SEC Division of Investment Management staff letter: Wells Fargo Money Market Funds

~'-. i~¥~ UNITED STATES
SECURITIES AND EXCHANGE COMMISSiON : -':".' .$j '~~~.:. WASHINGTON. DC. 20549

DIVISION OF
ACT leA iNVESTMENT MANAGEMENT

SECTION /(rq)
RULE
PUBLIC
A V AILABILITY 7- 7-95
July 7, 1995

Mr. Marco E. Adelfio
Morrson & Foerster
2000 Pennsylvania Avenue, N.W.
Suite 5500
Washington, DC 20006-1888
Re: Overland Express Money Market Fund;

Master Investment Tnist Cash Investment Tnist Master Portfolio:
Stagecoach Funds, Inc. Money Market Mutual Fund; Stagecoach Inc. Money Market Fund Dear Mr. Adelfio:
Your letter of July 7, 1995 requests our assurance that we would not recommend that the Commission take any enforcement action under sections 17(a) and 17(d) of the Investment Company Act of 1940 (" 1940 Act") and the rules thereunder if Wells Fargo Bank, N.A. ("Affiiate"), the investment adviser to the above-captioned four open-end

investment companies ("Funds"), and the Funds effect the transaction summaried below and more fully described in the letter. Each Fund is a money market fund that seeks to maintain a stable net asset value per share of $ 1.00, and uses the amortized cost method of valuation in valuing its portfolio securities as pennitted by nile 2a-7 under the 1940 Act. The Funds hold taxable notes issued by Orange County, California in the aggregate principal amount of $65 milion that mature on July 10, 1995 ("Securities"). As a result of the Orange County bankptcy fiing on December 6, 1994, the Funds determined the fair values of the Securities to be less than their amortized cost values. In December 1994, Wells Fargo & Company ("WFC"), an atTiliated person of the Affiliate, agreed to purchase all or a portion of the Securities from each Fund at their amortized cost values (the principal amount of the Securities plus accrued interest) as necessary to ensure that the mark to market value per share of each Fund equalled or exceeded $0.99550 ("Standby Purchase Arrangement"). The Standby Purchase Arrangement was entered into after the staff of the Division of Investment Management infonned WFC and the Funds that it would not recommend to the Commission enforcement action against any of the parties if the Standby Purchase Arrangement was implemented. The Standby Purchase Arrangement, by its ternis, expired on January 23, 1995.

Mr. Marco E. Adelfio

Page :2

The Funds have been informed that Orange County, in all likelihood, will not make the scheduled principal payments due on the Securities on July 10. 1995. Rather, Orange County is contemplating an amendment, substitution or extension of the Securities ("Amendment") that would, among other things, extend the maturity date of the Securities to June 30, 1996 and contain certain other tenns to be negotiated ("Amended Securities"). A portion of the interest on the Amended Securities would be payable monthly, and a portion of the interest on the Amended Securities would be accnied and paid to the Funds at a later date. As a result of these developments, you state that the Affiiate and the Funds plan to enter into a letter of credit arrangement ("LOC Arrangement"). You represent in your letter of July 7 that the Affiliate has applied for irrevocable standby letters of credit ("LOCs") to be issued by Bank of America National Trust and Savings Association ("LOC Provider") on behalf of the Funds.l Under the LOC Arrangement, the LOCs would provide for payment to the Funds of $70 millon ($65 millon attributable to the pricipal value of the Amended Securities and $5 milion attributable interest on the Amended Securities). The LOCs would cover the principal value, plus any accrued and unpaid interest, of a floating percentage of each Fund's holdings equal to such portion of the Securities as is necessary to ensure that the Securities do not create a deviation of each Fund's market-determined net asset value from its amortized cost price per share of more than a specifed percentage (the percentage wil be no higher than 0.40 %) (such floating portion of the Amended Securities is herein referred to as the "Covered Securities"). Under the LOC Arangement, the Funds would have the unconditional right to draw on the LOCs upon the occurrence of certain "triggering events." The Funds also have the unconditional right to draw on .the LOCs if principal is not paid when due under any circumstances, including a repudiation by Orange County of its obligations under the Amended Securities, and a faiure by Orage County to pay that is premised on violations of certin provisions of the California state constitution and Calornia law. The Funds would not be able to draw on the LOCs for scheduled interest payments that have not been made when due ("Delayed Scheduled Interest Payments") until the final maturity date of the Amended Securities (June 30, 1996), unless an earlier triggering event occurs. The LOC Arrangement provides that, at maturity or after an earlier triggering event, a draw by the Funds on the LOCs for Delayed Scheduled Interest Payments would be equal to the amount of interest payable on the Covered Securities pursuant to the Amendment, plus interest thereon, compounded monthly at that same rate. The Affiiate would agree, under the LOC Arrangement, to reimburse the LOC Provider for any payments made to the Funds under the LOC. The LOC Arrangement provides that, in
connection with any payment to the Funds of principal or interest on the Covered Securities pursuant to the LOCs, each Fund (1) would continue to hold the Covered Securities and any related rights, including litigation rights, associated with such Covered Secuiities, and (2) would transfer to WFB any proceeds (other than proceeds received pursuant to a draw under the LOCs) received with respect to such Covered Securities. Alternatively, WFB would have the right to call from the Funds any Covered Securities as to which the Funds have received full payment of scheduled interest and principaL. The LOC Provider currently has the highest ratings on its short-term debt obligations from the "Requisite NRSROs" (as defined in paragraph (a)(13) of rule 2a-7 under the 1940 Act).

