[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