[Federal Register Volume 62, Number 241 (Tuesday, December 16, 1997)]
[Notices]
[Pages 65832-65834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32755]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22936; 812-10882]
Mentor Funds, et al.; Notice of Application
December 10, 1997.
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 shareholder approval, of new investment
advisory agreements (``New Agreements'') between Mentor Funds, Mentor
Institutional Trust, Cash Resource Trust (collectively, the
``Trusts''), America's Utility Fund, Inc., and Mentor Income Fund, Inc.
(collectively with the Trusts, the ``Funds''); and one or more of
Mentor Investment Advisors, LLC (``Mentor Advisors''), Mentor Perpetual
Advisors, LLC (``Mentor Perpetual'') (each, an ``Advisor''); Van Kampen
American Capital Management, Inc. (``Van Kampen''), and Wellington,
Management Company, LLP (``Wellington'') (each, a ``Sub-advisor''), for
a period of up to 60 days following the date of consummation of a
merger (but in no event later than March 31, 1998) (the ``Interim
Period''). The order also would permit the Advisors and Sub-advisors to
receive all fees earned under the New Agreements following shareholder
approval.
Applicants: Funds, Advisors, and Sub-advisors.
FILING DATES: The application was filed on November 20, 1997.
Applicants have agreed to file an amendment 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 December
30, 1997, 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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: Mentor Funds, Mentor Institutional Trust, Cash
Resource Trust, America's Utility Fund, Inc., Mentor Income Fund, Inc.,
Mentor Advisors, and Mentor Perpetual, 901 East Byrd Street, Richmond,
VA 23219; Van Kampen, One Parkview Plaza, Oakbrook Terrace, IL 60181;
Wellington, 75 State Street, Boston, MA 02109.
FOR FURTHER INFORMATION CONTACT:
John K. Forst, Attorney Advisor, at (202) 942-0569, or Christine Y.
Greenlees, 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
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Trusts, each a Massachusetts business trust, are registered
under the Act as open-end management investment companies. America's
Utility Fund, Inc., a Maryland corporation, is registered under the Act
as an open-end management investment company. Mentor Income Fund, Inc.,
a Virginia corporation, is registered under the Act as a closed-end
management investment company. The Funds currently offer twenty-three
portfolios.\1\
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\1\ Mentor Funds is comprised of eleven portfolios: Mentor
Growth Portfolio, Mentor Capital Growth Portfolio, Mentor Strategy
Portfolio, Mentor Income and Growth Portfolio, Mentor Perpetual
Global Portfolio, Mentor Quality Income Portfolio, Mentor Municipal
Income Portfolio, Mentor Short-Duration Income Portfolio, Mentor
Balanced Portfolio, Mentor Institutional Money Market Portfolio, and
Mentor Institutional U.S. Government Money Market Portfolio. Mentor
Institutional Trust is comprised of five portfolios: Mentor U.S.
Government Cash Management Portfolio, Mentor Intermediate Duration
Portfolio, Mentor Fixed-Income Portfolio, Mentor Perpetual
International Portfolio, and SNAP Fund. Cash Resource Trust is
comprised of five funds: Cash Resource Money Market Fund, Cash
Resource U.S. Government Money Market Fund, Cash Resource Tax-Exempt
Money Market Fund, Cash Resource California Tax-Exempt Money Market
Fund, and Cash Resource New York Tax-Exempt Money Market Fund. Each
of America's Utility Fund, Inc. and Mentor Income Fund, Inc.
constitutes a single portfolio.