Mr. Marco E. Adelfo

The LOC Argement does not preclude the Funds from sellg al or a portion of the Amended Securities at any time, provided that no sale of the Covered Securities would occur at a price that is less than the amount that the Funds may draw under the LOCs without obtag the prior consent of the boards of directors of the Funds, including a majority of the directors that are not "interested persons" of the Funds as defined under
section 2(a)(19) of the 1940 Act. The Affilate reserves the right under the LOC
Arngement to purchase, or have an Affiiate purchase, al or a portion of the Amended Securities from the Funds on or before a draw under the LOCs at their amortized cost values. You represent that the boards of directors of the Funds have been apprised of the LOC Arngement. You have also represented that the Affilate has concluded that the amount of the LOCs attributable to interest can reasonably be expected to cover any interest due on the maturity of the Covered Securities, including al Delayed Scheduled Interest Payments. On the basis of the facts and representations in your letter õf Jùly 7,1995, wewil not recommend enforcement action under sections 17(a) and 17(d) of the 1940 Act and the rules thereunder if the LOC Arangement is effected. You should note that any different facts or representations might require a different conclusion, Moreover, this response expresses the Division's position on enforcement action only and does not express any legal conclusions on the issues presented. Sincerely, Robert E. Plaze

¡4 9~
Assistant Director

JUL 07 ' 9S 03: 32PM
MORRISON & FOERSTER

SA FMNCiSCO ATTOR.NEYS AT LAW NIW 'tRX
LOS ANGELS DE/I 5A 20 PENNSYLVANA AVE. N.W. LONDON ORAGE COUN WASHIGTON, D.C. 200.18 BRUSSELS PALO ALro TELEHONl (20) 88.1500 HONG lCNG WALN ClEK TBAC1M (i02) 88.063 lOKY SEATTLE nu 90 MRN 'rER WSH DIRECl DIAL NUBER July 7, 1995 (202) 887-1530 By T elefacsine

Roben E. Plue'

Assistat Director

Disclosure and Investment Adviser Regution
Division of Investment Management
Offce of

...to "0' --'
U. S. Secunties and Exchange Commssion ."- --- .-- ._......"..,.
450 Fifth Street, N.W.
Washington. D.C. 20549
Re: Overland Express Money Maket Fund~ Master Investment Trust

Cash Investment Trust Master Portfolio; Stagecoach Funds, Inc.

Money Market Mutual Fund~ Stageçoach Inc. Monev Market Fund

Dear Mr. Plaze:
We are wrting on behalf of Wells Fargo Ban N.A. ("WFB"), an afated

person of the Overland Express Monèy Market Fund (Rgistration Nos. 33.16296; 81 1 8275), Master Investment Trust Cash Investment Trust ("Crr") Master Portfolio

(Registration No. 811-6415), Stagecoach Funds, Inc. Money Market Mutual Fund (Registration Nos. 33-42927;811-6419), and Stagecoach Inc. Money Market Fund (Registration Nos. 33-S4126; 811-7332) (each, a "Fund"). i We seek assurance from Investment Management (the "Division") that it wi not recommend enforcement action to the Securities and Exchange Commssion (the the staff of the Division of

the Investment Company Act of 1940 the Funds and WF enter into the "Commssion") under Sections 17(1) or 17(d) of

(the "1940 Ac"), or the roles thereunder, if

transactions descnbed below.
The Funds are registered with the Commssion under the 1940 Act as open-end management investment companes. Eah Fund is a money market fund that seeks to maintai a stable net asset value per share ofSl.OO and that uses the amortized cost Th Maer Invetment ,Trust err Maser Portolio serves as th "mastt' fUd for the Overlan Express S..eep Fund (Registration Nos. 33-16296; 811-8275), which invests all of its asset in such Master Ponfolio.

