[Federal Register Volume 67, Number 85 (Thursday, May 2, 2002)]
[Notices]
[Pages 22124-22125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-10866]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25556; 812-12795]


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

April 26, 2002.
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 the Application: Applicants request an order to permit 
certain series of two registered open-end management investment 
companies to acquire all of the assets, net of liabilities, of certain 
other series of the same registered open-end management investment 
companies. Because of certain affiliations, applicants may not rely on 
rule 17a-8 under the Act.
    Applicants: First American Investment Funds, Inc. (``FAIF''), First 
American Strategy Funds, Inc. (``FASF'') and U.S. Bancorp Asset 
Management, Inc. (``USBAM'').
    Filing Dates: The application was filed on March 15, 2002. 
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 May 17, 2002, 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, c/o John A. Haveman, Esq., Faegre & Benson LLP, 
2200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, 
Minnesota 55402.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or Nadya B. Roytblat, Assistant Director, 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 from 
the Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. FAIF, a Maryland corporation, and FASF, a Minnesota corporation, 
are registered under the Act as open-end management investment 
companies. FAIF currently offers forty-four series and FASF currently 
offers five series. Four of the series of FAIF and one series of FASF 
are referred to as the ``Acquiring Funds'' and four other series of 
FAIF and one other series of FASF are referred to as the ``Acquired 
Funds,'' and together the Acquiring Funds and the Acquired Funds are 
referred to as the ``Funds'' and individually as a ``Fund.''
    2. USBAM, a wholly-owned subsidiary of U.S. Bank Nation Association 
(``U.S. Bank'') and indirect subsidiary of U.S. Bancorp, serves as 
investment adviser to the Funds and is registered under the Investment 
Advisers Act of 1940. U.S. Bank and its affiliates are part of a common 
control group and are collectively referred to as the ``U.S. Bancorp 
Affiliates.'' Currently, U.S. Bancorp Affiliates, in a fiduciary or 
custodial capacity for various accounts, hold of record in their own 
name or through a nominee more than 5% (and more than 25%) of the 
outstanding shares of each Fund, and hold or share voting power and/or 
investment discretions with respect to a portion of these shares. 
Included in the shares held of record by the U.S. Bancorp Affiliates 
are shares held for the benefit of defined benefit and defined 
contribution plans for which U.S. Bancorp or one or more of its 
subsidiaries have funding obligations.
    3. On February 21, 2002, the board of directors of FAIF and FASF 
(the ``Board''), including all of the directors who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Disinterested Directors''), approved the proposed reorganizations 
and agreements and plans of reorganization of the respective Funds (the 
``Reorganization Agreements''). Under the Reorganization Agreements, 
each class of the applicable Acquiring Fund will acquire all of the 
assets and assume identified liabilities of the corresponding class of 
the corresponding Acquired Fund in exchange for shares of that class of 
the Acquiring Fund (the ``Reorganizations'') \1\ on May 20, 2002 
(``Closing Date''). The shares of each Acquiring Fund exchanged will 
have an aggregate net asset value equal to the aggregate net asset 
value of the corresponding Acquired Fund's shares calculated as of the 
close of the regular trading on the New York Stock Exchange on the 
business day immediately preceding the Closing Date (``Valuation 
Time''). The method of valuation of the net asset value of the assets 
of the Funds will be determined according to the applicable Fund's 
then-current prospectus and statement of additional information. As 
soon as reasonably practicable after the Closing Date, the Acquired 
Funds will distribute the shares of each class of the corresponding 
Acquiring Funds pro rata to their shareholders of record. Following the 
distribution of the Acquiring Funds' shares, the Acquired Funds will 
terminate.
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    \1\ Under the Reorganizations, the Acquired Funds will merge 
into the corresponding Acquiring Funds as follows: Capital Growth 
Fund will merge into Large Cap Growth Fund, Relative Value Fund into 
Large Cap Value Fund, Growth & Income Fund into Equity Income Fund, 
Science & Technology Fund into Technology Fund and Strategy Global 
Growth Allocation Fund into Strategy Aggressive Allocation Fund.
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    4. Each of the Acquired Funds and Acquiring Funds offers shares in 
five classes: Class A, Class B, Class C, Class S and Class Y. 
Shareholders of each class of the Acquired Fund will receive shares of 
the corresponding class of the corresponding Acquiring Fund. Class A 
shares are subject to a front-end sales charge, rule 12b-1 distribution 
fees, service fees and a contingent deferred sales charge (``CDSC''). 
Class B shares are not subject to an initial sales charge, but are 
subject to rule 12b-1 distribution fees, service fees and a CDSC. Class 
C shares are subject to a front-end sales charge, rule 12b-1 
distribution fees, service fees and a CDSC. Class S and Class Y shares 
are offered through banks and certain other financial institutions that 
have entered into sales agreements with the Funds' distributor and sold 
without any front-end sales charge or a CDSC, rule 12b-1 distribution 
fees and service fees but are subject to a shareholder servicing fee.
    5. No front-end sales charge will be imposed on Acquired Fund 
shareholders in connection with their acquisition of Acquiring Fund 
shares in the Reorganizations. No CDSC will be imposed on any of the 
Acquired Funds shares that are canceled as a result of the 
Reorganizations. For purposes of calculating any CDSC on Class A, Class

