SEC Division of Investment Management staff letter: Wells Fargo Alternative Asset Management, LLC

January 26, 2005

RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT

IM Ref. No. 2004324951 Wells Fargo Alternative Asset Management, LLC File No. 801-60419

Your letter dated January 24, 2005 requests that we concur with your interpretation of Section 2(a)(42) of the Investment Company Act of 1940 (the "Investment Company Act") that certain units of beneficial interest held in certain sub-trusts of a Bermuda Unit Trust, as described below, are not "voting securities" for purposes of Section 17(a) of the Investment Company Act.

Facts

You state that Wells Fargo Alternative Asset Management, LLC ("WFAAM") is an investment adviser registered under the Investment Advisers Act of 1940. You state that WFAAM is the managing member of several Delaware limited liability companies ("LLCs") and is the investment adviser to several offshore trusts ("Offshore Funds") and to Wells Fargo Bank, N.A. as trustee of two common trust funds ("CTFs") (the LLCs, the Offshore Funds and the CTFs are referred to collectively as the "Private Funds"). You state that each of the Private Funds is excluded from the definition of investment company pursuant to Section 3(c) of the Investment Company Act, and offerings of shares of, or interests in, each of the Private Funds are not registered under the Securities Act of 1933 in reliance on certain exemptions.

You state that each Private Fund seeks to achieve its investment objective by investing substantially all of its assets in certain sub-trusts that have elected to be classified as partnerships for federal tax purposes (each, a "Trust") of HFR Umbrella Trust ("Umbrella Trust"), a Bermuda Unit Trust. You state that the trustee of the Umbrella Trust and each Trust is Butterfield Trust (Bermuda) Limited ("Trustee"), a wholly owned subsidiary of the Bank of N.T. Butterfield & Son Limited. The investment manager of the Trusts and the Umbrella Trust is HFR Asset Management, L.L.C. ("HFR"), which is responsible for selecting independent investment managers ("sub-managers"), each of which in turn employs a distinctive investment strategy to manage the investments of each Trust. You state that HFR and the sub-managers are unaffiliated with WFAAM.

You state that WFAAM intends to act as the investment adviser to a new, registered open-end investment company (the "Registered Fund"). You state that the Registered Fund will invest in certain of the Trusts.

You state that ownership in each of the Trusts is conveyed in units of beneficial interest (the "Units"). You state that the Units include no voting rights whatsoever, and that therefore the Unit holders are not able to exercise any voting power with respect to the Trusts. 1 You also state that the Private Funds and the Registered Fund will not be the only investors in the Trusts. You state, however, that none of the Private Funds or the Registered Fund will contribute the bulk of the assets of any Trust. 2

You state that the Private Funds invest in the Trusts pursuant to a series of letter agreements between HFR and WFAAM and that these agreements provide that HFR is solely responsible for the selection and compensation of the Trusts' sub-managers. 3 Furthermore, you state that the Registered Fund's investment in the Trusts will be on terms that are substantially similar to and, in all circumstances, no less advantageous than the Private Funds' investments in the Trusts. r

You state that the Trusts do not have directors and that the only entities "performing similar functions" are the Trustee, HFR as investment manager, and the sub-managers. You state that the Trusts have elected to be classified as partnerships for federal tax purposes.

You state that Bermuda law and the trust deeds do not confer any power on the Unit holders to exercise any rights to vote on the election or removal of the Trustee or HFR or exercise any control over the Trusts, either legally or economically. You state that the trust deeds of the Umbrella Trust and each Trust provide explicitly that all voting rights shall be exercised in such manner as HFR, as investment manager, may direct and no holder shall have any right to interfere or complain. You further state that the trust deeds reserve to HFR the right to remove the Trustee, and solely either HFR or the Trustee (with HFR's written consent) may appoint a new trustee. You represent that the trust deeds do not confer any power on the Unit holders to appoint or remove a trustee. You represent that no Unit holders will have the right or power to elect or terminate HFR as investment manager. You further represent that Bermuda law and the trust deeds do not confer any power on the Unit holders to take part in the conduct or control of the Trusts' business. You state that, as with the Private Funds, the investor agreement between HFR and the Registered Fund will provide that HFR is solely responsible for the selection and compensation of the Trusts' sub-managers. You represent that, therefore, if the Registered Fund or Private Funds were dissatisfied, their sole remedy would be to redeem their interest in the Trusts.