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2. The Advisors, investment advisers registered under the
Investment Advisers Act of 1940 (the ``Advisers Act''), serve as
investment adviser for the Funds pursuant to existing investment
advisory agreements that comply with section 15 of the Act (with
existing sub-advisory agreements, the ``Existing Agreements''). Mentor
Perpetual serves as investment adviser to Mentor Perpetual Global
Portfolio and Mentor Perpetual International Portfolio. Mentor Advisors
serves as investment adviser to each of the other Funds. The Sub-
advisors, investment advisers registered under the Advisers Act, serve
as sub-advisers for certain of the Funds pursuant to the Existing
Agreements. Van Kampen serves as Sub-advisor to the Mentor Municipal
Income Portfolio. Wellington serves as Sub-advisor to the Mentor Income
and Growth Portfolio.\2\
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\2\ In each of the foregoing cases, whether acting as investment
adviser or subadviser, each Advisor and Sub-Advisor is acting as an
investment adviser within the meaning of section 2(a)(20) of the
Act.
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3. On August 20, 1997, Wheat First Butcher Singer, Inc. (``Wheat
First''), the Advisors' parent, entered into an agreement and plan of
merger with First Union Corporation (``First Union''), under which
Wheat First will be merged into First Union (the ``Merger''). Upon
consummation of the Merger (expected to occur on December 31, 1997),
First Union will become the owner of a majority of the beneficial
interest in Mentor Advisors and of one-half of the beneficial interest
in Mentor Perpetual.
4. Applicants believe that the Merger will result in an assignment
of the Existing Agreements. Applicants request an exemption to permit:
(a) The implementation during the Interim Period, prior to obtaining
shareholder approval, of the New Agreements; and (b) the Advisors and
Sub-advisors to receive from each Fund, upon approval of that Fund's
shareholders of the relevant New Agreement, any and all fees earned
under the New Agreement during the applicable Interim Period.
Applicants state that the New Agreements will have substantially the
same terms and conditions as the respective Existing Agreements, except
in each case for the effective date, termination date, and escrow
provisions.
5. The boards of trustees of the Trusts and the boards of directors
of Mentor Income Fund, Inc. and America's Utility Fund, Inc.
(collectively, the ``Boards''), met on October 14, 1997, September 10,
1997, and November 19, 1997, respectively, to discuss the Merger and
its implications for the Funds. At the meetings, the Boards, including
a majority of the members who are not ``interested persons'' of any
Fund, as
[[Page 65833]]
that term is defined in section 2(a)(19) of the Act (the ``Independent
Board Members''), voted in accordance with section 15(c) of the Act to
approve the New Agreements and to submit the New Agreements to the
shareholders of each of the Funds at a meeting to be held on December
22, 1997 (the ``Meeting''). On December 8, 1997, the Boards of the
Trusts met in person and approved the escrow provisions of each of the
New Agreements in accordance with section 15(c) of the Act. The Boards
of Mentor Income Fund, Inc. and America's Utility Fund, Inc. will meet
in person prior to the commencement of the Interim Period to approve
the escrow provisions of each of the New Agreements in accordance with
section 15(c) of the Act.
6. Applicants state that proxy materials were mailed to the Funds'
shareholders on or about November 25, 1997. Applicants submit that,
while it is possible that shareholders of each of the Funds will
approve the New Agreements at the Meeting, it also is possible that an
insufficient number of votes will have been received by the date of the
Meeting to act upon the New Agreements in respect of one or more Funds,
and that it may be necessary to adjourn the Meeting to permit
additional shareholders to vote their shares by proxy. Applicants
believe that the requested relief is necessary to permit continuity of
investment management of the Funds during the Interim Period so that
services to each Fund would not be disrupted if the Meeting is
adjourned as to that Fund.
7. Applicants propose to enter into an escrow arrangement with an
unaffiliated financial institution. The fees payable to the Advisors
and Sub-advisors during the Interim Period under the New Agreements
will be paid into an interest-bearing escrow account maintained by the
escrow agent. The escrow agent will release the amounts held in the
escrow account (including any interest earned): (a) To the relevant
Advisors or Sub-advisor only upon approval of the relevant New
Agreement by the shareholders of the relevant Fund; or (b) to the
relevant Fund if the Interim Period has ended and its New Agreement has
not received the requisite shareholder approval. Before any such
release is made, the Boards will be notified.
