[Federal Register Volume 64, Number 165 (Thursday, August 26, 1999)]
[Notices]
[Pages 46735-46737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22116]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23956; 812-11112]
Core Trust (Delaware), et al.; Notice of Application
August 19, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order pursuant to section 17(d) of
the Investment Company Act of 1940 (``Act'') and rule 17d-1 under the
Act.
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Summary of the Application: Applicants request an order to permit
certain registered investment companies to pay fees based on a share of
the revenue generated from securities lending transactions to an
affiliated lending agent.
Applicants: Core Trust (Delaware) (``Core Trust''), Norwest Advantage
Funds (``Norwest Advantage''), and Norwest Select Funds (``Norwest
Select'') (collectively, ``Norwest Trusts''); Norwest Bank Minnesota,
N.A. (``Norwest Bank''); Norwest Investment Management, Inc.
(``Norwest''); Stagecoach Funds, Inc. (``Stagecoach''); Life & Annuity
Trust (``LAT''); Wells Fargo Bank, N.A. (``WF Bank''); and Wells
Capital Management Incorporated (``WCM'').
Filing Dates: The application was filed on April 20, 1998. Applicants
have agreed to file an additional amendment, the substance of which is
incorporated in this notice, during the notice period.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on September 13, 1999, 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 by writing to the
Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Applicants: Norwest Advantage
and Norwest Select, Attn: Don L. Evans, Two Portland Square, Portland,
ME 04101; Core Trust, Attn: David I. Goldstein, Two Portland Square,
Portland, ME 04101; Norwest Bank and Norwest, Attn: Jeffrey P. Lund,
Norwest Center, Sixth and Marquette, Minneapolis, MN 55479-1026;
Stagecoach and LAT, 111 Center Street, Little Rock, AR 72201; WF Bank
and WCM, Attn: C. David Messman, 525 Market Street, San Francisco, CA
94105.
FOR FURTHER INFORMATION CONTACT: Rachel H. Graham, Senior Counsel, at
(202) 942-0583, or Christine Y. Greenlees, 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 Commission's Public Reference Branch, 450 Fifth Street, NW,
Washington, DC 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. Each Norwest Trust is an open-end management investment company
registered under the Act and organized as a Delaware business trust.
Norwest Advantage consists of thirty-nine series, Norwest Select
consists of four series, and Core Trust consists of twenty-one series.
Norwest serves as investment adviser to each series of the Norwest
Trusts, with the exception of the International Portfolio of Core Trust
(each such series a ``Norwest Advised Fund''). Norwest is registered
under the Investment Advisers Act of 1940 (``Advisers Act'') and is a
wholly-owned subsidiary of Norwest Bank, which in turn is a wholly-
owned subsidiary of Wells Fargo & Company (``Wells Fargo''). Norwest
Bank serves as custodian for each Norwest Advised Fund.
2. Stagecoach, a Maryland corporation, and LAT, a Delaware business
trust, are open-end management investment companies registered under
the Act. WF Bank serves as investment adviser and custodian for the
thirty-four series of Stagecoach and the six series of LAT (each a
``Wells Fargo Fund'' and, together with the Norwest Advised Funds, the
``Funds''). WF Bank is exempt from registration under the Advisers Act
and is a wholly-owned subsidiary of Wells Fargo. WCM, an investment
adviser registered under the Advisers Act and a wholly-owned subsidiary
of WF Bank, is a subadviser for the Wells Fargo Funds.
3. Applicants request that any relief granted pursuant to the
application also apply to (i) future series of the Norwest Trusts,
Stagecoach, and LAT, and to all other registered open-end management
investment companies for which Norwest or WF Bank (or a person
controlling, controlled by, or under common control with Norwest or WF
Bank) may now or in the future act as investment adviser (collectively,
``Future Funds''); and (ii) any entity controlling, controlled by, or
under common control with Norwest Bank that acts as custodian for any
Fund or Future Fund (each a ``Norwest Affiliate'').\1\
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\1\ Each Fund that currently intends to rely on the requested
order is named as an applicant. Any Future Fund or Norwest Affiliate
that relies on the requested relief will do so only in compliance
with the terms and conditions of the application.