You request our concurrence that the Units are not "voting securities" as defined in Section 2(a)(42) of the Investment Company Act in connection with your determination of whether the Registered Fund will be an affiliated person of any Trust in which the Registered Fund will invest. In particular, you seek to obtain assurances that will allow you to determine that the prohibitions against principal transactions between a registered investment company and its affiliated persons would not apply to the Registered Fund's purchase and redemption of Trust Units. 5

Legal Analysis

Section 2(a)(42) of the Investment Company Act defines "voting security" to mean any security presently entitling the owner to vote for the election of directors of a company. Section 2(a)(12) of the Investment Company Act defines "director" as "any director of a corporation or any person performing similar functions with respect to any organization, whether incorporated or unincorporated. . . ."

The Commission has taken the position that the holder of non-voting securities may be considered to hold the equivalent of a voting security if the holder possesses an economic interest in the issuer such that the holder, in effect, has the power to exercise control over how the issuer is managed. 6 The Commission also stated that the statutory definition of "voting security" is not intended to be rigidly applied to require the sort of formal voting that would occur in electing directors of a corporation. 7

In the context of limited partnership interests, we have broadly construed a limited partner's present entitlement to vote for the election of "directors" to include the right to: (1) remove or replace the general partner, (2) vote on the election or removal of the general partner in the event of the general partner's death, insanity or retirement, (3) terminate the partnership if one of the initial managing general partners ceases to serve in that role, and (4) take part in the conduct or control of the limited partnership's business. 8 We have stated that a limited partnership interest is a voting security if the limited partner has an economic interest that gives it the power to exercise a controlling influence over the partnership. 9 We also have stated that the definition of "voting security" includes not only the formal legal entitlement to vote for the election of directors but also the de facto power to determine, or influence the determination of, the identity of the issuer's directors. 10

You contend that the test articulated above can also be applied effectively to the Trusts. We agree. You state that the Trusts do not have directors or a general partner, and that the only entities performing similar functions are the Trustee, HFR, and the sub-managers. You contend that the Units in the Trusts are not "voting securities" within the meaning of Section 2(a)(42). You represent that Unit holders will not have any of the rights or powers articulated above. In particular, you assert that no Unit holder will have the right to remove or replace the Trustee, HFR, or the sub-managers. You represent that no Unit holder will have the right to vote on the election or removal of the Trustee, HFR, or the sub-managers. You represent that no Unit holder will have the right to terminate any of the Trusts. You further represent that no Unit holder will have the right to take part in the conduct or control of any Trust's business.

You also represent that none of the Private Funds or the Registered Fund will have the de facto power to determine or influence the election, removal, or replacement of the Trustee, HFR, or the sub-managers. You represent that none of the Private Funds or the Registered Fund will have an economic interest that gives it the power to exercise a controlling influence over any of the Trusts. You also represent that none of the Private Funds or the Registered Fund will contribute the bulk of the assets of any of the Trusts. 11

We agree that the interests in a Trust that are to be held by a Private Fund or a Registered Fund as described above would not constitute "voting securities" as defined in Section 2(a)(42) of the Investment Company Act for purposes of Section 17(a) of the Investment Company Act. 12 Our position is based on all of the facts and representations that are set forth in your letter. You should note that any different facts or representations may require a different conclusion.

Sara P. Crovitz Senior Counsel

Kenneth C. Fang Senior Counsel

Endnotes

1 You attach to your request a legal opinion from Bermuda counsel ("Opinion") concluding that, as a matter of Bermuda law, the Units do not confer any voting rights on their holders.

2 You state that, as an exception, the Private Funds or the Registered Fund may contribute the bulk of the assets in a Trust during brief periods at the initial funding of a new Trust, in which the Private Funds or the Registered Fund are part of the initial group of investors.

3 You state that the investor agreement between HFR and the Registered Fund similarly will provide that HFR is solely responsible for the selection and compensation of sub-managers.

4 Section 17(d) of the Investment Company Act and Rule 17d-1 thereunder prohibit joint transactions involving registered investment companies and their affiliates (as defined in footnote 5, infra ). You do not ask, and we do not take any position regarding, whether the Registered Fund and each Private Fund would be affiliates as a result of WFAAM's control of the Private Funds ( see Section 2(a)(3)(C) of the Investment Company Act) and WFAAM's position as investment adviser to the Registered Fund ( see Section 2(a)(3)(E) of the Investment Company Act). You also do not ask, and we take no position regarding, whether Section 17(d) would apply to the Private Funds and the Registered Fund's investments in the Trusts. Please note that the applicability of the prohibitions of Section 17(d) does not depend on whether each party participates in a joint transaction on substantially similar or equitable terms. See generally Massachusetts Mutual Life Insurance Company (pub. avail. June 7, 2000); In the Matter of Imperial Financial Services, Inc. , Securities Exchange Act Release No. 7684 (Aug. 26, 1965).