P.3 JUL 07 ' 95 03: 33PM

MORRISON & FOERSTER

Robert E. Plaze
July 7, 1995
Page Two
valuation in valuing its portfolio securities. As of June 30, 1995, the value of each Funds net assets was as follows: Overland Express Money Market Fund- $475,520,164; Master Investment Trust CIT Master Portolio -- 5865,018,058; method of

Stagecoach Funds, Inc. Money Market Mutual Fund ... 53,162,403.156; and Stagecach Inc. Money Market Funq -- 5151,687,095. As of that date, approxiately l. 1.26%, 1.73%, 1.33% and 1.32% of such Funds' respective net assets consisted of the followin debt securities (the "Securities"):
Issuer PrinciDal Amount CUSIP Number and Final Maturitv Overland Express Orange County, $6,000,000, due on 684201 EL 6 Money Market Californa July 10, 1995 Fund Master Investment Orange County, 515,000,000, due 684201 EL 6 Trust CIT Master Californa on July 10, 1995 Portolio Stagecoach Funds, Orange County, 542,000,000, due 684201 EL 6 Inc. Money Market Calorna on July 10, i 995 Mutual Fund Stagecoach Inc. Orange County, 52.000.000, due on 684201 EL 6 Money Market Californa July 10, 1995 Fund The Securities are not insured or guaranteed, are not backed by any letter of the Orange County bankptcy, the market value of the Securities is less than their amortized-cost value credit, and are not currently subject to any put. As a result of

(i.e., par value plus accrued interest).
By letter dated Decmber 9, 1994 (the "Prior Request"), we sought assurance

from the Division staf that it would not recommend enforcement action to the

Commssion under Sections 17(a) or 17(d) of the 1940 Act or the nies thereuder, if

each Fund and Wells Fargo & Company ("WFC"), an afated person ofWF, entered

into a standby conditiona put arangement, which contemplated tha WFC would purchase a portion of the Secties trom each Fund at their amortizd-cost value (par value plus acced interest) to the ~-ient necessary to ensure that a Fund's market. determed net asset value did not decline below 50.9955 per share. The Division staf SEC30Có30.1et

F.4 JUL 07 ' 95 03: 33PM

MORRISON & FOERSTER

Robert E. Plaze
July 7, 1995
Page Three
granted the requested relief on December 9, 1995. The standby conditional put arangement, by its terms, expired on Januar 23, 1995. Currently, pricipal on the Securties is due on July 10, 1995, and interest is payable at an anual rate equal to LIBOR with a monthly reset. Although to date all interest due on the Securities has been paid, the Funds have been inonned that Orage County wil not,'in aU likeliood, make the scheduled pnncipal payment due on July 10, 1995, Rather, Orange County has proposed an exension of the Securities' maturity date to June 30, 1996 (the "Extension"). The Extension modifes certai other ters of

the Securities, includin increasing their interest rate and providing for some portion of inteest, rather than being due and payable monthly, to accnie until the new maturity Directors and Trustees have concurred, date. WFB believes, and the Funds' Boards of

that the terms of the Securities, as modifed by the Extension, wi be such that it wil not be in the best interest of the Funds to dispose of the Secuties at current market prices. WF has aranged at no cost to the Funds for the issuance of a "First Tier" (as deñned under Rule 2a-7 under the 1940 Act) credit enhanceent to the Securities in the form of irevocable standby letters of credit (collectively, the ecLOC") from the Ban of America Nationa Trust and Savings Association (UBorA"), a party not afliated with WF or W'C. The LOC is in an aggregate amount or 570 nullon ($65 millon allocated to pricipal and 55 millon aUocated to interest). The LOC covers 100% (principal plus any accrued and unpaid interest) ofa floating percentage of each Fund's percentage will be no higher than 50.0040) (such floating percentage of

holdings equal to such portion of the Securities as is necessa to enure that the Securities do not create a deviation of the Fund's market-determned net asset value from its amortized-cost price per she of more than a specified percentage (the the Securities is herein referred to as the C1Covered Securties"). BofA currently has the highest short-

term ratings from the "Requisite NRSROs" (as such term is defined in paragraph Rule 2a-7 under the 1940 Act). (a)(13) of

