[Federal Register Volume 63, Number 47 (Wednesday, March 11, 1998)]
[Notices]
[Pages 11934-11936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6180]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23057; 812-10994]
Vestaur Securities, Inc. and CoreStates Investment Advisers,
Inc.; Notice of Application
March 4, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') from section 15(a) of the
Act.
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SUMMARY OF APPLICATION: Applicants seek an order to permit the
implementation, without prior shareholder approval, of a new investment
advisory agreement (``New Agreement'') between Vestaur Securities, Inc.
(``Fund'') and CoreStates Investment Advisers, Inc. (``Adviser'') in
connection with the merger of CoreStates Financial Corp
(``CoreStates'') with and into First Union Corporation (``First
Union''). The order would cover a period of up to 120 days following
the date of the consummation of the merger (but in no event later than
July 31, 1998) (``Interim Period''). The order also would permit the
Adviser to receive all fees earned under the New Agreement during the
Interim Period following shareholder approval.
APPLICANTS: Fund and Adviser.
FILING DATES: The application was filed on February 6, 1998. Applicants
have agreed to file an amendment to the application during the notice
period, the substance of which is included in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on March 30, 1998,
and should be accompanied by proof of service on applicants in the form
of an affidavit or, for layers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, DC.
20549. Fund, c/o Mark E. Stalnecker, Centre Square West-UM Floor, 15th
and Market Streets, Philadelphia, Pennsylvania 19101, and Adviser, c/o
Mark E. Stalnecker, 1500 Market Street, P.O. Box 7558, Philadelphia,
Pennsylvania 19101-7558.
FOR FURTHER INFORMATION CONTACT:
Joseph B. McDonald, Jr., Senior Counsel, at (202) 942-0533, or Edward
P. MacDonald, Branch Chief, at (202) 942-0564 (Office of Investment
Company Regulation, Division of Investment Management).
[[Page 11935]]
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, DC
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Fund is a Delaware corporation registered under the Act as a
closed-end management investment company. The Adviser is an investment
adviser registered under the Investment Advisers Act of 1940 and is an
indirect wholly-owned subsidiary of CoreStates.
2. On November 17, 1997, CoreStates entered into an agreement and
plan of merger (``Merger Agreement'') under which CoreStates will be
merged with and into First Union (``Transaction''). Upon consummation
of the merger (expected to occur on March 31, 1998), the Adviser will
become an indirect wholly-owned subsidiary of First Union.
3. Applicants state that the Transaction will result in an
assignment of the existing investment advisory agreement between the
Fund and the Adviser (``Existing Agreement''). Applicants request an
exemption: (i) to permit the implementation, without prior shareholder
approval, of the New Agreement; and (ii) to permit the Adviser to
receive from the Fund all fees earned under the New Agreement during
the Interim Period if the New Agreement is approved by shareholders of
the Fund. Applicants state that the New Agreement will have
substantially the same terms and conditions as the Existing Agreement,
except for its effective date, termination date and escrow provisions
described below.
4. The Board will meet on March 11, 1998, in accordance with
section 15(c) of the Act, to review and approve the New Agreement.\1\
The Board requested the Adviser to provide information it deemed
reasonably necessary to evaluate whether the terms of the New Agreement
are in the best interests of the Fund and its shareholders, and at the
Board meeting on March 11, 1998, the Board will consider such
information.
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\1\ Applicants acknowledge that, to the extent that the Board
cannot meet prior to the consummation of the Transaction, the Fund
may not rely on the exemptive relief requested in this application.
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5. Applicants propose to enter into an escrow arrangement with an
unaffiliated financial institution (``Escrow Agent''). The fees payable
to the Adviser under the New Agreement during the Interim Period will
be paid into an interest-bearing escrow account maintained by the
Escrow Agent. The amounts in the escrow account (including interest
earned on such paid fees) will be paid to the Adviser only if Fund
shareholders approve the New Agreement. If the Interim Period has ended
and the Fund shareholders have failed to approve the New Agreement, the
Escrow Agent will pay to the Fund the escrow amounts (including any
interest earned). Before the release of any such escrow amounts, the
directors of the Fund who are not ``interested persons'' of the Fund,
within the meaning of section 2(a)(19) of the Act (``Independent
Directors'') will be notified.
