[Federal Register Volume 60, Number 235 (Thursday, December 7, 1995)]
[Notices]
[Pages 62906-62908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29916]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No IC-21562; File No. 812-9794]
Stagecoach Funds, Inc., et al.; Notice of Application
December 1, 1995.
AGENCY: Securities and Exchange Commission (``SEC'')
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANTS: Stagecoach Funds, Inc. (`'Stagecoach Funds''), Stagecoach
Inc., Stagecoach Trust, Overland Express Funds, Inc. (``Overland''),
Life & Annuity Trust (``Annuity Trust''), Master Investment Portfolio
(``MIP''), Master Investment Trust (``MIT''), Managed Series Investment
Trust (``MSIT'') (collectively, the ``Companies''), Wells Fargo Bank,
N.A. (``Wells Fargo''), and The Nikko Building Co., Ltd. (``Nikko
Building'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) for an
exemption from section 15(f)(1)(A).
SUMMARY OF APPLICATION: Applicants request an exemption from section
15(f)(1)(A) to permit Wells Fargo and Nikko Building to sell their
interests in Wells Fargo Nikko Investment Advisors (``WFNIA''), the
sub-adviser to certain of the series offered by the Companies, to
Barclays Bank PLC (''Barclays''). Without the requested exemption, the
Companies would have to reconstitute their boards of directors to meet
the 75 percent non-interested director requirement of section
15(f)(1)(A) in order to comply with the safe harbor provisions of
section 15(f).
FILING DATES: The application was filed on October 4, 1995, and amended
on December 1, 1995.
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 December 22,
1995, 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 writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants: Companies, 111 Center Street, Little Rock, Arkansas 72201;
Wells Fargo, 420 Montgomery Street, San Francisco, California 94105;
Nikko Building, 3-1 Marunouchi, 3-Chrome, Chiyoda-Ku, Tokyo 100, Japan.
FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel,
at (202) 942-0583, or Robert A. Robertson, 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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Companies are open-end management investment companies
registered under the Act, each of which currently offers several
series.\1\ Wells Fargo, a wholly-owned subsidiary of Wells Fargo & Co.,
currently serves as investment adviser to each series of the Companies
(including the master portfolios in which feeder funds invest, but not
the feeder funds themselves).
\1\Certain series of Stagecoach Inc., Stagecoach Trust and
Overland are feeder funds in a master/feeder structure and currently
invest substantially all of their assets in corresponding master
portfolios of MIP, MIT or MSIT.
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2. WFNIA is a California general partnership owned 50 percent by
Wells Fargo Investment Advisors (``WF Advisors''), a wholly-owned
subsidiary of Wells Fargo, and 50 percent by The Nikko Building U.S.A.,
Inc., a wholly-owned subsidiary of Nikko Building. WFNIA currently
serves as sub-adviser to 15 of the 40 active series (the ``Sub-Advised
Series'') offered by the Companies. As of June 30, 1995, the Sub-
Advised Series had approximately $3 billion in assets under management,
which represented less than 27% of the aggregate assets under
management in all active series of the Companies, and approximately
1.6% of the approximately $183 billion in assets that WFNIA had under
management.
3. On June 21, 1995, Wells Fargo, Nikko Building, and certain of
their affiliates entered into a purchase and assumption agreement (the
``Agreement'') with Barclays to sell their interests in WFNIA for an
aggregate price of approximately $443 million, subject to various
adjustments at the time of closing (the ``Transaction''). As part of
the purchase price, the Agreement also provides for Barclays to make
monthly payments to Wells Fargo and its affiliated sellers of .15
percent of the aggregate value of the interests held by retail
shareholders of Stagecoach Trust in the LifePath Master Portfolios
[[Page 62907]]
of MIP (``Installment Payments''), subject to certain continuity
conditions.
4. Barclays has indicated an intention to reorganize WFNIA into WF
Advisors (which also is being sold to Barclays), which then would be
re-named BZW Global Investors. Alternatively, Barclays may maintain
WFNIA as a separate subsidiary or combine it with the quantitative
group of BZW Asset Management (``BZWAM''), the international management
arm of Barclays. Upon completion of the Transaction, BZWAM and WFNIA
(or its successor) will have, on a combined basis, approximately $269
billion of assets under management, of which approximately $3 billion,
or approximately 1.1%, will represent assets of the Sub-Advised Series.
