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Chase Credit Card Offers Option to Invest in Fund That is Preparing to Shut Down


In March, JP Morgan Chase launched the Stockback MasterCard from Chase, a co-branded credit card with a cash rewards program that allows consumers to automatically invest in Stockback's mutual fund. But three days after the announcement of the new card, Stockback filed a preliminary proxy statement with the Securities and Exchange Commission seeking to liquidate the fund.

Cardmembers would earn 1% cash back on all purchases (11% for participating merchants), which they have the option of keeping or investing in the Stockback Fund, managed by Merrill Lynch. Stockback created the mutual fund in order to be able to offer it through its credit card alliance with Chase, the firm's primary business.

Now, Stockback wants to liquidate the fund because it wants to find a fund with lower expenses, according to Gerri Gussin, a spokeswoman for Stockback. Stockback Advisers of New York, the fund's investment adviser, cannot afford to cover the fund's expenses under the current administrative agreement. Also, the fund has not gained the assets that were expected and simply has not reached a level at which it can stay afloat, according to the SEC filing.

"In the Adviser's opinion, there appears to be little prospect that the Fund will grow to a sufficient size so that it would be able, without subsidization, to operate within the annual administrative fee rates..." the filing says.

Under the current agreement, the adviser must pay all fund expenses other than the advisory fee, including operating expenses that exceed 0.7% of the fund's average daily NAV, according to the filing. It also must waive all of its fees and reimburse the fund for all expenses to the extent that the total annual operating expenses incurred by the fund exceed 0.95% of the daily NAV. If the adviser had not subsidized the expenses of the fund under the agreement, the fund's expense ratio on Dec. 31, 2001 would have been approximately 85%.

If shareholders approve the liquidation, Stockback will work on signing an agreement to offer a different investment product to Chase credit card customers. However, the details of such a plan are far from worked out. It is not clear if Stockback would select another mutual fund to offer before the current one is liquidated.

"We're just currently getting in the middle of all of this," said Gussin. "It should be happening in the next couple of weeks."

JP Morgan Chase had no immediate comment on the matter, according to spokeswoman Catherine Keary.