The Funds wil have the right to mae a draw under the LOe if and to the exent pricipal and interest are not recived by the final matuty date of the Securities in accordance with the terms of the Extension. In addition to drawing for unpaid principal and interest, the Funds wil have the riht to draw for any interest that has not been paid

when due under the terms of the Extension, in the amount of such interest, plus interest thereon, compounded monthly at the varble rate payable on the Covered Securities. Under certai circumstnces, the Funds wil have the right to make a draw under the

LOC prior to the fial maturity of the Securities. The LOC can be drawn upon even if Orange County's failure to make payments is due to its repudiation of its obligations, or SEC30C630.1et

P.5 JUL Ø7 · 95 03: 34PM

MORRISON & FOERSTER

Robert E. Plae
July 7, 1995
Page Four
to a claim that the issuance of the Securities exces the "debt litation" provisions of applicable law, or for any other reason.

the LaC, WF and each Fund wi As a condition precedent to the issuance of

enter into a Credit Enhncement Agreement (collectively, the "Agreement") that sets forth certain nghts and obliations of the paries in the event of one or more draws by a Fund agaist the'LOC. The Ageement provides that, in connection with any payment to the Funds of principal or interest on the Securities made pursuant to the LOe, each Fund (i) would contiue to hold the Covered Securities and any related nghts. including litigation rights, associated with such çovered Securities and (ü) would transfer to WF any proceeds (other than fuds received pursuant to a draw under the LOC), received

with respec to such Covered Secuties. Alterntively, WF would have the right to ~a11 from the Funds any covered securties as to which the Funds have received full

payment of scheduled interest an principal.
The Ageement would not precl~de the Funds from sell some or all of the Securities at any time. provided that no sale of Covered Securties wi occur at a pnce that is less than the amount drawable under the LOC without obtaining the prior consent of the Boards of Directors or Trustees, including a majority orthe Directors or Trustees that are not "interested persons" as defined under Section 2(a)(19) of the 1940 Act. WF and WFC resere the right to purchae all or a portion of the Secunties from Funds at par (plus accrued interest, and interest on overdue interest) at or pnor to a draw on the LOC. BofA is entitled to reimbursement from WFB for any payment to the Funds under the LOC, WF believes that the amount of the LaC is sufcient to cover all payments of principal and interest (including interest on overdue interest) reasonably expected to be due on the Funds' Covered Securities through the maturity date of the June 30, 1996.

As long as the LOe remais in place. the Covered Securities wi be valued at amortized-cost value (par value plus accrued interest). The remainig Securities will be valued without reference to the LaC, according to valuation procedures adopted by the the

1940 Act and regulations thereunder.

Funds' Boards of Directors and Trustees and consistent with the requirements of

the proposed arangement described above. Each Board has concurred with WF' s detemution that it would not be in the best interest of the Fund and its shareholders to sell the Securities at current market value, but, rather, to accept the Extension, the Diectors and Trustees of the Funds have been advised of The Boards of

Agreement and the LOC.
SEC30C630.1et

P.5 JUL 07 ' 95 03: 34PM

MORRISON & FOERSTER

Robert E. Plaze
July 7l 1995
Page Five

WF is an "afated person" of the Funds under Section 2(a)(3) of the 1940 Ac because it serves as investment adviser to eah Fund. WFC is an affliated person of an afliated person of the Funds under Section 2(a)(3) of the 1940 Ac because it

controls WFB. The Funds and WF believe that it would be in the best interests of each Fund's shaeholders ifWF, WFC and the Fuds are pemutted to engage in the transacons described above. We hereby request that the Division staf give its assurance that it wi not recommend that the Commission take enforcement action against the Funds, WF or WFC under Section 17(a) ifWFB, WFC and the Funds engage in the transactions descnbed above. To the extent that the proposed transactions raise issues under Secion 17(d) ofthe 1940 Act we also request assurances that the Division stafwill not recommend that the Corrssion take enforcement action against WFB, WFC or the Funds under Section 17(d). you have any questions or other communications concernng this matterl please can the undersigned, at the number listed above, or Robert M. Kurucza, at (202) 887-1515. If Sincerely, !!d~ cc: Richard H. Blan, Jr. Michael Niedermeyer Robert M. Kurucza Catherie S. W ooledge

SEC30C630.let