5 Section 17(a) of the Investment Company Act generally prohibits principal transactions between a registered investment company and its affiliated persons, and affiliated persons of the affiliated persons (collectively "affiliates"). You do not ask, and we take no position regarding, whether a Trust and the Registered Fund would be affiliates if WFAAM were deemed to indirectly control the Trust through the Private Funds' and the Registered Fund's ownership of Units of the Trust. The Trust will be an affiliated person of WFAAM if WFAAM indirectly controls it ( see Section 2(a)(3)(C) of the Investment Company Act), and WFAAM will be an affiliated person of the Registered Fund as its investment adviser ( see Section 2(a)(3)(E) of the Investment Company Act). See, e.g., In the Matter of Investors Mutual, Inc. , Investment Company Act Release No. 4595 (May 11, 1966) (discussing the definition of control in Section 2(a)(9) of the Investment Company Act).

See Brief for the Securities and Exchange Commission amicus curiae at 18, 21, Clemente Global Growth Fund, Inc. v. T. Boone Pickens, III, et al. , 705 F. Supp. 958 (S.D.N.Y. 1989), appeal docketed, No. 89-7117 (2d Cir. 1989), appeal withdrawn on consent (discussing circumstances under which limited partnership interests may be considered to be voting securities for purposes of Section 3(c)(1) of the Investment Company Act).

Id.

See Standish Equity Investments, Inc. (pub. avail. Dec. 15, 1993). See also Willkie Farr & Gallagher (pub. avail. June 21, 1996); Laifer, Inc. (pub. avail. Jan. 5, 1993); Weiss, Peck & Greer Venture Associates II (pub. avail. Apr. 10, 1990); Indiana Hospital Ass'n Investment Funds, L.P. (pub. avail. Oct. 15, 1985); Kohlberg Kravis Roberts & Co., Inc. (pub. avail. Sept. 9, 1985).

See Clemente, supra note 6.

See, e.g. , William L. Eddleman, Jr. (pub. avail. Oct. 26, 1979).

11 We note that under certain circumstances a Private Fund or the Registered Fund may be deemed to have contributed the bulk of the assets of a Trust (e.g., during the initial funding of a new Trust when either a Private Fund or the Registered Fund may be part of the initial group of investors, or due to redemptions by other Unit holders). We do not address whether the Units would constitute voting securities under these circumstances.

12 We take no position regarding whether the prohibitions of Section 17(a) of the Investment Company Act would otherwise apply to any principal transaction between the Registered Fund and a Trust. See supra note 5. We also take no position regarding whether the Units would be voting securities as defined in Section 2(a)(42) of the Investment Company Act outside the context of Section 17(a). The introduction to Section 2 of the Investment Company Act indicates that the definitions of the terms that are set forth in that section apply throughout the Investment Company Act "unless the context otherwise requires."

Incoming Letter

Investment Company Act of 1940 Section 2(a)(3) Section 2(a)(42)

January 24, 2005

VIA MESSENGER

Douglas J. Scheidt, Esq. Chief Counsel Division of Investment Management Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0506

Re: Investment Company Act of 1940, Sections 2(a)(3) and 2(a)(42)

Dear Mr. Scheidt:

On behalf of our client, Wells Fargo Alternative Asset Management, LLC ("WFAAM"), we respectfully request that the staff of the Commission concur with our interpretation of Section 2(a)(42) of the Investment Company Act of 1940 ("1940 Act") for purposes of Section 17(a) of the 1940 Act as applied to certain non-voting interests held in certain sub-trusts of a Bermuda Unit Trust, as described below.

Facts

WFAAM is an investment adviser registered under the Investment Advisers Act of 1940, as amended ("Advisers Act"), and organized as a Delaware limited liability company. WFAAM is the managing member of several Delaware limited liability companies ("LLCs"), and is the investment adviser to several offshore funds ("Offshore Funds") and to Wells Fargo Bank, N.A. as trustee of two common trust funds ("CTFs"). The LLCs, the Offshore Funds, and the CTFs are referred to below collectively as the "Private Funds." Each of the Private Funds is excluded from the definition of investment company pursuant to Section 3(c) the 1940 Act. Offerings of shares or interests in each of the Private Funds are not registered under the Securities Act of 1933 in reliance on Rule 506 of Regulation D (with respect to the LLCs), Regulation D and Regulation S (with respect to the Offshore Funds), or Section 3(a)(2) (with respect to the CTFs) thereunder.

