[Federal Register Volume 63, Number 109 (Monday, June 8, 1998)]
[Notices]
[Pages 31250-31252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15153]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23237; 812-10930]


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

June 2, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

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

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SUMMARY OF THE APPLICATION: Applicants seek an order that would permit 
certain registered open-end management investment companies to utilize 
their uninvested cash to purchase shares of affiliated money market 
funds.

APPLICANTS: Stagecoach Funds, Inc., on behalf of its series Asset 
Allocation Fund, Arizona Tax-Free Fund, Balanced Fund, California Tax-
Free Bond Fund, California Tax-Free Income Fund, California Tax-Free 
Money Market Mutual Fund, California Tax-Free Money Market Trust, 
Corporate Bond Fund, Diversified Equity Income Fund, Equity Index Fund, 
Equity Value Fund, Government Money Market Mutual Fund, Growth Fund, 
Index Allocation Fund, Intermediate Bond Fund, International Equity 
Fund, Money Market Mutual Fund, Money Market Trust, National Tax-Free 
Fund, National Tax-Free Money Market Trust, National Tax-Free Money 
Market Mutual Fund, Oregon Tax-Free Fund, Overland Express Sweep Fund, 
Prime Money Market Mutual Fund, Short-Intermediate U.S. Government 
Income Fund, Short-Term Municipal Income Fund, Short-Term Government 
Corporate Income Fund, Small Cap Fund, Strategic Growth Fund, Strategic 
Income Fund, Treasury Money Market Mutual Fund, U.S. Government 
Allocation Fund, U.S. Government Income Fund, and Variable Rate 
Government Fund (each series, a ``Stagecoach Fund,'' and collectively, 
the ``Stagecoach Funds''); Life & Annuity Trust, on behalf of its 
series Asset Allocation Fund, Equity Value Fund, Growth Fund, Money 
Market Fund, Strategic Growth Fund, and U.S. Government Allocation Fund 
(each series, a ``LAT Fund,'' and collectively, the ``LAT Funds''); 
Wells Fargo Bank, National Association and any entity controlling, 
controlled by, or under common control with Wells Fargo Bank, National 
Association that in the future may serve as an investment adviser to 
the Funds (as defined below) (collectively, ``Wells Fargo''); and each 
registered investment company or series to be organized in the future 
and advised by, or to be advised in the future by, Wells Fargo 
(together with the Stagecoach Funds and LAT Funds, each a ``Fund,'' and 
collectively, the ``Funds'').

FILING DATES: The application was filed on December 23, 1997 and 
amended on May 13, 1998.

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 29, 1998, 
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, NW., Washington, DC 20549. 
Applicants, 525 Market Street, 19th Floor, San Francisco, CA 94105.

FOR FURTHER INFORMATION CONTACT:
Michael W. Mundt, Staff Attorney, at (202) 942-0578, or Mary Kay Frech, 
Branch Chief, at (202) 942-0564 (Office of Investment Company 
Regulation, Division of Investment Management).

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, 450 Fifth Street, N.W., Washington, D.C. 
20549, (202) 942-8090.

Applicant's Representations

    1. Stagecoach Funds, Inc. (``Stagecoach'') is an open-end 
management investment company registered under the Act and organized as 
a Maryland corporation. Stagecoach currently offers thirty-four 
separate Stagecoach Funds. Life & Annuity Trust (``LAT'') is an open-
end management investment company registered under the Act and 
organized as a Delaware business trust. LAT currently offers six LAT 
Funds. Ten of the Stagecoach Funds and one LAT Fund are money market 
funds subject to rule 2a-7 under the Act (together with any future 
money market portfolio of Stagecoach or LAT or any future money market 
portfolio advised by Wells Fargo, each a ``Money Market Fund,'' and 
collectively, the ``Money Market Funds''). The remaining Stagecoach 
Funds and LAT Funds are variable net asset value funds (together with 
any future variable net asset value portfolio of Stagecoach or LAT or 
any future variable net asset portfolio advised by Wells Fargo, each a 
``Non-Money Market Fund,'' and collectively, the ``Non-Money Market 
Funds'').
    2. Wells Fargo is the investment adviser for all of the Stagecoach 
Funds and LAT Funds and, as a national banking association, is exempt 
from registration under the Investment Advisers Act of 1940 (``Advisers 
Act''). Barclays Global Fund Advisors (``BGFA'') is a registered 
investment adviser under the Advisers Act that serves as investment 
sub-adviser to four Stagecoach Funds and two LAT Funds.

