[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