Each Private Fund seeks to achieve its investment objective by investing substantially all of its assets in certain sub-trusts that have elected to be classified as partnerships for federal tax purposes (each, a "Trust") of HFR Umbrella Trust ("Umbrella Trust"), a Bermuda Unit Trust. The trustee of the Umbrella Trust and each Trust is Butterfield Trust (Bermuda) Limited ("Trustee"), a wholly owned subsidiary of the Bank of N.T. Butterfield & Son Limited. The investment manager of the Trusts and the Umbrella Trust is HFR Asset Management, L.L.C. ("HFR"), which is responsible for selecting independent investment managers ("sub-managers"), each of whom in turn employs a distinctive investment strategy to manage the investments of each Trust. HFR and the sub-managers are unaffiliated with WFAAM.

In addition to serving as the managing member of the Private Funds, WFAAM also intends to act as the investment adviser to a new, registered open-end investment company (the "Registered Fund"). The Registered Fund will invest directly in a variety of securities, and will also invest in certain of the Trusts. As a result, the ownership by any Private Fund or the Registered Fund of interests in one or more of the Trusts may equal or exceed 5% of the interests in such Trust.

Ownership in each of the Trusts is conveyed in units of beneficial interest (the "Units"). The Units include no voting rights whatsoever. Consequently, holders of the Units, including the Private Funds and, in the future, the Registered Fund, are not able to exercise any voting power with respect to the Trusts. We have attached as Appendix 1 to this no-action request a legal opinion (the "Opinion") from Bermuda counsel, Appleby Spurling Hunter, concluding that, as a matter of Bermuda law, the Units do not confer any voting rights on their holders.

The Private Funds and the Registered Fund will not be the only investors in the Trusts; HFR may accept investments from other entities that are not affiliated with WFAAM or Wells Fargo Bank, N.A. None of the Private Funds or the Registered Fund will contribute the bulk of the assets in any Trust, with the possible exception of brief periods during the initial funding of a new Trust, during which the Private Funds or the Registered Fund may be part of the initial group of investors.

The Registered Fund's investment in the Trusts will be on terms substantially similar to and, in all circumstances, no less advantageous than the Private Funds' investments in such Trusts. The Registered Fund, like the Private Funds, will not have any power to elect or terminate HFR as investment manager. Thus, if the Registered Fund or Private Funds were dissatisfied with HFR as investment manager, their sole remedy would be to redeem their interests in the Trusts.

The Private Funds invest in the Trusts pursuant to a series of letter agreements between HFR and WFAAM. These agreements provide that HFR is solely responsible for the selection and compensation of the Trusts' sub-managers. The agreements also provide, among other things, that HFR will assist each adviser, managing member or trustee, as applicable, of each Private Fund in determining appropriate asset allocation strategies among the Trusts, by making asset allocation recommendations that are consistent with each Private Fund's investment objective, strategies and restrictions. HFR monitors the Trusts' trading activity to ensure that the investment parameters of each Private Fund are followed. HFR provides each Private Fund with performance information concerning each Trust and maintains records supporting the calculation of the investment managers' performance in managing the Trusts.

As discussed more fully below, in the absence of the relief requested, the Registered Fund and the Private Funds may be prohibited from purchasing and redeeming the Units by Section 17(a) of the 1940 Act because it is anticipated that the respective ownership of the Registered Fund, on the one hand, and one or more of the Private Funds individually, on the other hand, in one or more of the Trusts may equal or exceed 5% of the interests in such Trust. The Registered Fund, and WFAAM and the Private Funds, therefore may be considered "affiliates" of such Trusts under Section 2(a)(3). Section 17(a) prohibits an affiliated person of a registered investment company from knowingly purchasing and selling securities or other property from or to the investment company in the absence of an exemptive order issued by the Commission, and, without the no-action assurance requested herein, the Registered Fund may be prohibited from purchasing and redeeming Units in such Trusts.

Discussion

Section 2(a)(42) of the 1940 Act defines "voting security" to mean any security presently entitling the owner thereof to vote for the election of directors of a company. Section 2(a)(12), in turn, defines "director" as "any director of a corporation or any person performing similar functions with respect to any organization, whether incorporated or unincorporated �".

Section 2(a)(3) of the 1940 Act defines an affiliated person of another person as:

(A) any person directly or indirectly owning, controlling, or holding with power to vote, 5 per centum or more of the outstanding voting securities of such other person; (B) any person 5 per centum or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other person; (C) any person directly or indirectly controlling, controlled by, or under common control with, such other person; . . . [and] (E) if such other person is an investment company, any investment adviser thereof . . . .