Applicants state that WFNIA or its successor will continue to operate
with WFNIA's current management, investment professionals, and
resources essentially intact, and that WFNIA or its successor will
continue to provide investment advisory services at least comparable to
those currently provided by WFNIA to the Sub-Advised Series.
5. The Transaction will result in a ``change in control'' of WFNIA
under the Act. As required by section 15(a)(4) of the Act, the current
sub-advisory agreements will terminate upon their assignment.
Applicants anticipate that, except as described below, WFNIA or its
successor will, subject to the receipt of all necessary board and
shareholder approvals and the complete satisfaction of other conditions
to the closing of the Transaction, continue to act as sub-adviser to
the Sub-Advised Series pursuant to new sub-advisory agreements (the
``Proposed Sub-Advisory Agreements''). The Proposed Sub-Advisory
Agreements will be identical in all material respects, including the
respective fee levels, to the current sub-advisory agreements.
6. Applicants contemplate that WFNIA or its successor will, upon
consummation of the Transaction, enter into advisory agreements (the
``Proposed Advisory Agreements'') with respect to nine of the fifteen
Sub-Advised Series, pursuant to which WFNIA or its successor will
become the primary investment adviser to such series. Wells Fargo has
agreed to resign as primary adviser to these series primarily in
recognition of an expectation that, following consummation of the
Transaction, these series will be marketed largely through sales
channels associated with Barclays. The Proposed Advisory Agreements
will be identical in all material respects, including the fee levels,
to the current advisory agreements with Wells Fargo. The Proposed
Advisory Agreements and the Proposed Sub-Advisory Agreements are
referred to as the ``Proposed Agreements.'' In accordance with the
requirements of section 15(c) of the Act, each Company's board of
directors, including the directors who are not interested persons of
the Companies, considered and unanimously approved the Proposed
Agreements at a special meeting held on October 10, 1995, after careful
consideration of all material elements of the Transaction, including
the Installment Payment agreement.\2\ Proxy materials have been mailed
to shareholders, and shareholder meetings will be convened in early
December. The closing of the Transaction is currently scheduled for
December 27, 1995, but is subject to a variety of conditions, including
the receipt of various regulatory approvals.
\2\Presentations relating to the Transaction were made to the
board of directors at three separate board meetings. All of the non-
interested directors attended and actively participated in all of
these meetings, as did counsel for the non-interested directors and
counsel to the Companies. Extensive written materials were provided
to the directors in advance of the October 10 in-person meetings at
which the new advisory arrangements were approved, and extensive
deliberations occurred at these meetings.
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Applicants' Legal Analysis
1. Section 15(f) of the Act is a safe harbor that permits an
investment adviser to a registered investment company (or an affiliated
person of the investment adviser) to realize a profit upon the sale of
its business if certain conditions are met. One of these conditions is
set forth in section 15(f)(1)(A). This condition provides that, for a
period of three years after such a sale, at least 75 percent of the
board of an investment company may not be ``interested persons'' with
respect to either the predecessor or successor adviser of the
investment company. Section 2(a)(19)(B)(v) defines an interested person
of an investment adviser to include any broker or dealer registered
under the Securities Exchange Act of 1934 or any affiliated person of
such broker or dealer. In addition, section 2(a)(19)(B)(iii) defines an
interested person of an investment adviser to include anyone who has
any interest in any security issued by the investment adviser or by a
controlling person thereof.
2. The board of directors of each Company is comprised of the same
seven individuals. Four of the seven directors of each Company may be
considered interested persons of either the predecessor or successor
adviser of the Company. Two of these directors are officers of a
registered broker-dealer, and another is a limited partner of a
government securities dealer. As such, these three directors are
affiliated persons of a broker or dealer (the ``Broker-Affiliated
Directors''), and interested persons of both the predecessor and
successor advisers of the Companies.\3\ Another director is a
shareholder of Wells Fargo & Co., the parent of Wells Fargo, and
therefore is an interested person of the predecessor adviser of the
Companies. The three remaining directors are not interested persons of
either the Companies or the predecessor or successor adviser. Because
four of the seven directors of the Companies are interested persons of
the predecessor and successor advisers, absent an exemption, applicants
would be unable to comply with the requirements of section 15(f)(1)(A).
