SEC Division of Investment Management staff letter: Wells Fargo Bank, N.A.

Our Ref No. 97-573-CC

RESPONSE OF THE OFFICE OF CHIEF COUNSEL Wells Fargo Bank, N .A. DIVISION OF INVSTMNT MAAGEMNT File No. 132-3

Your letter of March 20, 1998 requests our assurance that we

would not recommend that the Commssion take enforcement action

under Section 15 (a) of the Investment Company Act of 1940 if, as

more fully described in your letter, Wells Fargo Bank, N.A.

("Wells Fargo") contracts with Wells ~apital Maagement ("WCM")

to act as sub-adviser for certain registered investment companies

without obtaining shareholder approval of the Sub-advisory

arrangement with WCM initially, or in the future if Wells Fargo

reallocates investment advisory responsibilities and fees between

itself and WCM.

Facts
Wells Fargo is a national ban that serves as the investment

adviser to certain open-end investment companies registered under

the Investment Company Act ("Funds"). WCM is a wholly owned

subsidiary of Wells
Fargo. Wells Fargo recently transferred its investment advisory operations, except those relating to the /

Funds, to WCM ("the Reorganization"). In connection with that

transfer, Wells Fargo investment. advisory personnel became

employees of WCM. You represent that the portfolio maagers to

the Funds became dual emloyees of Wells Fargo and WCM so that

they could continue to maage the Fuds as employees of Wells Fargo. ¡

You state that to complete the Reorganization of Wells Fargo i s investment advisory operations into WCM, Wells Fargo intends to appoint WCM to act as a sub-adviser to each Fund so

that the portfolio managers may manage the Funds in their

capacity as employees of WCM. You state that, after WCMl s

appointment as sub-adviser, Wells Fargo will continue' to provide administrative, supervisory and other support to WCM and the

Funds, and will remin the primary investment adviser to the

Funds. Wells Fargo will pay WCM a portion of the investment

advisory fee that it receives from each Fund for the Sub-advisory

services furnished by WCM. You also state that, after the

initial appointment of WCM as Sub-adviser, Wells Fargo might

periodically reallocate investment advisory responsibilities and

advisory fees between itself and WCM.

You represent that neither WCM's appointment as a sub-

adviser to each Fund, nor any subsequent reallocation of

investment advisory responsibilities or fees between Wells Fargo

and WCM, will result in any material change in the nature or the

level of the actual investment advisory and administrative

1These Funds are the series of Stagecoach Funds, Inc.,

Overland Express Funds, Inc., Life & Anuity Trust and Master

Investment Trust.
[Pub. Avail.: March 31, 1998]

2 services provided to each Fund. Further, you represent that neither WCM's appointment as Sub-adviser, nor any subsequent

reallocations of investment advisory responsibilities or fees

between Wells Fargo and WCM, will result in an increase in the

advisory fee paid by each Fud. You also represent that the same

personnel who currently manage the Funds will cqntinue to provide

those services immediately after WCM becomes the Fund is sub- adviser. You represent that the Sub-advisory agreement between Wells

Fargo and WCM will be in writing and will be amended in the

future to reflect any reallocation of investment advisory

responsibilities or fees. The agreement will comply with all of

the provisions of Section 15 (a) except the shareholder approval requirement. You further répresent that each Fund will provide written notice to its shareholders, no later tha the mailing of

the Fund's next regularly scheduled mailing to shareholders, that

WCM will act as sub-adviser to the Fund, and' that investment

\ advisory responsibilities and fees may be reallocated

periodically between Wells Fargo and WCM. Each Fund also will

provide comparable notice to prospective shareholders until the

Fund amends its registration statement to reflect the existence

of the Sub-advisory agreement and the possibility of future reallocations.

Analysis

( Section 15 (a1 of the Investment Company Act provides

generally that no person may serve as an investment adviser to a

registered fund except pursuant to a written contract that, among

other things, has been approved by the vote of a maj ori ty of the fund's outstanding voting securities. Any material change to an

existing advisory contract creates a new advisory contract that

must be approved in accordance with Section 15 (a) .
Although sub-advisory contracts generally are subject to the

shareholder approval requirement of Section 15 (a), the staff has

agreed .not to recommend enforcement action under that provision

in other situations in which ~ new advisory contract was created

from a pre-existing contract, or fees were reallocated between

2See Franlin Temleton Group of Fuds (pub. avail. July 23,
1997) (staff would not recomend enforcement action under Section
15 (a) if fund replaced an existing advisory contract, which covered

both advisory and admnistrative services, with two new contracts

that covered the services separately, without obtaining shareholder

approval of the new advisory contract); Principal Preservtion

Portfolios, Inc. and Prospect Hill Trust (pub. avail. Jan. 1, 1996)

(where one feeder fund reorganized to become a separate class of

another feeder fund of the same master fund and the surviving

feeder fund became a stand-alone fund, the staff would not

recommend enforcement action under Section 15 (a) if the surviving

3

the primary adviser and a sub-adviser,3 provided that the new

arrangement or amendment did not materially change the advisory

relationship or term of the advisory contract previously

approved by shareholders.

