First American Asset Management
U.S. First American Place
601 Second Avenue South, MPFP 2016
Minneapolis, MN 55402
Telephone: (612) 973-1550
Fax: (612) 973-0072

January 26, 2000

Mr. Jonathan G. Katz
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609

Re: Proposed SEC Rules Regarding Independent Directors

File No.: S7-23-99

Dear Mr. Katz:

First American Asset Management, a division of U.S. Bank National Association, ("First American") is the investment adviser for the First American Funds.1 First American wishes to comment briefly upon certain of the proposed rules.2 The directors of the First American Funds have been very supportive of efforts to improve corporate governance to enhance the interests of mutual fund shareholders. Many years before the issuance of the recent ICI Best Practices Report the First American Funds adopted many of such suggested "best practices." For example, 75% of its directors are "disinterested" and the selection and nomination of disinterested directors is entrusted to the disinterested directors.

The Funds have a formal policy that all directors are to own shares of the Funds in an amount at least equal to one year's director fees. The board believes that it is important that the interests of directors be aligned with those of fund shareholders. (Currently directors own Fund shares with a value in excess of $6,000,000.) The board also believes that it is important that directors be aware of positions, interests, transactions and relationships which could lead to conflicts of interests, which could cause a putative disinterested director to be considered interested. Therefore, the board has a policy requiring disclosure of such positions, interests, transactions and relationships to other disinterested directors, to enable a collective determination to be made as to whether such relationships would cause a director to be deemed not "independent" or disinterested.

In short, the disinterested directors have not only been very supportive of efforts to improve corporate governance, but have implemented practices and policies well in advance of their recommendation by the ICI or proposal by the SEC. Nonetheless, we object to three particular rule proposals:

1. The SEC should not compel the public disclosure of the precise amount of shares held by directors.

We agree that the interests of directors and fund shareholders should be aligned, and that directors should own a material amount of shares in the fund complex. As noted above, the Funds currently have a policy requiring directors to own Fund shares in an amount at least equal to one year's director fees. We feel it is appropriate to disclose this policy to the public, and that each director owns at least $50,000 of Fund shares pursuant to this policy. We believe, however, that disclosures beyond this are unwarranted intrusions on the privacy of directors and their families. Directors may have significant portions of their net worth invested in Fund shares, and the precise extent of such Fund holdings is not information Fund shareholders need to know. Instead, it should be sufficient to disclose that each director owns at least $50,000 worth of Fund shares to demonstrate that the interests of directors and Fund shareholders are aligned.

The adoption of the SEC's rule proposal requiring precise disclosure of Fund shares owned will: (a) discourage substantial investments in fund shares by directors; (b) encourage fund directors to liquidate fund shares prior to the adoption of new rules mandating disclosure; (c) discourage substantial fund shareholders from serving on fund boards; and (d) discourage fund boards from adding individuals of modest circumstances as directors, for fear that such individuals cannot buy an "impressive" number of fund shares. Thus, the adoption of this proposed rule is clearly counterproductive.

2. The SEC should not compel the public disclosure of transactions and relationships where there is no "special treatment".

In the proposed rules there is a requirement that various positions, interests, transactions and relationships of fund directors be disclosed. We agree it is critically important that disinterested directors in fact be independent and able to act in the best interests of fund shareholders. The disinterested directors of the Funds have a practice of annually reviewing this issue, and coming to a collective judgment as to whether the "independence" or "disinterestedness" of a director may be called into questions. We strongly believe that the public disclosure of all such positions, interests, transactions and relationships is unnecessary and inappropriate. U.S. Bank is one of the largest banks in the upper Midwest. Not surprisingly, individual Fund directors over the years have had and still have relationships with U.S. Bank and its affiliates. As long as directors are not receiving any special treatment, we do not feel that such situation calls into question a director's independence, and disclosure of such matters is unnecessary and inappropriate.

The unstated implication of the proposed rule is that business relationships between independent directors and U.S. Bank and its affiliates are somehow suspect. In fact, provided that no special treatment is obtained, it is very useful for independent directors to be aware of the quality of services provided by U.S. Bank and its affiliates in such areas as private investment management, trust and custody services, and so forth. Directors should not be discouraged from entering into such transactions provided any such arrangements are on the same basis as the public.

The proposal to impose reporting requirements on directors' "immediate families" whether or not they share the same household is unnecessary and impractical. As proposed, "immediate family member" means siblings, adult children, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law. In many circumstances, it is impractical, if not impossible, for a director to obtain such information. Moreover, absent client consent, U.S. Bank and any director affiliated with U.S. Bank would be precluded under privacy laws from disclosing such information.

Again, we believe that the adoption of the proposed rules will be counterproductive. The adoption will cause highly qualified candidates to decline to serve as fund directors if they would be required to publicly disclose highly personal information about themselves and their families, even where no special treatment has been granted. In fact, because of privacy concerns the board could lose the services of several current disinterested directors.

Instead of adopting the rule as proposed, if anything, the SEC should simply require that the disinterested directors receive information from other disinterested directors on positions, interests, transactions and relationships, and come to a collective determination as to whether such persons can continue to act as an independent, disinterested directors. If not, the board would be forced to compel the termination of such positions, interests, transactions and relationships, and/or have such director(s) recharacterized as interested and perhaps removed entirely from the board.

3. The SEC should not establish requirements limiting the ability of disinterested directors to select counsel of their own choosing.

We agree that independent directors should have access to unbiased legal advice in fulfilling their responsibilities. However, we believe that existing rules of professional conduct provide effective guidance within which independent directors may select legal counsel. Counsel is bound by the rules of professional conduct to identify and disclose potential conflicts of interest and to decline representation if any such conflict renders the counsel incapable of providing independent advice. Accordingly, independent directors, in the exercise of their business judgment, are in an excellent position to evaluate potential conflicts of interest and determine if their confidence in the ability of counsel to serve the directors is impaired. By disqualifying outright certain experienced legal counsel, the propose rule runs counter to the fundamental premise of the mutual fund governance system, namely that independent directors can and should be relied upon to make informed decisions regarding what is in the best interest of the fund. Moreover, such a strict definition would be counterproductive in that, particularly for large institutions, it would significantly limit the pool of experienced counsel available (in some instances by causing experienced counsel to decline to represent independent directors since such representation could render the firm and all of its lawyers ineligible to handle even unrelated matters on behalf of any of the fund's related entities) and may actually discourage independent directors from seeking their own counsel. Accordingly, we believe the adoption of this proposal is unnecessary and may be counterproductive.

Thank you for your consideration.

Very truly yours,

Christopher J. Smith
General Counsel


bcc: Robert Dayton
Roger Gibson
Andrew Hunter
Leonard Kedrowski
John Murphy
Robert Spies
Joseph Strauss
Virginia Stringer
Robert Nelson
Thomas Plumb
Jeffery Wilson


1 U.S. Bank National Association ("U.S. Bank") also serves as administrator for the First American Funds. The First American Funds include 38 open-end funds, represented by separate series of shares of three corporations: First American Funds, Inc., First American Investment Funds, Inc., and First American Strategy Funds, Inc., as well as 11 closed-end funds.

2 See Release Nos.: 33-7754; 34-42007; IC-24082.