John A. Cooney, Esq.
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498

Dear Mr. Cooney:

This is in response to your letter concerning whether an executive officer of U.S. Bancorp, Minneapolis, Minnesota ("U.S. Bancorp"), may serve on the boards of directors of mutual funds that are advised by a subsidiary of U.S. Bancorp (the "First American Funds"). U.S. Bank National Association, Minneapolis, Minnesota ("U.S. Bank"), is investment advisor for the First American Funds.¹ These funds historically have been sold primarily to customers of U.S. Bancorp. First Trust National Association, Minneapolis, Minnesota, a subsidiary bank of U.S. Bancorp, serves as custodian for the funds. The distributor and the administrator for the First American Funds are not directly or indirectly owned or controlled by U.S. Bancorp.²

U.S. Bancorp proposes to nominate one of the executive officers of U.S. Bancorp to serve as a director and chairman of the board of the First American Funds. This individual would be the only officer, director, or employee of U.S. Bancorp or its subsidiaries who would serve among the eight members of the funds' boards of directors.³ The interlocking director would not be an officer, director, or employee of any subsidiary bank of U.S. Bancorp or of USB Investments,⁴ and would not be an officer or employee or have any responsibility for the day-to-day operations of the First American Funds. This individual would not participate in the independent directors' review and approval of the funds' investment advisory agreement or principal underwriter agreement or other major service agreements.⁵

Under the Glass-Steagall Act, a company that owns a member bank may not control "through stock ownership or in any other manner" a company that engages principally in distributing, underwriting, or issuing securities."⁶ The Board has found that this provision prohibits affiliates of member banks from sponsoring, organizing, or controlling a mutual fund.⁷ The Board previously has determined, however, that limited director interlocks between a bank holding company and a mutual fund together with the provision of advisory and administrative services to the mutual fund may be permissible under the Glass-Steagall Act. In these determinations, the Board recognized the importance of the presence of other independent directors on the board of directors of the mutual fund and the special role of the board in the governance of the mutual fund under the federal securities laws.⁸

The proposal by U.S. Bancorp described above appears to be consistent with these prior Board decisions. Accordingly, the proposed director interlock appears to be consistent with the Glass-Steagall Act.

This opinion is limited to the director interlock and service arrangements described above and in your letters of September 9 and October 17, 1997. Any material change in the interlock or the services provided may require this opinion to be reconsidered and should be communicated immediately to Board staff. If you have any questions concerning this matter, please contact Tom Corsi, Senior Counsel (202/452-3275), or Gordon Miller, Attorney (202/452-2534), of the Board's Legal Division.

Sincerely,

(Signed) J. Virgil Mattingly

J. Virgil Mattingly

cc: Federal Reserve Bank of Minneapolis

1. U.S. Bank also performs certain administrative functions for the funds as sub-administrator to the independent administrator. Return to text

2. The independent distributor serves as "principal underwriter" of the First American Funds, and, for purposes of federal securities laws, is responsible for supervising all sales of the funds to the public. The independent distributor has entered into a sales agreement with U.S. Bancorp Investments, Inc., Minneapolis, Minnesota ("USB Investments"), a broker-dealer subsidiary of U.S. Bank, and other broker-dealers, and is responsible for placing all advertisements for the First American Funds. The independent distributor is responsible under the rules of the National Association of Securities Dealers ("NASD") for the form and use of all advertising and sales literature used in the offer and sale of the funds, and is responsible for filing these materials with the NASD and the Securities and Exchange Commission. Return to text

3. The boards of directors of all the First American Funds are identical, and currently consist of seven members. Return to text

4. Section 32 of the Glass-Steagall Act prohibits an officer, director, or employee of a company that is primarily engaged in distributing, underwriting, or issuing securities from serving as an officer, director, or employee of a member bank. 12 U.S.C. § 78. The Board has found that this provision prohibits an officer, director, or employee of a member bank from serving at the same time as an officer, director, or employee of a mutual fund. See 12 C.F.R. 250.400. Accordingly, any service by an officer, director, or employee of any subsidiary member bank of U.S. Bancorp as an officer, director, or employee of any of the First American Funds would be prohibited under section 32. Because section 32 does not distinguish between a member bank and its subsidiaries, any service by an officer, director, or employee of a subsidiary of U.S. Bank as an officer, director, or employee of the First American Funds also would be prohibited under section 32 of the Glass-Steagall Act. Return to text

5. One other member of the boards of directors of the First American Funds, a retired officer of a bank affiliate of U.S. Bancorp who owns or controls less than 1 percent of the voting shares of the company, also is an "interested person" of U.S. Bancorp under the 1940 Act. This individual is not an officer, director, or employee of U.S. Bancorp or any of its subsidiaries; is not an officer or employee of the First American Funds and does not have any responsibility for their day-to-day operations; and does not participate in the review and approval by the independent directors of the funds' major service agreements. Return to text

6. 12 U.S.C. §§ 221a and 377. Return to text

7. See 12 C.F.R. 225.125. Return to text

8. See J.P. Morgan & Co., Inc., 84 Federal Reserve Bulletin 113 (1998); Bankers Trust New York Corporation, 83 Federal Reserve Bulletin 780 (1997); Commerzbank AG, 83 Federal Reserve Bulletin 679 (1997). The Board has previously determined that a "proprietary mutual fund" is a mutual fund primarily sold to customers of the bank holding company that advises the mutual fund. See Barclays PLC, 82 Federal Reserve Bulletin 158 (1996). Because the First American Funds rely on USB Investments for a substantial majority of all sales of the funds, they would appear to be proprietary mutual funds of U.S. Bancorp. Return to text