You contend that shareholder approval of WCM's appointment

as a sub-adviser to each Fud, and any subsequent reallocation of

investment advisory responsibilities and fees between Wells Fargo

and WCM, is unnecessary because neither is, or will be, a

material change to any existing advisory contract or advisory

relationship with the Fuds. In essence, the only change will be

the name of the corporate entity performng some of the duties

under the existing advisory contracts. You contend that this

change is not a material amendment to the existing advisory

relationship between Wells Fargo and each Fund because Wells Fargo will retain responsibility for, and control over , the provision of advisory services to each Fud in its capacity as

the primary adviser to each Fud and as the parent company that

wholly owns WCM. Under these circumtances, you contend that requiring each Fud to obtain shareholder approval solely for this new arrangement, or any subsequent changes to it, would

impose significant expense on shareholders without serving any

useful purpose.

Without necessarily agreeing with 'your legal analysis, we

would not recommend enforcement' action to the 'Commission' under

Section 15 (a) of tA~ Investment Company Act if Wells Fargo

contracts with WCM,' its wholly Qwned subsidiary, to act as a sub-

adviser to each Fund, and subsequently reallocates investment

advisory responsibilities, and fees between itself and WCM, as

described above, without obtaining the approval of each Fund is shareholders. This position is baSed upon all of the facts and

representations in your letter, particularly your representations

that: (i) neither WCMl s appointment as a sub-adviser, nor any

subsequent changes to the Sub-advisory arrangement between Wells

Fargo and WCM, will result in a reduction in the nature or level

of services provided to each Fund, or an increase in the

aggregate fees paid by each
Fud for such services; and (ii) appropriate notice will be given to existing and prospective

feeder fund, without obtaining shaeholder approval, adopted an advisory contract that was substantially identical to the previously approved contract between the adviser and the former master fund) . 3iNVSCO (pub. avail. Aug. 5, 1997) (staff would not recommend

enforcement action under Section 15 (a) if fund advisory fees were

reallocated between adviser and sub-advisers, without obtaining

shareholder approval, when aggregate fees would remin unchanged

and neither the adviser nor Sub-advisers would reduce the quality

or quantity of their services).

4

shareholders. You should note ~hat any different facts could

require a different conclusion.

G- IV. j () / Eileen M. sm~ Senior Counsel _
March 31, 1998

4Section 15 (a) (4) of the Investmnt Compy Act requires that an advisory contract with a registered investment comy nnst provide "for its automtic termnation in the event of its assignent. n You opine that the Reorganization will not result in

an ".assignent" of the Fuds I' advisory contracts within the meaning

of Section 15 (a) (4) pecause the Reorganization falls within Rule 2a-6 under the Investment Comy Act. Rule 2a-6 provides that n (al transaction which does not result in a chage of actual

control or magement of the investment adviser" is not an assignent for purposes of Section 15 (a) (4). In support of your

conclusion, you rely on, among other things, two letters in which

the staff stated that it would not recommend enforcement action

under Section 15 (a) (4) if an adviser reorganized its investment

advisory operations into a wholly owned subsidiary based, in part,

on counsel's opinion that the reorganization would not constitute

an assignent of the advisory contract. See Prudential Insurance

Co. of America (pub. avail. Dec. 3, 1984) ("Prudential"), and The

Equitable Life Assurance Society of the United States (pub. avail.

Jan. 11, 1984) ("E~itable"). In E~itable and Prudential, either

the requesting party represented, or the staff noted that its '

position was based, in part, on the representation, that the Fud would obtain shareholder approvl of the arrangement at the next scheduled shareholders' meeting. You have not requested our view, and we express none, regarding whether the Reorganization falls wi thin Rule 2a - 6 . We do note, however, that if a transaction falls within Rule 2a-6, Section 15 (a) (4) does not require shareholder approval either before or after the transaction. Prudential and Equitable are superseded to the extent that they may suggest that
Section 15 (a) (4) requires subsequent shareholder approval of a
transaction falling within Rule 2a-6.

. '

~

WE FAR

C. DAVID MESSMAN 111 Sutter Stree. 18t Ror Vic Presdent and

Senior Consel March 20, 1998 Sa Francsc. CA 94163

(415) 222-1140
Fax (415) 986209
Chief Counsel
Division of Investment Mangement
Unite States Securities and
Exchage Commssion

450 Fift Street, N. W.

Washigton, D.C. 20549

Re: Wells Fargo Bank. N.A.