Section 17(a) of the 1940 Act, in relevant part, makes it unlawful for any affiliated person of a registered investment company (a "first-tier affiliate") or any affiliated person of such a person (a "second-tier affiliate"), acting as principal, knowingly to sell to or purchase from such company any security or other property. Section 17(a) was intended to protect investment company shareholders from loss in the value of their shares as a result of self-dealing or overreaching by insiders. 1

If the Registered Fund and any Trust were deemed to be "affiliated persons" because the of Registered Fund's ownership of 5% or more of such Trust's Units, the Registered Fund would be prohibited by Section 17(a) of the 1940 Act from making any additional purchases or redemptions of Units of such Trust. Accordingly, the requested no-action relief is necessary to ensure that the Registered Fund will continue to be able to purchase and redeem Units in any Trust in which it has acquired a 5% or more 2 ownership interest.

We believe that, because the Units in the Trusts are not "voting securities" within the meaning of Section 2(a)(42), neither the Registered Fund nor the Private Funds would be considered "affiliated persons" of the Trusts within the meaning of Section 2(a)(3) simply because the Registered Fund and/or a Private Fund acquires 5% or more of the Units of a Trust. The staff of the Division of Investment Management has previously taken a no-action position with respect to whether certain limited partnership interests are "voting securities" under Section 2(a)(42) in the context of whether a limited partnership qualified for the exception from the definition of "investment company" under the former two-part attribution test in Section 3(c)(1) of the 1940 Act. 3 In Standish Equity Investments, Inc. (pub. avail. Dec. 15, 1993) ("Standish"), a limited partnership seeking to rely on Section 3(c)(1) had prospective limited partners who were not individuals and who were expected to purchase more than 10 percent of the interests in the limited partnership. Under Section 3(c)(1) as it then existed, if a limited partner owned 10 percent or more of the limited partnership's interests, that limited partner's beneficial ownership would be deemed that of its shareholders or participants. This "look-through" provision might result in the limited partnership having more than 100 owners, thus disqualifying it from relying on the Section 3(c)(1) exception. 4

In Standish, however, the limited partnership argued that its interests were not "voting securities" within the meaning of Section 2(a)(42) because the limited partners (i) would not be permitted to assign their interests, (ii) would not be permitted to elect, remove, or replace the general partner, and (iii) would not have the power to amend the limited partnership agreement without the consent of the general partner. Further, the limited partners would not be permitted to participate in the conduct or control of the limited partnership or its business. Rather, the general partner would manage and control the limited partnership and its business, and make all investment decisions related to the conduct of the partnership's business. In addition, the limited partners would not have the economic power or interest to exert a controlling influence over the limited partnership. A dissatisfied limited partner's sole remedy would be to withdraw from the limited partnership.

The staff, in agreeing that the interests did not constitute "voting securities," construed the right to vote for the election of directors broadly to include, with respect to companies organized as partnerships, the right to (i) remove or replace the general partner, (ii) vote on the election or removal of the general partner in the event of the general partner's death, insanity or retirement, (iii) terminate the partnership if one of the initial managing general partners ceases to serve in that role or (iv) take part in the conduct or control of the limited partnership's business. 5a The staff also has stated that the definition of "voting security" includes not only the de jure right to vote for the election of directors but also the de facto power to determine or influence the election, removal or replacement of the directors of the issuer. 6 The staff has further stated that the statutory definition of "voting security" was not intended to be rigidly applied and that a limited partnership interest is a voting security if the limited partner has an economic interest that gives it the power to exercise a controlling influence over the partnership. 7

Unit holders will not have any of the rights or powers articulated above. The instant case involves Units in the Trusts, which are sub-trusts of a Bermuda Unit Trust, rather than interests in a limited partnership, as was the case in Standish, or interests in a general partnership, as was the case in other relevant precedents. The precedent is nevertheless applicable to the Trusts because, like limited and general partnerships, the Trusts are pooled investment vehicles in which investors invest passively. The situation presented here is an easier case because unlike the limited and general partnerships in the applicable precedent, the Units include no voting rights whatsoever, as described below.

