit 
that the Reorganizations satisfy the standards of section 17(b) of the 
Act. Applicants state that the Firstar Board and the First American 
Boards, including the disinterested, have determined that participation 
in the Reorganizations is in the best interest of the shareholders of 
the Acquiring Funds and the Acquired Funds, and that the interests of 
the existing shareholders will not be diluted as a result of the 
Reorganizations. Applicants also note that the exchange of the Acquired 
Funds' assets for shares of the Acquiring Funds will be based on the 
Funds' relative net asset values.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-19524 Filed 8-3-01; 8:45 am]
BILLING CODE 8010-01-M