[Federal Register Volume 61, Number 105 (Thursday, May 30, 1996)]
[Notices]
[Pages 27114-27116]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13545]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21979; 812-10074]


Stagecoach Funds, Inc., et al.; Notice of Application

May 23, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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Applicants: Stagecoach Funds, Inc. (``Stagecoach''), Life & Annuity 
Trust (collectively with Stagecoach, the ``Companies''), and Wells 
Fargo Bank, N.A. (``Wells Fargo Bank'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
for an exemption from section 15(f)(1)(A) of the Act.

SUMMARY OF APPLICATION: Applicants request an order that would permit 
Stagecoach to retain its present directors following a reorganization 
involving other registered investment companies. Without the requested 
exemption, Stagecoach would have to reconstitute its board of directors 
after the reorganization 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 April 3, 1996, and amended 
on May 21, 1996.

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 June 17, 1996, 
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 SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: the Companies, 111 Center Street, Little Rock, 
Arkansas 72201 and Wells Fargo, 420 Montgomery Street, San Francisco, 
CA 94105.

FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 942-0572, or Alison E. Baur, 
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 at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. Each of the Companies is a registered open-end management 
investment company. Wells Fargo Bank, a wholly-owned subsidiary of 
Wells Fargo & Company (``Wells Fargo''), currently serves as investment 
adviser to each series of the Companies.
    2. On April 1, 1996, Wells Fargo acquired First Interstate Bancorp 
(``Interstate'') and its indirect wholly-owned subsidiary of 
Interstate, First Interstate Capital Management, Inc. (``FICM'') (the 
``Holding Company Merger''). Interstate shareholders received 
consideration in connection with the Holding Company Merger. The 
Holding Company Merger, whereby FICM became an indirect wholly-owned 
subsidiary of Wells Fargo, constituted a change in control of FICM.
    3. FICM currently serves as investment adviser to the Pacifica 
Funds Trust and Pacifica Variable Trust (collectively, the ``Pacifica 
Trusts''). The Holding Company Merger caused an automatic termination 
of FICM's then current advisory agreements with the Pacifica Trusts. At 
meetings in February and March 1996, the boards of trustees of the 
Pacifica Trusts approved the interim continuation of the Pacifica 
Trusts' advisory relationship with FICM following the Holding Company 
Merger, subject to shareholder ratification and approval.\1\
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    \1\ The Pacifica Trusts received an SEC exemptive order 
permitting them to implement interim advisory contracts with FICM 
without shareholder approval for up to 120 days following the 
consummation of the merger. Investment Company Act Release Nos. 
21794 (March 1, 1996) (notice) and 21860 (March 27, 1996) (order).
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    4. Several new and existing series of Stagecoach propose to acquire 
the assets of each series of the Pacific Funds Trust (the 
``Reorganization''). The Reorganization is intended to consolidate the 
operations of separate mutual fund families into fewer separate 
companies. Among other things, it is believed that the Reorganization 
will improve efficiency, eliminate duplicate shareholder costs and 
market overlap, facilitate the consolidation of mutual fund investment 
advisory capabilities by Wells Fargo Bank, and provide potentially 
enhanced investment returns.
    5. At meetings held in late April and mid-May, the Pacifica Funds 
Trust board of trustees and the Stagecoach board of directors 
(collectively, the ``Boards''), determined, after reviewing and 
evaluating relevant information, that (a) participation in the 
Reorganization is in the best interest of the particular series and (b) 
the interests of existing shareholders will not be diluted as a result 
of participating in the Reorganization.
    6. The Pacifica Funds Trust Board has called a special meeting of 
the Pacifica Funds Trust shareholders to be held in July 1996, for the 
purpose of considering the Reorganization. Approval of a particular 
series' participation in the Reorganization will require approval by a 
majority of the outstanding shares of such series entitled to vote at 
the meeting, voting separately on a series-by-series basis. If required 
by its declaration of trust or by state law, approval may also be 
required

[[Page 27115]]

by a majority of the outstanding shares of Pacifica Funds Trust 
entitled to vote at the meeting, voting in the aggregate and not by 
series or class. These special meetings also will be called for the 
purpose of ratifying and approving the Pacifica Funds Trust's interim 
investment advisory agreements with FICM.\2\
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    \2\ FICM has been renamed Wells Fargo Investment Management, 
Inc.
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    7. There are no plans currently to reorganize any of the series 
operating under Pacifica Variable Trust into corresponding series of 
Life & Annuity Trust, although such a transaction may be considered in 
the future. Accordingly, applicants request that the order extend to 
Life & Annuity Trust to the same extent as Stagecoach. Any such 
reorganization in the future will be the same, in all material 
respects, to the transactions described in the application with respect 
to Stagecoach.