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in pertinent part, that it
shall be unlawful for any person to serve or act as an investment
adviser of a registered investment company, except pursuant to a
written contract that has been approved by the vote of a majority of
the outstanding voting securities of such registered investment
company. Section 15(a) of the Act further requires that such written
contract provide for automatic termination in the event of its
``assignment.'' Section 2(a)(4) of the Act defines ``assignment'' to
include any direct or indirect transfer of a contract by the assignor,
or of a controlling block of the assignor's outstanding voting
securities by a security holder of the assignor.
2. Applicants state that, upon completion of the Transaction,
indirect control of the Adviser will transfer to First Union.
Accordingly, the Transaction will result in an ``assignment'' of the
Existing Agreement and the Existing Agreement will terminate.
3. Rule 15a-4 provides, in pertinent part, that if an investment
advisory contract with an investment company is terminated by an
assignment in which the adviser does not directly or indirectly receive
a benefit, the adviser may continue to act as such for the company for
120 days under a written contract that has not been approved by the
company's shareholders, provided that: (a) the new contract is approved
by that company's board of directors (including a majority of the non-
interested directors); (b) the compensation to be paid under the new
contract does not exceed the compensation that would have been paid
under the contract most recently approved by the company's
shareholders; and (c) neither the adviser nor any controlling person of
the adviser ``directly or indirectly receives money or other benefit''
in connection with the assignment. Applicants state that they cannot
rely on rule 15a-4 because of the benefits CoreStates, the Adviser's
parent, will receive from the Transaction.
4. Section 6(c) provides that the SEC may exempt any person,
security, or transaction from any provision of the Act, if and to the
extent that such exemption is necessary or 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.
Applicants assert that the requested relief meets this standard.
5. Applicants submit that the timing of the Transaction arose
primarily out of business considerations unrelated to the Fund and the
Adviser. Applicants state that the requested relief would permit the
continuity of investment management for the Fund, without interruption,
during the period following the Transaction.
6. Applicants submit that the scope and quality of investment
advisory services provided for the Fund during the Interim Period will
not be diminished. During the Interim Period, the Adviser will operate
under the New Agreement, which will be substantively the same as the
Existing Agreement, except for its effective date and escrow
provisions. Applicants are not aware of any material changes in the
personnel that will provide investment management services during the
Interim Period. Accordingly, the Fund should receive, during the
Interim Period, the same investment advisory services, provided in the
same manner, as the Fund received before the Transaction.
7. Applicants assert that to deprive the Adviser of fees during the
Interim Period would be a harsh result and an unreasonable penalty to
attach to the Transaction and would serve no useful purpose. Therefore,
applicants submit that the fees payable to the Adviser under the New
Agreement during the Interim Period will be maintained in an interest-
bearing escrow account by the Escrow Agent. Such fees, however, will
not be released by the Escrow Agent to the Adviser without notice to
the Independent Directors and appropriate certifications that the New
Agreement has been approved by the shareholders of the Fund.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. The New Agreement will have substantially the same terms and
conditions as the Existing Advisory Agreements, except for its
effective date, termination date and escrow provisions.
[[Page 11936]]
2. Fees earned by the Adviser in respect of the New Agreement
during the Interim Period will be maintained in an interest-bearing
escrow account, and amounts in the account (including interest earned
on such paid fees) will be paid: (a) to the Adviser in accordance with
the New Agreement, after the requisite shareholder approval is
obtained; or (b) to the Fund, in the absence of shareholder approval
with respect to the Fund.
3. The Fund will hold a meeting of shareholders to vote on approval
of the New Agreement on or before the 120th day following the
termination of the Existing Agreement (but in no event later than July
31, 1998).
4. Either First Union or the Adviser will bear the costs of
preparing and filing the application and the costs relating to the
solicitation of shareholder approval of the New Agreement necessitated
by the Transaction.
5. The Adviser will take all appropriate steps so that the quality
and scope of advisory and other services provided to the Fund during
the Interim Period will be at least equivalent, in the judgment of the
Board, including a majority of the Independent Directors, to the scope
and quality of services previously provided. In the event of any
material change in the personnel providing services pursuant to the New
Agreement, the Adviser will apprise and consult with the Board to
assure that the Directors, including a majority of the Independent
Directors of the Fund, are satisfied that the services provided will
not be diminished in scope or quality.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-6180 Filed 3-10-98; 8:45 am]
BILLING CODE 8010-01-M
