Securities and Exchange Commission (“Commission”).
Notice of an application under section 6(c) of the Investment Company Act of 1940 (“Act”) for an exemption from section 15(f)(1)(A) of the Act.
Summary of Application:
The requested order would permit Wells Fargo Funds Trust (“Funds Trust”) not to reconstitute its board of trustees to meet the 75 percent non-interested director requirement of section 15(f)(1)(A) of the Act in order for Wells Fargo Funds Management, LLC (“Funds Management”) to rely upon the safe harbor provisions of section 15(f).
Funds Trust and Funds Management.
The application was filed on December 20, 2002 and amended on April 22, 2003.
Hearing or Notification of Hearing:
An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on May 19, 2003, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons may request notification of a hearing by writing to the Commission's Secretary.
Secretary, Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Applicants, 525 Market Street, 12th Floor, San Francisco, California 94105.Start Further Info
FOR FURTHER INFORMATION CONTACT:
John Yoder, Attorney-Adviser, at (202) 942-0544, or Mary Kay Frech, Branch Chief, at (202) 942-0564 (Division of Investment Management, Office of Investment Company Regulation).End Further Info End Preamble Start Supplemental Information
The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 20549-0102 (tel. 202-942-8090).
1. Funds Trust is an open-end management investment company registered under the Act and consists of sixty-seven series. Funds Management, a wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”), currently serves as investment adviser to all of the Funds Trust series, and will serve as investment adviser to certain newly created series of Funds Trust. Funds Management is registered under the Investment Advisers Act of 1940 (“Advisers Act”). The Montgomery Funds, which consists of eleven series, and The Montgomery Funds II, which consists of three series, are open-end management investment companies registered under the Act. At the time of the Acquisition (as defined below), Montgomery Asset Management, LLC (“MAM”) served as investment adviser to the eleven series of The Montgomery Funds and The Montgomery Funds II involved in the Reorganization (as defined below) (the “MAM Funds”). MAM is registered under the Advisers Act.
2. On November 21, 2002, Wells Fargo, Commerzbank AG, the parent company of MAM, and others entered into an agreement providing for subsidiaries of Wells Fargo to acquire certain advisory business lines of MAM, including the investment advisory relationship with certain mutual funds and managed separate accounts currently advised by MAM. The transaction was consummated on January 17, 2003 (the “Acquisition”), and Wells Capital Management Incorporated (“Wells Capital”), a wholly-owned subsidiary of Wells Fargo that is registered under the Advisers Act, became the investment adviser for the MAM Funds under an interim investment advisory agreement (the “Interim Agreement”). Applicants state that the Interim Agreement satisfies the requirements of rule 15a-4 under the Act and was approved by the boards of trustees of the MAM Funds on December 16, 2002.
3. Following the Acquisition, it is proposed that five existing series and four new series of Funds Trust (the “Successor Funds”) will acquire the assets of the MAM Funds (the “Reorganization”). On December 16, 2002 and December 18, 2002, respectively, the boards of trustees (each a “Board”) of the MAM Funds and Funds Trust unanimously approved the Reorganization. The MAM Funds have scheduled a special meeting of the MAM Funds' shareholders for April 25, 2003. Proxy materials for the special meeting were mailed to shareholders of the MAM Funds in February 2003.
4. In connection with the Acquisition and the Reorganization, Funds Management has determined to seek to comply with the “safe harbor” provisions of section 15(f) of the Act. Applicants state that, absent exemptive relief, following consummation of the Reorganization, more than twenty-five percent of the Board of Funds Trust would be “interested persons” for purposes of section 15(f)(1)(A) of the Act.
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 on the sale of its business if certain conditions are met. One of these conditions, set forth in section 15(f)(1)(A), provides that, for a period of three years after the sale, at least seventy-five percent of the board of directors of the investment company may not be “interested persons” with respect to either the predecessor or successor adviser of the investment company. Applicants state that, without the requested exemption, following the Reorganization, Funds Trust would have to reconstitute its Board to meet the seventy-five percent non-interested director requirement of section 15(f)(1)(A).
2. Section 15(f)(3)(B) of the Act provides that if the assignment of an investment advisory contract results from the merger of, or sale of substantially all of the assets by, a registered company with or to another registered investment company with assets substantially greater in amount, such discrepancy in size shall be considered by the Commission in determining whether, or to what extent, to grant exemptive relief under section 6(c) from section 15(f)(1)(A).
3. Section 6(c) of the Act permits the Commission to exempt any person or transaction from any provision of the Act, or any rule or regulation under the Act, if the exemption is necessary or appropriate in the public interest and Start Printed Page 22764consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act.
4. Applicants request an exemption under section 6(c) of the Act from section 15(f)(1)(A) of the Act. Applicants state that, as of March 31, 2003, Funds Trust had approximately $71 billion and the MAM Funds had approximately $1.4 billion in aggregate net assets, respectively, making the MAM Funds' assets less than 2% of the aggregate net assets of Funds Trust.
5. Applicants state that two of the seven trustees who serve on the Board of Funds Trust are “interested persons,” within the meaning of section 2(a)(19) of the Act, of Funds Management. Applicants state that none of the trustees who serves on the Board of Funds Trust is an interested person of MAM or the MAM Funds.
6. Applicants state that to comply with section 15(f)(1)(A) of the Act, Funds Trust would have to alter the composition of its Board, either by asking one or more of its experienced trustees to resign or by adding an additional non-interested trustee. Applicants state that either of these solutions would be unfair to Funds Trust shareholders in view of the amount of the assets of the MAM Funds being acquired relative to the amount of assets of Funds Trust. Applicants state that adequate safeguards will be in place to protect the interests of the former shareholders of the MAM Funds following the consummation of the Reorganization. Applicants also assert that adding an additional non-interested trustee to the Board of Funds Trust would require a lengthy process, which could delay and increase the cost of the Reorganization.
7. For the reasons stated above, applicants submit that the requested relief is necessary and appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act.Start Signature
For the Commission, by the Division of Investment Management, under delegated authority.
J. Lynn Taylor,
[FR Doc. 03-10522 Filed 4-28-03; 8:45 am]
BILLING CODE 8010-01-P