[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