Dear Mr. Scheidt:
On behaf of Wells Fargo Ban, N .A. ("Wells Fargo"), I am wrtig to reest

tht the staff of the Division of Investment Mangement provide assuance tht it would not remmend tht the Securties and Exchage Commssion (the "Commsion") tae any action if Wells Fargo arges for its wholly-owned subsidia, Wells Capita Magement Incorporated ("WCM") to act as subadviser to certin mutu fuds curently advised by dua employees of Wells Fargo and WCM (the "Mutul Funds") without obtaing shaeholder

approval of the arrangement with WCM intially, or in the futue if Well Fargo realloctes investment advisory responsibilties and fees between itself and WCM. Appointing WCM as subadviser to the Mutu Funds wil not result in any chage in the actual investment mangement services, admtrtive fuctions, supervisory

responsibilties, or fee arangements with respect to the Mutu Funds. Conseqently, requiring approval of subadvisory agreements with WCM or subsequent chaes thereto would merely result in undue costs and burdens and would not advance the interests of shaeholders. As a result, and as discussed in detail below, we believe tht the requeste no-action relief is

appropriate.
Printed on Reced Paper

Securities and Exchange Commssion

March 20, 1998

I. BACKGROUN
Wells Fargo is a national ban tht serves as the investment adviser to the series of Stagecach Funds, Inc., Overland Express Funds, Inc., Life & Anuity Trut, and Master Investment Trut, each of which is a Mutu Fund as defied above. - Wells Fargo recently tranferred its intitutiona investment advisory operations, other th those relate to the Mutu Funds, to WCM. In connection with tht trfer, Wells Fargo's investment advisory employees becae employees of WCM. Portolio Mangers for the Mutu Funds became dual employees of Wells Fargo and WCM so tht they could contiue to mage the Mutual Funds in their capacity as employees of Wells Fargo. Wells Fargo would like to complete the consolidation of its. investment advisory operations into WCM by appointig WCM as subadviser to the Mutu Funds so tht the portolio magers can mage the Mutul Funds in their capacity as employees of WCM,

although certn portolio magers may rema dua employees of Wells Fargo and WCM. Wells Fargo would contiue to provide admtrtive, supervisory, and other support to WCM ,and the Mutu Funds, and would remain as the pri investment adviser to the Mutu Funds. Well Fargo would contrct separtely with WCM to provide magement service to the Mutual Funds. For its services, WCM would be paid by Wells Fargo a porton of the advisory fee paid to Wells Fargo under its contrcts with the Mutu Funds, Wells Fargo also would like to reta the abilty to reaocte investment advisory and other

responsibilties and capabilties between itself and WCM, as well as investment advisory fees, in the futue without seekig shaeholder approval of those chages.
ll. DISCUSSION
Appointing WCM to act as subadviser to the Mutu Funds potentially raises issues under section 15(a) of the Investment Company Act of 1940 (the "Investment Company 1 Section 15(a)(I) of the Investment Company Act requires tht an investment adviser Act"). J! Wells Fargo ha considered the possibilty tht the proposed appointment ofWCM

could be deemed to be an assignment of Wells Fargo's investment advisory contracts. Section 15(a)(4) of the Investment Company Act requires tht the advisory contract with a registered investment company must provide for its termtion in the event of its assignent. It has been

well established tlioggh~o-action relief tht a mere change in the form or identity of an entity providing investntádiåce to a registered investment company is not an assignent for puroses of section 15(a)(4): See,?e.g., Nikk Interntional Caital Mangement Compan, SEC No-Action Lettr (JÚne 1, 1987) (tranferrg investment advisory argements to an affiate company with the same personnel); Scuder, Stevens & Clark, SEC No-Action Letter (Mar. 15, 1985)

(prmtting an adviser to chage from parership to corporate form). In two prior intaces, the

Securities and Exchange Commission

March 20, 1998

provide services to a registered investment company pursuat to a wrttn contract tht ha

been approved by the majority of the company's shaeholders and tht precisely describes all compensation to be paid thereunder. That provision ordiny would require shareholder approval of any advisory arangement with WCM. Section 15(a)(1) also could be deemed to require shaeholder approval of subsequent chages to the aloction òf investment advisory

responsibilties and fees between Wells Fargo and WCM. No-action relief with respet to both issues is appropriate, however, becuse appointing WCM as subadviser to the Mutu Funds and thereaftr reallocating responsibilties and fees wil not involve any substative chage in the investment advisory services recived by the Mutu Funds.
Section 15(a)(I) provides shaeholders of a registered investment company
control over the identity of, and compensation paid to, the investment company's investment adviser. Each of the curent shaeholders of the Mutu Funds have had the opportnity to approve the Mutual Funds' arrangements with Wells Fargo, either expressly though a shaeholder vote, or implicitly in deciding to invest in shaes of the Mutu Funds. Becuse the appointment ofWCM as subadviser to the Mutu Funds and subseqent reallocation of responsibilties and fees wil not result in any material chage in the Mutu Funds' advisory relationships with Wells Fargo, obtaing shaeholder approval of the argements with WCM would be unnecessar and burdensome. A recnt staff no-action position concerng shaeholder approval of arangements with subadvisers support tht arguent. On Augut S, 1997 ,the staff granted no-action relief to the INCO famy of investment companes to reallocate the advisory staff also speificaly grante no-action assurances concerng the appUcation of section 15(a)(4)

in connection with the establishment of advisory arangements with subsidiaries. Pruntial