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B and Class C shares of the Acquiring Funds, shareholders of the 
Acquired Funds will be deemed to have held the shares of the Acquiring 
Funds 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 Acquired Fund are similar, and in some cases 
identical, to those of the corresponding Acquiring Fund. Applicants 
state that the rights and obligations of each class of shares of the 
Acquired Funds are similar to those of the corresponding class of 
shares of the Acquiring Funds. USBAM will bear the costs associated 
with the Reorganizations.
    7. The Board, including a majority of the Disinterested Directors, 
determined that the Reorganization is in the best interests of each 
Fund and that the interests of the shareholders of each Fund would not 
be diluted as a result of the Reorganization. In assessing the 
Reorganizations, the Board considered various factors, including: (a) 
The terms and conditions of the Reorganizations; (b) the compatibility 
of the Funds' investment objectives, policies and limitations; (c) the 
potential opportunity for better investment performance of the Funds; 
(d) the potential for reduced operating expenses; (e) the potential 
elimination of confusion among shareholders with respect to products 
that may be considered duplicative; (f) the tax-free nature of the 
proposed Reorganizations; and (g) the fact that Reorganization expenses 
will be borne by USBAM.
    8. Each Reorganization is subject to a number of conditions 
precedent, including: (a) Approval by the shareholders of each Acquired 
Fund; (b) receipt of certain opinions of counsel that the 
Reorganizations will be tax-free for the Funds' shareholders; (c) 
receipt from the Commission of an exemption from section 17(a) of the 
Act for the Reorganization; and (d) that the registration statement 
under the Securities Act of 1933 for the Acquiring Funds will have 
become effective. Each Acquired Fund will declared dividend(s) or 
distribution(s) which, together with all previous dividends and 
distributions, shall have the effect of distributing to its 
shareholders all investment company taxable income for all taxable 
periods ending on the Closing Date (computed without regard to any 
deduction for dividends paid) and all of its net capital gains realized 
in all taxable periods ending on the Closing Date (after reductions for 
any capital loss carryovers). Each Reorganization Agreement provides 
that the Reorganization may be terminated by mutual consent by both 
parties or by either party upon breach or failure to satisfy a 
condition precedent by the other party at or before the Closing Date. 
Applicants agree not to make any material changes to the Reorganization 
Agreements without prior Commission approval.
    9. Registration statements on Form N-14 (each containing a combined 
proxy prospectus/proxy statement) were filed with the Commission on 
March 4 and 6, 2002 with respect to the Reorganizations. Prospectus/
proxy statements have been sent to shareholders beginning April 8, 
2002. A special meeting of shareholders of the Acquired Funds to 
consider the Reorganizations is scheduled for May 14, 2002.

Applicants' Legal Analysis

    1. Section 17(a) of the Act, in relevant part, 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 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.
    2. Rule 17a-8 under the Act exempts certain mergers, 
consolidations, and 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. Applicants believe that 
rule 17a-8 may not be available to exempt the Reorganizations because 
the Funds may be deemed to be affiliated by reasons other than having a 
common investment adviser, common directors, and/or common officers. 
Applicants state that Bancorp Affiliates hold of record 5% or more (and 
more than 25%) of the outstanding voting securities of each of the 
Funds, hold or share voting power and/or investment discretion with 
respect to a portion of these shares, and may be deemed to have an 
indirect pecuniary interest in the performance of all but one of the 
Funds by virtue of ownership in excess of 5% of the shares of those 
Funds by defined benefit and defined contribution plans sponsored by 
the U.S. Bancorp Affiliates. As a result, each Fund may be deemed to be 
an affiliated person of an affiliated person of each other Fund.
    3. Section 17(b) of the Act provides, in relevant part, 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 or received, 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.
    4. Applicants request an order under section 17(b) of the Act 
exempting them from section 17(a) to the extent necessary to effect the 
Reorganizations. Applicants submit that the Reorganizations satisfy the 
conditions of section 17(b) of the Act. Applicants state that the 
Board, including a majority of the Disinterested Directors, has 
determined that the participation of each of the Funds in the 
Reorganizations is in the best interests of the Fund and that such 
participation will not dilute the interests of the existing 
shareholders of each Fund. Applicants also state that the 
Reorganizations will be effected on the basis of relative net asset 
value.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-10866 Filed 5-1-02; 8:45 am]
BILLING CODE 8010-01-P