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4. Each of the Norwest Advised Funds is permitted under its
investment objectives, policies, and restrictions to lend its portfolio
securities. Pursuant to
[[Page 46736]]
no-action relief obtained by Norwest Advantage, the Norwest Advised
Funds currently participate in a securities lending program
(``Program'') with Norwest Bank acting as lending agent for each such
Fund.\2\ Under the Program, Norwest Bank may lend portfolio securities
on behalf of each Norwest Advised Fund to pre-approved borrowers on
terms pre-approved by Norwest. As collateral for the securities loaned,
Norwest Bank may accept cash or other types of collateral, such as
government securities. Cash collateral is invested by or under the
direction of Norwest in instruments pre-approved by Norwest.
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\2\ Norwest Bank Minnesota, N.A. (pub. avail. May 25, 1995)
(``Norwest Letter'').
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5. Norwest provides certain services in connection with the
Program. Norwest determines which securities are available for loan and
has the discretion and power to prevent any loan from being made or to
terminate any loan. Norwest also monitors Norwest Bank to ensure that
securities loans are effected in accordance with its instructions and
within the procedures adopted by the board of trustees of each Norwest
Trust (each a ``Norwest Board'' and, collectively, the ``Norwest
Boards''), including a majority of the trustees of each Norwest Board
who are not ``interested persons'' within the meaning of the Act. The
Norwest Advised Funds currently pay Norwest Bank a fee for its lending
services that is based on the number and complexity of the actions that
Norwest Bank performs in connection with the Program. Applicants
contend that this compensation arrangement is administratively
cumbersome and time-consuming. Applicants request relief to permit the
Norwest Advised Funds to pay to Norwest Bank fees based on a share of
the revenue generated from securities lending transactions. With
respect to securities loans collateralized by cash, Norwest Bank would
receive a pre-negotiated percentage of the return earned on investment
of the cash collateral, after payment of any agreed-upon amount to the
borrower. In the case of collateral other than cash, Norwest Bank would
negotiate a lending fee to be paid by the borrower to the Norwest
Advised Fund, of which Norwest Bank would receive a pre-negotiated
percentage.
6. Each of the Wells Fargo Funds is permitted under its investment
objectives, policies, and restrictions to lend its portfolio
securities. The Wells Fargo Funds intend to establish a securities
lending program and to retain Norwest Bank as custodian and lending
agent for each Wells Fargo Fund. The duties to be performed by Norwest
Bank as lending agent would be consistent with, and not exceed, the
parameters set forth in the Norwest Letter. Applicants request relief
to permit the Wells Fargo Funds to compensate Norwest Bank for its
services as lending agent by paying it a percentage of the lending fee
received by a Wells Fargo Fund or of the return earned by such Fund on
the investment of cash collateral.
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 under the Act, in
relevant part, prohibit an affiliated person of a registered investment
company, or an affiliated person of such a person (``Second Tier
Affiliate''), acting as principal, from participating in any joint
enterprise or other joint arrangement or profit-sharing plan in which
the investment company participates, unless the Commission has issued
an order authorizing the arrangement. Section 2(a)(3) of the Act
defines ``affiliated person'' to include: any person directly or
indirectly owning, controlling, or holding with power to vote 5% or
more of the outstanding voting securities of the other person; any
person directly or indirectly controlling, controlled by, or under
common control with the other person; and, in the case of an investment
company, its investment adviser.
2. Norwest Bank is an affiliated person of Norwest because it
controls Norwest. As investment adviser to the Norwest Advised Funds,
Norwest is an affiliated person of each Norwest Advised Fund. Norwest
Bank, therefore, is a Second Tier Affiliate of each Norwest Advised
Fund. Norwest Bank also may be deemed to be an affiliated person or
Second Tier Affiliate of certain Norwest Advised Funds because it and
its affiliates hold more than 5% of the outstanding voting shares of
those Funds. With respect to the Wells Fargo Funds, WF Bank is the
investment adviser to, and hence an affiliated person of, each Wells
Fargo Fund. Norwest Bank and WF Bank are affiliated persons of one
another because each is under the control of Wells Fargo. Norwest Bank,
therefore, is a Second Tier Affiliate of each Wells Fargo Fund.