Insurance Company of America, SEC No-Action Lettr (Dec. 3, 1984); The Equitable Life Assurance Society of the United States, SEC No-Action Lettr (Jan. 11, 1984). The staffs no-

action positions reflect the policy in rule 2a-6, which provides tht ural traction which does not result in a change of actual control or mangement of the investment adviser" is not considered an assignent for puroses of section 15(a)(4). Applying the rue 2a-6 stadad here, no material change in the control or management of the advisory relationship with Wells Fargo wil occur by appointing WCM as subadviser. The same personnel who mage the Mutu Funds currently wil continue to provide those services.~','MDreover, control of, and responsibilty for, the advisory relationship wil remain with 'W'.èlls--Famo. As a result, Wells Fargo believes that

the appointment of WCM wil not result in an assignent of Wells Fargo's advisory contracts with the Mutual Funds for purposes of section 15(a)(4). Accordingly, Wells Fargo is not requesting no-action assurances from the staff with regard to the application of section 15(a)(4) in connection with the appointment of WCM.

Securities and Exchange Commssion
March 20, 1998

fees paid to subadvisers without obtaing shaeholder approval of those realloctions.2 The no-action applicant argued that shareholder approval was unnecssar becuse the reallocation wõuld not result in any change in the amount of fees paid for advisory services or in the natue of the services provided. Simarly, the sta recnty grante no-action relief to allow the Franin Templeton group of fuds to amend their advisory agreements without obtaing shaeholder approval, based largely on the arguent tht the tranfer of cert admtrative

responsibilties from the fuds' investment adviser to an affiate entity would not result in an

increase in the amount of fees or a chage in the natue of the services provided to the funds. 3 Based on the stas prior no-action positions, the appointment of WCM to act as subadviser to the Mutul Funds should not require shaeholder approval. Moreover, subsequent reallocation of advisory responsibilties and fees should not be subject to shareholder approvaL. In no case wil control over the services provided to the Mutu Funds, the nature of the services provided, or the fees chaged to the Mutu Funds for those services chage by appointig WCM to act as subadviser or by reaoctig responsibilties and fees subsequently without obtaing shareholder approval. The Mutu Funds' registration statements wil be stickered or otherwise amended to reflect the appointment of WCM concurent with the provision of subadvisory service to the Mutu Funds.by WCM. Simarly, notice of the appointment of WCM to act as subadviser wil be provided to existing shaeholders in the next regularly scheduled maing to shaeholders following such appointment.4 To ensure independent oversight of the argements with WCM~ Wells Fargo intends to comply with the provisions of section 15(a) other th the shaeholder approval requirement, including the board approval requirements. In sum, none of the concern underlying section 15(a) are implicated by appointing WCM to act as subadviser to the Mutu Funds, and subsequently reallocatig responsibilties and fees, without shareholder approval. As a result, Wells Fargo respectflly requests the assurance of the staff tht it would not recommend action to the Commssion 11 ¡NVSCO, SEC No-Action Lettr (Aug. 5, 1997). 11 Franlin Templeton Group of Fund, SEC No-Action Letter (July 23, 1997). Y Although the Mutual Funds wil provide notice of the appointment of WCM as subadviser to new and existing shaeholders, the Mutu Funds do not intçndta:,prøvide additiona notice whenever there may be a realocation of advisory fees or responsibUíâes:.amng WCM and Wells Fargo. Instead, the intial notice wil inorm new and existing.'Sharèholders of the

possibilty of futue realloctions of advisory fees and reponsibilties. Of coure, as noted above, the aggregate fees and overall responsibilties wil not chage absent an amendment to the contracts between Wells Fargo and the Mutu Funds.

Securities and Exchange Commission

March 20, 1998

under section 15(a) if the Mutual Funds do not obtain shaeholder approval of the arangements with Wells Fargo. Th you for your consideration of ths request. If you have any questions, or would like to meet to discuss the matters set fort in ths lettr, pleae contact the undersigned

at (415) 222-1140.
Sincerely, c_ ~ /I¿#~ß￾C. David Messma
Vice President and Senior Counsel
:l