[[Page 31251]]

Stephens Inc., a broker-dealer registered under the Securities Exchange 
Act of 1934, serves as principal underwriter for each series, and Wells 
Fargo and Stephens Inc. provide administrative services for each 
series. An affiliate of BGFA serves as custodian for the Funds that 
BGFA sub-advises, and Wells Fargo serves as custodian to all of the 
other Funds.
    3. Each of the Non-Money Market Funds has, or may be expected to 
have, cash reserves that have not been invested in portfolio securities 
(``Uninvested Cash'') in an account at its custodian that either may be 
invested directly in individual short-term money market instruments or 
may not otherwise be invested in any portfolio securities. Uninvested 
cash may result from a variety of sources, including dividends or 
interest received on portfolio securities, unsettled securities 
transactions, reserves held for investment strategy purposes, maturity 
of investments, liquidation of investment securities to meet 
anticipated redemptions and dividend payments, or new monies received 
from investors.
    4. Applicants seek an order that would permit each of the Non-Money 
Market Funds to utilize the Uninvested Cash to purchase shares of one 
or more of the Money Market Funds (each Fund purchasing shares of the 
Money Market Funds, an ``Investing Fund,'' and collectively, 
``Investing Funds''), and that would permit the Money Market Funds to 
sell their shares to, and redeem shares from, the Investing Funds. The 
requested relief would apply to Stagecoach Funds and LAT Funds (and 
each of their series and each subsequently created series) and other 
registered open-end management investment companies or series that 
become advised by Wells Fargo.\1\ Applicants believe that the proposed 
transactions would allow Investing Funds to reduce transaction costs, 
create more liquidity, enjoy greater returns on the Uninvested Cash, 
and further diversify their holdings.
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    \1\ Each Fund that intends to rely on the order has been named 
as an applicant. Any other existing Fund and any future Fund that 
may rely on the order in the future will do so only in accordance 
with the terms and conditions of the application.
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Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act prohibits any registered 
investment company (the ``acquiring company'') or any company or 
companies controlled by the acquiring company from purchasing any 
security issued by any other investment company (the ``acquired 
company'') if the acquiring company or companies it controls would own 
in the aggregate more than 3% of the outstanding voting stock of the 
acquired company, if the purchased securities would constitute more 
than 5% of the acquiring company's total assets, or if the securities, 
together with the securities of other acquired investment companies, 
would represent more than 10% of the acquiring company's total assets. 
Section 12(d)(1)(B) provides that no acquired company may sell its 
securities to another investment company if the sale would cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale would cause more than 10% of the acquired 
company's voting stock to be owned by investment companies.
    2. Applicants request an order to permit an Investing Fund to 
invest up to 25% of its total net assets in shares of the Money Market 
Funds. Under the proposal, each Money Market Fund would also be 
permitted to sell its shares to an Investing Fund in excess of the 
limits in section 12(d)(1)(B).
    3. Section 12(d)(1)(J) of the Act provides that the SEC may exempt 
persons or transactions from any provision of section 12(d)(1) if and 
to the extent that such exemption is consistent with the public 
interest and the protection of investors.
    4. Applicants believe that none of the concerns underlying section 
12(d)(1) is presented by the proposed transactions and that the 
proposed transactions meet the section 12(d)(1)(J) standards for 
relief. Applicants note that the perceived abuses that section 12(d)(1) 
sought to address include undue influence by an acquiring fund over the 
management of an acquired fund, layering of fees, and complex fund 
structures. Applicants submit that because the Money Market Funds 
contain a highly liquid portfolio, none of the Money Market Funds will 
be subject to undue influence from an Investing Fund resulting from the 
threat of a large-scale redemption. Applicants state that the Investing 
Funds will vote their shares in the same proportion as the Money Market 
Funds' other shareholders. Applicants argue that there will be no 
layering of fees because the shares of the Money Market Funds will be 
sold to and redeemed from the Investing Funds without sales load or 
redemption fee, and to the extent that any distribution, service, or 
advisory fees are charged in connection with the investment in Money 
Market Funds, Wells Fargo and any sub-advisers will waive their 
advisory fees for each Investing Fund in an amount that offsets the 
amount of the fees.

