[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