3. Applicants state that each Fund's proposed lending arrangements
may be deemed a joint enterprise or profit-sharing plan within the
meaning of section 17(d) and rule 17d-1 because Norwest Bank, as
lending agent, would share in the revenue generated by each Fund's
securities lending transactions. Applicants therefore request an order
to permit the Funds to engage in the proposed fee sharing arrangement
with Norwest Bank.
4. In determining whether to grant an order under rule 17d-1, the
Commission will consider (i) whether the proposed arrangement is
consistent with the provisions, policies, and purposes of the Act, and
(ii) the extent to which the investment company's participation is on a
basis different from or less advantageous than that of the other
participants. Applicants believe that their request for relief meets
these standards.
5. Applicants state that each Norwest Trust, Stagecoach, and LAT
will adopt the following procedures to ensure that the proposed fee
arrangement and other terms governing the relationship between each
Fund and Norwest Bank, as lending agent, will meet the standards of
rule 17d-1:
(a) In connection with the approval of Norwest Bank as lending
agent to a Fund and implementation of the proposed fee arrangement,
each Norwest Board, the board of directors of Stagecoach, and the board
of trustees of LAT (each a ``Board''), including a majority of the
trustees or directors of each Board who are not ``interested persons''
within the meaning of the Act (``Independent Trustees/Directors''),
will determine that: (i) The contract with Norwest Bank is in the best
interests of the Fund and its shareholders; (ii) the services to be
performed by Norwest Bank are required by the Fund; (iii) the nature
and quality of the services provided by Norwest Bank are at least equal
to those provided by others offering the same or similar services for
similar compensation; and (iv) the fees for Norwest Bank's services are
fair and reasonable in light of the usual and customary charges imposed
by others for services of the same nature and quality.
(b) Each contract of each Norwest Trust, Stagecoach, and LAT, on
behalf of each of their respective Funds, with Norwest Bank for lending
agent services will be reviewed annually and will be approved for
continuation only if a majority of each Board, including a majority of
the Independent Trustees/Directors, makes the findings referred to in
paragraph (a) above.
(c) In connection with the approval of Norwest Bank as lending
agent to a Fund and implementation of the proposed fee arrangement
under the terms described in the application, each Board will obtain
competing quotes with respect to lending agent fees from at least three
independent lending agents to assist the Board in making the
[[Page 46737]]
findings referred to in paragraph (a) above.
(d) Each Board, including a majority of the Independent Trustees/
Directors, will: (i) Determine at each quarterly meeting that the loan
transactions during the prior quarter were effected in compliance with
the conditions and procedures set forth in the application; and (ii)
review no less frequently than annually such conditions and procedures
for continuing appropriateness.
(e) On behalf of each Fund, each Norwest Trust, Stagecoach, and LAT
will maintain and preserve: (i) Permanently, in an easily accessible
place, a written copy of the procedures and conditions (and
modifications thereto) described in the application or otherwise
followed in connection with lending securities; and (ii) for a period
of not less than six years from the end of the fiscal year in which any
loan transaction occurred, the first two years in an easily accessible
place, a written record of each loan transaction setting forth a
description of the security loaned, the identity of the person on the
other side of the loan transaction, the terms of the loan transaction,
and the information or materials upon which the determination was made
that the loan was made in accordance with the procedures set forth
above and the conditions to the application.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Each Fund's securities lending program will comply with all
present and future applicable Commission and staff positions regarding
securities lending arrangements.
2. The approval of the Boards, including a majority of the
Independent Trustees/Directors, will be required for the initial and
subsequent approvals of Norwest Bank's service as lending agent for the
Funds, for the institution of all procedures relating to the securities
lending programs of the Funds, and for any periodic review of loan
transactions for which Norwest Bank acts as lending agent.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-22116 Filed 8-25-99; 8:45 am]
BILLING CODE 8010-01-M