B. Section 17(a)

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of that company. Section 2(a)(3) of the Act defines 
``affiliated person'' to include persons under common control. Section 
2(a)(9) of the Act defines ``control'' to mean the power to exercise a 
controlling influence over the management or policies of a company. 
Because Stagecoash and LAT have a common set of individuals serving as 
directors/trustees and a common investment adviser, each Fund may be 
deemed to be under common control with the other Stagecoach Funds and 
LAT Funds. Accordingly, the sale of shares of the Money Market Funds to 
the Investing Funds, and the redemption of such shares from the 
Investing Funds, may be prohibited under section 17(a).
    2. Section 17(b) of the Act permits the SEC to grant an order 
permitting a transaction otherwise prohibited by section 17(a) if it 
finds that the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned, the proposed transaction is consistent with the policy of 
each investment company concerned, and the proposed transaction is 
consistent with the general purposes of the Act. Section 6(c) of the 
Act permits the SEC to exempt a series of transactions if such 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policies of the Act.
    3. Applicants believe that the terms of the transactions meet the 
standards of sections 6(c) and 17(b). Applicants state that the shares 
of the Money Market Funds will be purchased and redeemed at their net 
asset value, which is the same consideration paid and received for the 
shares by any other shareholder. Applicants assert that the purchase of 
shares of the Money Market Funds by the Investing Funds will be 
effected in accordance with each Investing Fund's investment policies 
and that the proposed transactions are consistent with the general 
purposes of the Act.

C. Section 17(d) and Rule 17d-1

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
affiliated persons from participating in joint arrangements with a 
registered investment company unless authorized by the SEC. In passing 
on applications for such orders, rule 17d-1 provides

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that the SEC will consider whether the participation of the investment 
company is consistent with the provisions, policies, and purposes of 
the Act, and the extent to which the participation is on a basis 
different from or less advantageous than that of the other 
participants. Applicants state that each Investing Fund, Wells Fargo, 
and each Money Market Fund could be deemed to be participants in a 
joint enterprise or other joint arrangement.
    2. Applicants believe that the proposed transactions meet the 
standards for relief under rule 17d-1. Applicants state that the 
investment by the Investing Funds in shares of the Money Market Funds 
would be on the same basis as any other shareholder. Applicants further 
believe that the proposed transactions would be beneficial to each of 
the participants and that there is no basis on which to believe that 
any participant would benefit to a greater extent than any other. 
Applicants note that Wells Fargo and any sub-advisers will not receive 
any increased investment advisory fees under the proposed transactions, 
though they may experience reduced clerical costs.

Applicants' Conditions

    Applciants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Shares of the Money Market Funds sold to and redeemed from the 
Investing Funds will not be subject to a sales load or redemption fee. 
Nor will such shares be subject to a distribution fee under a plan 
adopted in accordance with rule 12b-1 under the Act, or a service fee 
(as defined in Rule 2830(b)(9) of the Conduct Rules of the National 
Association of Securities Dealers), or if such shares are subject to 
any such a distribution fee or service fee, Wells Fargo will waive its 
advisory fee for each Investing Fund in an amount that offsets the 
amount of such distribution and/or service fees incurred by the 
Investing Fund.
    2. Wells Fargo will waive its advisory fee for each Investing Fund 
in an amount that offsets the amount of the advisory fees of a Money 
Market Fund incurred by the Investing Fund.
    3. Each Investing Fund will invest Uninvested Cash in, and hold 
shares of, the Money Market Funds only to the extent that the Investing 
Fund's aggregate investment in the Money Market Funds does not exceed 
25% of the Investing Fund's total net assets. For purposes of this 
limitation, each Investing Fund or series thereof will be treated as a 
separate investment company.
    4. Investment in shares of the Money Market Funds will be in 
accordance with each Investing Fund's respective investment 
restrictions, if any, and will be consistent with each Investing Fund's 
policies as set forth in its prospectus and statement of additional 
information.
    5. Each Investing Fund, each Money Market Fund, and any future fund 
that may rely on the order shall be advised by Wells Fargo, or a person 
controlling, controlled by, or under common control with Wells Fargo.
    6. No Money Market Fund shall acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-15153 Filed 6-5-98; 8:45 am]
BILLING CODE 8010-01-M