[Federal Register Volume 63, Number 67 (Wednesday, April 8, 1998)]
[Notices]
[Pages 17244-17246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9124]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23098; 812-11052]
CoreFunds, Inc. and CoreStates Investment Advisers, Inc.; Notice
of Application
April 2, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption 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 an interim
investment advisory agreement and sub-advisory agreements (collectively
the ``Interim Agreements'') between CoreFunds, Inc. (``Fund'') and
CoreStates Investment Advisers, Inc. (``Adviser'') and sub-advisers, 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 150 days following
the date of the consummation of the merger (but in no event later than
September 30, 1998) (``Interim Period''). The order also would permit
the Adviser and sub-advisers to receive all fees earned under the
Interim Agreements during the Interim period, following shareholder
approval.
APPLICANTS: The Funds, or behalf of its separate investment portfolios,
Equity Index Funds, Core Equity Fund, Growth Equity Fund, Special
Equity Fund, International Growth Fund, Balanced Fund, Short-Term
Income Fund, Short-Intermediate Bond Fund, Government Income Fund, Bond
Fund, Global Bond Fund, Intermediate Municipal Bond Fund, Pennsylvania
Municipal Bond Fund, New Jersey Municipal Bond Fund, Treasury Reserve
Fund, Cash Reserve Fund, Tax-Free Reserve Fund, Elite Cash Reserve
Fund, Elite Treasury Reserve Fund, Elite Tax-Free Reserve Fund
(collectively the ``Portfolios'') and the Adviser.
FILING DATES: The application was filed on March 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 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 April 27, 1998, 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 who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. CoreFunds, Inc., c/o John A.
Dudley, Esq., 1025 Connecticut Avenue, N.W., Washington, D.C. 20036 and
James W. Jennings, Esq., 2000 One Logan Square, Philadelphia, PA 19103-
6993, CoreStates Investment Advisers, Inc., c/o Mark E. Stalnecker,
1500 Market Street, (FC-1-3-86-11), Philadelphia, Pennsylvania 19102.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at
(202) 942-0714, or George J. Zornada, Branch Chief, at (202) 942-0564
(Office of Investment Company Regulation, Division of Investment
Management).
SUPPLEMENTARY 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, N.W.,
Washington, D.C. 20549 (tel. 202-942-8090).
Applicant's Representations
1. The Fund is a Maryland corporation registered under the Act as
an open-end management investment company and is organized as a series
company offering the Portfolios. The Adviser is an investment adviser
registered under the Investment Advisers Act of 1940 (``Advisers Act'')
and is a wholly-owned subsidiary of CoreStates. The Adviser serves as
investment adviser to each of the Portfolios. The Fund and the Adviser
also have sub-advisory agreements for certain Portfolios with advisers
registered under the Advisers Act.\1\
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\1\ The following firms serve as sub-advisers to the respective
Portfolios under sub-advisory agreements with the Adviser: Martin
Currie, Inc. (for the International Growth Fund); Aberdeen Fund
Managers, Inc. (for the International Growth Fund); and Analytic TSA
International, Inc. (for the Global Bond Fund).
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2. CoreStates, which is a bank holding company, has agreed to merge
with and into First Union or a designated subsidiary of First Union
(the ``Transaction''). Applicants currently expect the Transaction to
close on April 30, 1998. As a result of the Transaction, the Adviser
will come under the control of First Union.
3. Applicants believe that the Transaction will result in an
assignment and thus automatic termination of the existing investment
advisory and sub-advisory agreements between the Fund and the Adviser
and the sub-advisers (collectively, ``Existing Agreements'').
Applicants request an exemption: (i) to
[[Page 17245]]
permit the implementation, prior to shareholder approval, of the
Interim Agreements; and (ii) to permit the Adviser and sub-advisers,
upon shareholder approval, to receive any and all fees earned under the
Interim Agreements during the Interim Period. Applicants state that the
Interim Agreements will be identical in substance to the Existing
Agreements, except for their effective and termination dates. The Fund
and the Adviser also will have an escrow arrangement as described
below.