\3\The exemption provided by rule 2a19-1 is not available with
respect to the two directors who are officers of a broker-dealer
because the broker-dealer serves as placement agent or distributor
to the Companies (the ``Distributor''). The exemption provided by
rule 2a19-1 is not available with respect to the director who is a
limited partner of a government securities dealer because the dealer
engages in government securities transactions with the broker-
dealer, as well as with Wells Fargo and Barclays, all of which fall
within the definition of ``complex'' in the rule. Accordingly, this
director does not meet the condition specified in the rule.
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3. Section 6(c) of the Act permits the SEC to exempt any person or
transaction from any provision of the Act, or any rule or regulation
thereunder, if the exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
4. Applicants believe that the requested exemption is necessary or
appropriate in the public interest. Applicants submit that section
15(f)(1)(A) was designed primarily to address the types of biases and
conflicts of interest that might exist where a fund's board of
directors is influenced by a substantial number of interested directors
to approve a transaction because the interested directors have an
economic interest in the adviser or another party to the transaction,
and the adviser has a material economic motivation to influence the
interested directors. Applicants argue that no such circumstances exist
with respect to the Broker-Affiliated Directors and the Transaction.
Although the Broker-Affiliated Directors are technically interested
persons of Wells Fargo and WFNIA or its successor (the ``Advisers''),
these directors and the broker-dealers with which they are affiliated
are not affiliated persons of the Advisers within the meaning of
section 2(a)(3) of the Act, nor are they
[[Page 62908]]
controlled by or under common control with the Advisers. Moreover, none
of these directors is an officer, director, partner, co-partner, or
employee of any Adviser, and the broker-dealers do not share any common
directors, officers, or employees with the Advisers. Applicants also
state that the Distributor is retained directly by the Companies.
Accordingly, the Companies' retention of the Distributor is not
dependent on the identity of, or transactions involving, the Adviser.
The Distributor's compensation for its services is based on asset
levels and/or the receipt of sales loads, and it therefore has a direct
economic interest in having the Sub-Advised Series prosper and grow. In
this respect, the Distributor's interests are consistent with the
interests of the shareholders of the Sub-Advised Series.
5. Applicants believe that the requested exemption is consistent
with the protection of investors. WFNIA or its successor will continue
to offer services at least comparable to those currently performed by
WFNIA, and will be supported by the resources of one of the largest
international financial services corporations. WFNIA or its successor
will continue operations with WFNIA's current management, investment
professionals, and resources remaining essentially intact. The services
that WFNIA or its successor will perform under the Proposed Sub-
Advisory Agreements will be identical in all material respects to the
services currently performed by WFNIA, and the fee levels for such
services will remain the same. Finally, applicants state that each
series will continue to be subject to all other provisions of the Act
designed to protect the interests of investors, including section
15(f)(1)(B), and all four interested directors will continue to be
treated as interested persons of the Companies and the Advisers for all
purposes other than section 15(f)(1)(A).
6. Applicants also believe that the requested exemption is
consistent with the purposes fairly intended by the policies and
provisions of the Act. Applicants submit that the legislative history
of section 15(f) indicates that Congress intended the SEC to deal
flexibly with situations where the imposition of the 75 percent
requirement might pose an unnecessary obstacle or burden on a fund.
Applicants argue that the SEC should exercise this flexibility in
situations such as the proposed Transaction. Further, applicants state
that section 15(f) was intended to ensure that, where there is a change
in control of an investment adviser, the interests of investment
company shareholders will be protected and they will not be subject to
any unfair burden as a result of such transaction. Applicants argue
that the proposed Transaction is structured to protect the interests of
the shareholders of each Sub-Advised Series and that shareholders will
benefit from the requested exemption.
Applicants' Condition
Applicants agree that any order of the SEC granting the requested
relief will be subject to the following condition:
If within three years of the completion of the Transaction, it
becomes necessary to replace any director, that director will be
replaced by a director who is not an interested person of Wells
Fargo Bank, WFNIA, or its successor within the meaning of section
2(a)(19)(B) of the Act, unless at least 75% of the directors at that
time are not interested persons of Wells Fargo Bank, WFNIA, or its
successor.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29916 Filed 12-4-95; 3:57 pm]
BILLING CODE 8010-01-M