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% 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) of the Act 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 restrictions of section 15(f)(1)(A) do not currently apply 
to the Companies as a result of the Holding Company Merger because 
there was no change in control of Wells Fargo Bank. Because Interstate 
shareholders received consideration in connection with the Holding 
Company Merger, however, the restrictions of section 15(f)(1)(A) 
currently apply to the Pacifica Trusts. The Reorganization may, 
therefore, have the effect of subjecting Stagecoach (which will then be 
offering series that are successors to the Pacifica Funds Trust \3\), 
to the restrictions of section 15(f)(1)(A). In particular, Stagecoach 
will be subject to the requirement that, for at least three years 
following a change in control of an investment adviser, at least 75% of 
the directors of a successor investment company not be ``interested 
persons'' of the predecessor or successor adviser.
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    \3\ None of the trustees of the Pacifica Trusts is an interested 
person of FICM or Wells Fargo Bank for the purposes of section 
15(f)(1)(A).
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    3. The board of directors of each Company is comprised of the same 
seven individuals. Currently, four of the seven directors of each 
Company may be considered interested persons of Wells Fargo Bank. 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 registered 
broker or dealer (the ``Broker-Affiliated Directors''), and interested 
persons of Wells Fargo Bank.\4\ Another director is a shareholder of 
Wells Fargo, the parent of Wells Fargo Bank, and therefore is an 
interested person of Wells Fargo Bank. The three remaining directors 
are not interested persons of either the Companies or the predecessor 
or successor adviser.
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    \4\ 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 the Wells Fargo Bank, 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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    4. One of the Broker-Affiliated Directors has tendered her 
resignation, effective upon consummation of the Reorganization. The 
remaining Stagecoach directors have voted to add one of the individuals 
currently serving as a non-interested trustee of the Pacifica Trusts as 
a non-interested director of Stagecoach. This will result in four of 
the seven Stagecoach directors being non-interested following the 
consummation of the Reorganization. Because, after the Reorganization, 
three of the seven directors of the Companies will be 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).
    5. Section 6(c) provides, in relevant part, that the SEC may, 
conditionally or unconditionally, by order, exempt any person or class 
of persons from any provision of the Act or from any rule thereunder, 
if such exemption is necessary or appropriate in the public interest, 
consistent with the protection of investors, and consistent with the 
purposes fairly intended by the policy and provisions of the Act.
    6. 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 Holding Company 
Merger and the Reorganization. Although the Broker-Affiliated Directors 
are technically interested persons of Wells Fargo Bank and FICM (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 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. The broker-dealers with which the Broker-Affiliated 
Directors are affiliated do not share any common directors, officers, 
or employees with the Advisers and do not control, are not controlled 
by, and are not under common control 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 Companies prosper and grow. In this 
respect, the Distributor's interests are consistent with the interests 
of the shareholders of the Companies.
    7. Applicants believe that the requested exemption is consistent 
with the protection of investors. Applicants state that all the 
directors, with the exception of the new non-interested director, have 
served on the Boards of the Companies since their inception. In 
addition, applicants state that compelling one or more of the Broker-
Affiliated Directors to resign from the Stagecoach Board in connection 
with

[[Page 27116]]

the Reorganization would deprive Stagecoach and its shareholders of the 
services of skilled individuals possessing considerable experience and 
financial and business acumen at a time when their experience may be 
most needed. Adding a substantial number of disinterested directors to 
the Board would require a lengthy interview and selection process, 
which could delay and increase the cost of the Reorganization, and 
could make the Board unwieldy. Further, applicants state that the three 
interested directors remaining after the Reorganization will continue 
to be treated as interested persons of Stagecoach and of Wells Fargo 
Bank for all purposes other than section 15(f)(1)(A).
    8. 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 section 15(f) is intended 
to permit the SEC to deal flexibly with situations where the imposition 
of the 75% requirement might pose an unnecessary obstacle or burden on 
a fund. 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 the 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 Reorganization 
is structured to protect the interests of the shareholders of the 
Pacifica Funds Trust and Stagecoach and that shareholders will benefit 
from the requested exemption.

Applicants' Condition

    Applicants agree as conditions to the issuance of the requested 
exemptive order that:
    If within three years of the consummation of the Holding Company 
Merger (assuming the Reorganization is also consummated), 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 or 
FICM 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 or FICM.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-13545 Filed 5-29-96; 8:45 am]
BILLING CODE 8010-01-M