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in pertinent part, that it is
unlawful for any person to serve as an investment adviser to 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 the investment company. Section 15(a) further
requires the written contract to provide for its automatic termination
in the event of its ``assignment.'' Section 2(a)(4) of the Act defines
the term ``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, following the Merger, First Union will
own 100% of the voting securities of Wheat First. Applicants believe,
therefore, that the Merger will result in an assignment of the Existing
Agreements, and that the Existing Agreements will terminate by their
terms upon consummation of the Merger.
3. Rule 15a-4 provides, in pertinent part, that if an investment
advisory contract with a registered investment company is terminated by
an assignment, the adviser may continue to serve 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 the
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 because the
Advisors and their affiliates may be deemed to receive a benefit in
connection with the Merger, applicants may not be entitled to rely on
rule 15a-4.
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 believe that the requested relief meets this standard.
5. Applicants note that the terms and timing of the Merger were
determined by Wheat First and First Union in response to a number of
factors beyond the scope of the Act and unrelated to the Funds and the
Advisors. Applicants believe that allowing the Advisors and Sub-
advisors to continue to provide investment advisory services to the
Funds during the Interim Period is in the best interests of the Funds
and their shareholders to avoid any interruption in services to the
Funds and is in keeping with the spirit of the provisions of rule 15a-4
and with the purposes of section 15 of the Act.
6. Applicants submit that the scope and quality of services
provided to the Funds during the Interim Period will not be diminished.
During the Interim Period, the Advisors and Sub-advisors would operate
under the New Agreements, which would be substantially the same as the
Existing Agreements, except for their effective dates, termination
dates, and escrow provisions. The Advisors have advised the Boards that
they are not aware of any material changes in the personnel who will
provide investment management services during the Interim Period.
Accordingly, the Funds should receive, during the Interim Period, the
same advisory services, provided in the same manner, at the same fee
levels, and by substantially the same personnel as they received before
the Merger.
7. Applicants contend that the best interests of shareholders of
the Funds would be served if the Advisors and Sub-advisors receive fees
for their services during the Interim Period. Applicants submit that to
deprive the Advisors and Sub-advisors of their customary fees during
the Interim Period for no reason, other than the fact that the Merger
may be deemed to result in an assignment of the Existing Agreements,
would be an unduly harsh and unreasonable penalty. Applicants note that
the fees to be paid during the Interim Period will be at the same rate
as the fees that currently are being paid under the Existing
Agreements, which have been approved by the Board and the shareholders
of each Fund.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. Each New Agreement will have substantially the same terms and
conditions as the respective Existing Agreement, except for the
effective date, termination date, and escrow provisions.
2. Advisory fees earned by an Advisor or Sub-advisor, as the case
may be, during the Interim Period will be maintained in an interest-
bearing escrow account, and amounts in the account (including interest
earned on such amounts) will be paid (a) to the Advisor or Sub-advisor,
as the case may be, in accordance with the relevant New Agreement,
after the requisite shareholder approval is obtained, or (b)
[[Page 65834]]
to the Fund, in the absence of such approval.
3. Each of the Funds will hold a meeting of shareholders to vote on
approval of the New Agreements on December 22, 1997, or within the 60
day period following the consummation of the Merger (but in no event
later than March 31, 1998).
4. First Union or Mentor Advisors will bear the costs of preparing
and filing the application, and First Union will bear any costs
relating to the solicitation of shareholder approval necessitated by
the Merger.
5. The Advisors and Sub-advisors will take all appropriate actions
to ensure that the scope and quality of advisory and other services
provided to the Funds during the Interim Period will be at least
equivalent, in the judgment of the Boards, including a majority of the
Independent Board Members, to the scope and quality of services
previously provided. In the event of any material change in personnel
providing services pursuant to the New Agreements caused by the Merger,
the Advisors will apprise and consult with the Boards to assure that
the Boards, including a majority of the Independent Board Members, 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. 97-32755 Filed 12-15-97; 8:45 am]
BILLING CODE 8010-01-M