4. On February 6, 1998, the Fund's board of directors (``Board'')
met in-person and considered the Interim Agreements. At the meeting, a
majority of the Board, including a majority of the directors who are
not ``interested persons'' as defined in section 2(a)(19) of the Act
(``Independent Directors''), voted in accordance with section 15(c) of
the Act and (i) approved the Interim Agreements after evaluating
whether the terms were in the best interests of the Portfolios and
their shareholders, and (ii) agreed to recommend approval of the
Interim Agreements to shareholders of the Portfolios. A vote of the
shareholders of the Portfolios is scheduled for July 17, 1998.
5. Applicants propose to enter into an escrow arrangement with an
unaffiliated bank (``Escrow Agency''). The fees payable to the Adviser
and sub-advisers under the Interim Agreements 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 and, if
applicable, sub-advisers only if Portfolio shareholders approve the
Interim Agreements. If the Interim Period has ended and shareholders of
any Portfolio have failed to approve the Interim Agreements, the Escrow
Agent will pay to the Portfolio the escrow amounts (including any
interest earned). Before the release of any such escrow amounts, the
Fund's 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)(4) 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 Agreements and the Existing Agreements will terminate by their
terms upon consummation of the Transaction.
3. Rule 15a-4 provides, in pertinent part, that if an investment
advisory contract with a registered 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 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) of the Act provides that the Commission 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 terms and 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. Applicants
also state that there is not sufficient time to make an adequate
solicitation of fund shareholders prior to the closing of 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 and sub-
advisers will operate under the Interim Agreements, which the Board has
approved and which will be substantively the same as the Existing
Agreements, except for their effective and termination dates. In
addition, there will be an escrow agreement as discussed above.
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, at the same fee levels, provided in
the same manner as the Fund received before the Transaction. Applicants
state that, in the event that a material change in the personnel of the
Adviser or sub-adviser occurs during the Interim Period, the Adviser or
sub-adviser will apprise and consult the Board, including the
Independent Directors, to assure that the Board and the Independent
Directors are satisfied that the services provided by the Adviser or
sub-adviser will not be diminished in scope and quality.
7. Applicants assert that to deprive the Adviser or sub-advisers of
fees during the Interim Period would be unduly harsh and an
unreasonable penalty to attach to the Transaction. Applicants submit
that adequate safeguards exist in that the fees payable to the Adviser
and sub-advisers under the Interim Agreements during the Interim Period
will be maintained in an interest-bearing escrow account by the Escrow
Agent and that such fees will not be released by the Escrow Agent
without notice to the Independent Directors and appropriate
certification that the Interim Agreements have been approved by the
shareholders of the Portfolios.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. The Interim Agreements will be identical in substance to the
Existing Agreements with the exception of the effective and termination
dates.
2. Fees earned by the Adviser and sub-advisers during the Interim
Period in accordance with the Interim Agreements will be maintained in
an interest-bearing escrow account with an unaffiliated bank, and
amounts in the account (including interest earned on such paid fees)
will be paid to the Adviser, and if applicable, sub-adviser, only upon
approval of the related Portfolio shareholders, or, in the
[[Page 17246]]
absence of such approval, to the related Portfolio.
3. The Fund will hold meetings of shareholders to vote on approval
of the Interim Agreements on or before the 150th day following the
termination of the Existing Agreements (but in no event later than
September 30, 1998).
4. First Union will bear the costs of preparing and filing the
application and the costs relating to the solicitation of shareholder
approval of the Portfolios necessitated by the Transaction.
5. The Adviser and sub-advisers will take all appropriate steps so
that the scope and quality of advisory and other services provided to
the Portfolios 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. If
personnel providing material services during the Interim Period change
materially, the Adviser or any sub-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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-9124 Filed 4-7-98; 8:45 am]
BILLING CODE 8010-01-M