Although the Trusts have elected to be classified as partnerships for federal tax purposes, they are trusts under Bermuda law. The Trusts do not have directors and the only entities "performing similar functions" are the Trustee, HFR as investment manager, and the sub-managers. The trust deeds and Bermuda law do not confer on the holders of the Units any power to exercise any rights to vote on the election or removal of the Trustee or HFR or exercise any control over the Trusts, either legally or economically. The trust deeds of the Umbrella Trust and the Trusts provide explicitly that all voting rights shall be exercised in such manner as HFR, as investment manager, may direct and no Unit holder shall have any right to interfere or complain. In particular, no Unit holder has the right or power to remove or replace the Trustee or HFR, or to vote on the election or removal of any Trustee or HFR. The trust deeds reserve the right to remove the Trustee to HFR, and solely either HFR or the Trustee (with HFR's written consent) may appoint a new trustee. Bermuda law and the trust deeds do not confer any rights on the Unit holders to terminate any of the Trusts. Bermuda law and the trust deeds do not confer any power on the Unit holders to take part in the conduct or control of the Trusts' business. 8

Similarly, no Unit holder will have the right to remove or replace or vote for the removal of the sub-managers. As is the case with the Private Funds, the investor agreement between HFR and the Registered Fund will provide that HFR is solely responsible for the selection and compensation of the sub-managers. Thus, if the Registered Fund or Private Funds were dissatisfied, their sole remedy would be to redeem their interests in the Trusts. Neither the Private Funds nor the Registered Fund will have the de facto power to determine or influence the election, removal or replacement of the sub-managers.

Finally, the Private Funds and the Registered Fund will have no de facto power to determine or influence the election, removal or replacement of the trustees of the Trust and HFR or otherwise have the power to exercise a controlling influence over the Trust. None of the Private Funds or the Registered Fund will have an economic interest that gives it the power to exercise a controlling influence over any of the Trusts. The Private Funds and the Registered Fund will not be the only investors in the Trusts and, except for certain periods of the initial funding of a new Trust during which the Private Funds or the Registered Funds may be part of the initial group of investors, neither the Private Funds nor the Registered Fund will contribute the bulk of the assets in any Trust.

Because the Units should not be considered voting securities under Section 2(a)(42), we believe that neither the Registered Fund nor the Private Funds should be considered "affiliates" of the Trusts under Section 2(a)(3) if their ownership interest in one or more Trusts equals or exceeds 5%. We further believe that the prohibitions on affiliated transactions set forth in Section 17 of the 1940 Act would not apply with respect to the ownership interests held by the Registered Fund and the Private Funds in the Trusts.

The proposed investment by the Registered Fund in the Trust will not result in the self-dealing or overreaching that Section 17(a) was designed to prevent. The regulation is meant to minimize or prevent participation by a fund in a transaction on a basis different from or less advantageous than that of another participant. The Trusts are managed by independent sub-managers unaffiliated with WFAAM and the Registered Fund. The Registered Fund's investment in the Trusts will be on terms that are substantially similar to and, in all circumstances, no less advantageous than the Private Funds' investment in the Trusts. In fact, because the Registered Fund will be an open-end management investment company and, therefore, will be subject to the Commission policy requiring such a company to invest no more than 15% of its assets in illiquid securities, the Registered Fund will be able to redeem its interests in most Trusts on a more frequent basis than the Private Funds. In all cases, however, the Registered Fund will be able to redeem its interests at least as frequently as the Private Funds.

Request for No-Action Position

In view of the foregoing, we respectfully request that the staff concur with our interpretation that the Units in the Trusts held by the Registered Fund and the Private Funds are not "voting securities" within the meaning of Section 2(a)(42). If for any reason you do not concur with our conclusion, we respectfully request a conference with the staff before any adverse written response to this letter. Should you or any member of your staff have any questions concerning the foregoing or need additional information or clarification, please call either R. Charles Miller at (202) 778-9372 or Cary J. Meer at (202) 778-9107.

Sincerely,

Cary J. Meer

cc: Wells Fargo Alternative Asset Management, LLC

Attachment

Endnotes

See Investment Company Act Release No. 17534 (Jun. 15, 1990).

2 We note that the exemption from Section 17(a) of the 1940 Act provided by Rule 17a-6 is not available here. Rule 17a-6 permits certain transactions between registered funds and their "portfolio affiliates" that are otherwise prohibited by Section 17(a), provided that certain parties otherwise affiliated with the registered fund do not have a "direct or indirect financial interest" in the transactions. Because the Private Funds (which are under common control with, and therefore affiliates of, the Registered Fund) have a "financial interest" in the Trusts the Units of which will be purchased and redeemed by the Registered Fund, Rule 17a-6 is not available in this context.

See Standish Equity Investments, Inc. (Dec. 15, 1993).

4 The two-part attribution test in Section 3(c)(1) of the 1940 Act as articulated in the Standish letter has since been amended by the National Securities Markets Improvement Act of 1996. However, the amendment does not affect the staff's analysis of whether a partnership interest constitutes a "voting security" under Section 2(a)(42). The analysis of whether a security is a voting security is not affected by whether the holder of the security is a company or an individual.

