[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.

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    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