See Standish supra . See also Kohlberg Kravis Roberts & Co. (pub. avail. Sept. 9, 1985) (right to vote for the election of directors includes the right to remove or replace the general partner); Laifer, Inc. (pub. avail. Jan. 5, 1993) (right to vote for the election of directors includes the right to vote on the election or removal of the general partner in the event of the general partner's death, insanity or retirement); Weiss, Peck & Greer Venture Associates (pub. avail. Apr. 10, 1990) (right to vote for the election of directors includes the right to terminate the partnership if one of the initial managing general partners ceases to serve in that role); Indiana Hospital Assn. Investment Funds (pub. avail. Oct. 15, 1993) (right to vote for the election of directors includes the right to take part in the conduct or control of the limited partnership's business).

See Standish supra . See also William L. Eddleman, Jr. (pub. avail. Oct. 26, 1979).

See Standish supra .

8 In making these representations, we rely exclusively on the Opinion, which is attached to this no-action request. We have not independently verified the conclusions set forth in the Opinion.

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A P P L E B Y

APPLEBY | SPURLING | HUNTER

Wells Fargo Alternative Asset Management, LLC
19 January 2005

e-mail:
vlovell@applebyglobal.com

direct dial:
Tel 441 298 3299
Fax 441 298 3394

your ref:

appleby ref:
VLS/vad/124675.13

By Fax/By Courier

19 January 2005

Wells Fargo Alternative Asset Management, LLC
525 Market Street
MAC A0103-122
San Francisco, CA 94105
USA

Attention: Daniel J Rauchle

Dear Sirs

HFR Umbrella Trust
Butterfield Trust (Bermuda) Limited (the "Trustee") HFR Asset Management, L.L.C. ("Investment Manager")

We have been instructed by Kirkpatrick & Lockhart LLP, as agreed by the Investment Manager, to address this opinion to you in connection with the creation of a separate fund within the HFR Umbrella Trust structure and specific issues concerning rights of holders of Units (as defined in the Umbrella Trust and in the Trust, both of which are referred to below).

Documents and Interpretation

For the purposes of this opinion, we have been supplied with, and have reviewed and relied only upon the following:

1. an electronic copy of the Deed of Modification and Restatement dated 8 December 2004 (the "Umbrella Trust Deed") and made between the Investment Manager and the Trustee and known as the HFR Umbrella Trust (the "Umbrella Trust"), supplied to us by the Trustee;
2. an electronic copy of the First Restated Trust Deed dated 11 September 2003 (the "Trust Deed") made between the Investment Manager and the Trustee and known as the HFR HE Japan Fundamental Master Trust (the "Trust"), supplied to us by the Trustee.

*

A P P L E B Y

APPLEBY | SPURLING | HUNTER

Wells Fargo Alternative Asset Management, LLC
19 January 2005

For the purposes of this opinion, "Unit" means a unit, or fraction of a unit, of beneficial interest in the Trust (or Umbrella Trust) or of any Fund or any Class or any Series, issued pursuant to the Trust Deed or the Umbrella Trust Deed.

Unless otherwise defined herein, capitalised terms have the meanings assigned to them in the Umbrella Trust and the Trust.

Requested Opinion

In particular we have been asked to opine on the following:

A. That Units do not confer any voting rights on their holders; B. That holders of the Units have no right to remove or replace a trustee;
C. That holders of the Units have no right to vote on the election or removal of the trustee;
D. That holders of the Units have no right to terminate the Trust if one of the initial trustees ceases to serve in that role; E. That holders of the Units have no right to take part in the conduct or control of the business of the Trust; F. That holders of the Units have no right to vote on the election or removal or replacement of the Investment Manager; and G. That the Umbrella Trust and the Trust and the provisions thereof are governed by the laws of Bermuda.

Assumptions

In giving this opinion, we have assumed where the context admits:

(a) the conformity to original documents of all documents submitted to us as copies and the authenticity and completeness of the original documents which, or copies of which, have been submitted to us; (b) that there have been no changes to the documents examined by us and that the documents remain in full force and effect and have not been revoked or amended; (c) the genuineness of all signatures and seals on the documents which we have examined;

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(d) that all documentation which was received by electronic means is complete, intact and in conformity with the transmission as sent and that the original documentation has been properly executed; (e) the capacity, power and authority of all parties to enter into and perform their obligations under the Umbrella Trust and the Trust; (f) that the Trustee and the Investment Manager are not holders of Units. In the event that the Trustee and the Investment Manager were holders of Units, they would have, in their capacity as holders of Units, the powers reserved to holders of Units by the Umbrella Trust and the Trust. They would also still have the powers and responsibilities reserved to them as Trustee and/or Investment Manager as applicable; (g) the truth of all facts, opinions, assumptions, representations and warranties contained in the Umbrella Trust Deed and the Trust Deed; (h) that the transfer of the Initial Trust Fund of each of the Umbrella Trust and the Trust (as defined in the Umbrella Trust Deed and the Trust Deed respectively) to the Trustee does not constitute an illegal, void or voidable act by reason of the laws of any jurisdiction, other than Bermuda, which may be applicable to the transferor thereof; and (i) that each of the Umbrella Trust Deed and the Trust Deed has been validly authorised, executed and delivered by each of the parties thereto.

We have also considered such questions of law as we have deemed necessary as a basis for the opinions hereinafter expressed. In such examinations, we have assumed that the Umbrella Trust and the Trust remain in full force and effect and have not been revoked or amended.

Opinion

Based upon the foregoing, subject to the qualifications set out below and matters not disclosed to us and having regard to such legal consideration as we deem relevant, we are of the opinion that insofar as the present laws of Bermuda are concerned:

(i) The Trust Deed and the Umbrella Trust Deed do not confer any rights of voting on holders of Units. For purposes of this Clause (i), the phrase "rights of voting" shall be deemed to include not only a vote at a meeting but any consent to, or approval of, any proposal, arrangement, scheme or resolution or

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any alteration in, or abandonment of, any rights attaching to the Units and the right to requisition or join in a requisition to convene any meeting or to give notice of any resolution or to circulate any statement; (ii) By virtue of Clause 36 of the Umbrella Trust and of the Trust, the Investment Manager may remove a trustee, and the Investment Manager or the Trustee (with the written consent of the Investment Manager) may appoint a new trustee. We are therefore of the opinion that holders of Units have no right to remove or replace a trustee or to vote on the election or removal of the trustee; (iii) Holders of Units have no right to terminate the Trust if one of the initial trustees ceases to serve in that role; (iv) Holders of Units will have the rights and powers reserved to them by the Umbrella Trust and the Trust. Holders of Units do not have the right to exercise any rights and powers of the Trustee or the Investment Manager under the Umbrella Trust or the Trust; (v) Clause 37 of the Umbrella Trust and of the Trust provides for the retirement and removal of the Investment Manager by the Trustee. We are therefore of the opinion that holders of Units have no right to remove or replace the Investment Manager; and (vi) The Umbrella Trust and the Trust and the provisions thereof are governed by the laws of Bermuda.

Qualifications

Our qualifications are as follows:

A. We express no opinion as to any law other than Bermuda law and none of the opinions expressed herein relates to compliance with or matters governed by the laws of any jurisdiction other than Bermuda. This opinion is limited to Bermuda law as applied by the courts of Bermuda at the date of this opinion; B. Where an obligation is to be performed in a jurisdiction other than Bermuda, a Bermuda court may decline to enforce it to the extent that such performance would be illegal or contrary to public policy under the laws of such other jurisdiction;
C. The obligations of the Trustee under the Umbrella Trust and the Trust will be subject to any laws from time to time in effect relating to bankruptcy or liquidation or any other laws of other legal procedures affecting generally the

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enforcement of creditors' rights and may also be subject to statutory limitation of the time within which proceedings may be brought; and D. Section 31 of the Trustee Act 1975 of Bermuda provides that a court may, whenever it is expedient to appoint a new trustee or trustees, and it is found inexpedient, difficult or impracticable to do so without the assistance of the court, make an order appointing a new trustee or new trustees. Section 49 of the Trustee Act 1975 further provides that any person beneficially interested in trust assets may make an application to the court for an order with respect to the appointment of a new trustee.

Disclosure

This opinion is issued on the basis that it will not give rise to any action in any other jurisdiction. It is issued solely for the benefit of the addressees and subject thereto is neither to be transmitted to any other person, firm or entity nor relied upon by any other person or for any other purpose nor quoted from or referred to in any public document nor filed with any governmental agency or person, other than the United States Securities and Exchange Commission, without our prior written consent. Further, this opinion speaks as of its date and is strictly limited to the matters stated herein and we assume no obligation to review it or update it if the existing facts or circumstances should change.

This opinion is governed by and construed in accordance with the laws of Bermuda and is limited to and is given on the basis of the current law and practice in Bermuda. We have made no investigation of the laws of any jurisdiction other than Bermuda and neither express nor imply any opinion as to any other law.

Yours faithfully

Appleby Spurling Hunter

Appleby Spurling Hunter