[Federal Register Volume 61, Number 213 (Friday, November 1, 1996)]
[Notices]
[Pages 56578-56579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28004]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22297; 812-10276]
The Gannett Welsh & Kotler Funds, et al.; Notice of Application
October 25, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: The Gannett Welsh & Kotler Funds (the ``Trust''), GW&K
Equity Fund, L.P. (the ``Partnership''), Gannett Welsh & Kotler, Inc.
(the ``Adviser''), and GSD, Inc. (the ``General Partner'').
RELEVANT ACT SECTIONS: Order requested under section 17(b) of the Act
for an exemption from section 17(a) of the Act.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the exchange of shares of a series of the Trust for portfolio
securities of an affiliated Partnership. Thereafter, the Partnership
will dissolve and distribute the shares it received in the exchange pro
rata to its partners.
FILING DATE: The application was filed on July 26, 1996 and amended on
October 21, 1996.
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 November 19,
1996, 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, 222 Berkeley Street, Boston, Massachusetts 02116.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Mercer E. Bullard,
Branch Chief, at (202) 942-0564 (Division of Investment Management,
Office of Investment Company Regulation).
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.
Applicants' Representations
1. The Trust is a Massachusetts business trust that has filed to be
registered under the Act as an open-end management investment company.
The registration statement has not yet been declared effective, and no
offering of shares has commenced. The Trust initially will offer two
series of shares, the GW&K Equity Fund (the ``Equity Fund'') and the
GW&K Government Securities Fund. The investment objective of the Equity
Fund is long-term total return from a combination of capital growth and
growth of income. Shares of the Equity Fund will not be subject to
front-end or contingent deferred sales loads or redemption fees. The
Trust has adopted a distribution expense plan pursuant to rule 12b-1 of
the Act. Applicants anticipate that shares of the Equity Fund will be
marketed in much the same manner as the interests in the Partnership
have been marketed to date.
2. The Partnership was organized in 1991 as a limited partnership
under Delaware law. The Partnership has not been registered under the
Act in reliance upon section 3(c)(1) of the Act, and the Partnership
interests have not been registered under the Securities Act in reliance
upon section 4(a) of the Securities Act. The Partnership's investment
objective is to realize long-term total return from a combination of
capital growth and growth of income, by investing in a diversified
portfolio of equity securities. The General Partner is the sole general
partner of the Partnership and a wholly owned subsidiary of the
Adviser. All of the principals of the General Partner are principals of
the Adviser. As of June 30, 1996, the General Partner had capital
invested in the Partnership representing .5% of the net assets of the
Partnership. The General Partner received its interest in the
Partnership in exchange for cash. The Adviser is the investment adviser
of the Partnership and the Trust and is registered as an Investment
Adviser under the Investment Advisers Act of 1940.
3. Applicants propose that the Equity Fund will exchange
substantially all of the properties and assets of the Partnership prior
to offering the shares to the public. Thereafter, the Partnership will
dissolve and distribute the shares it received to its partners pro
rata, including the General Partner, along with cash received from the
sale of portfolio securities, if any, of the Partnership not acquired
by the Equity Fund. The Partnership will retain assets sufficient, in
the judgment of the Partnership, to pay the Partnership's debts,
obligations and liabilities. Immediately following the exchange
transaction (the ``Exchange''), partners of the Partnership will
constitute all of the holders of shares of the Equity Fund, except for
shares representing seed capital contributed to the Equity Fund by the
Adviser or one of its affiliates pursuant to section 14(a) of the Act.
4. The proposed Exchange will be effectuated pursuant to an
agreement and plan of exchange (the ``Plan'') to be approved by the
limited partners of the Partnership. Solicitation of the limited
partners for approval of the Plan will be made by means of a
prospectus/information statement. Securities of the Partnership will be
acquired and valued by the Equity Fund at the time of acquisition in
accordance with the pricing mechanism adopted by the Board of Trustees
of the Trust and set forth in the N-1A Registration Statement, which is
equivalent to the independent ``current market price'' of the
securities as defined in rule 17a-7 under the Act. The Equity Fund will
not acquire securities from the Partnership if, in the opinion of the
Adviser, the acquisition would result in a violation of the Equity
Fund's investment objectives, policies, or restrictions. The Equity
Fund will have the authority to pay proceeds of a redemption of shares
of a former partner of the Partnership in-kind, rather than in cash, in
order to avoid the incurrence of excessive brokerage costs by the
Equity Fund after the Exchange. No affiliated person of the Trust, the
Adviser or the General Partner, or affiliated persons of any such
person, will receive the proceeds of redemptions in-kind.
5. The General Partner has considered the desirability of the
Exchange from the point of view of the Partnership and has concluded
that (a) the Exchange is in the best interests of the Partnership and
the limited partners and (b) the
[[Page 56579]]
Exchange will not dilute the financial interests of the partners when
their Partnership interests are converted to shares of the Equity Fund.
6. The Plan will not be submitted to the limited partners of the
Partnership unless a majority of the board of trustees of the Trust,
including a majority of the non-interested members, conclude that (a)
the Exchange is in the best interest of the Equity Fund, the
Partnership, and the limited partners of the Partnership; (b) the
Exchange will not dilute the financial interests of the Equity Fund's
sole shareholder or of the partners of the Partnership when their
interests are converted to shares of the Equity Fund, and (c) the terms
of the Exchange as reflected in the Plan have been designed to meet the
criteria contained in section 17(b) of the Act, i.e., that the Exchange
be reasonable and fair, not involve overreaching and be consistent with
the policies of the Equity Fund. The trustees will consider each aspect
of the Exchange, including (i) the method of valuing the portfolio
securities to be acquired from the Partnership, (ii) the net asset
value of the shares to be delivered to the Partnership, (iii) the
procedure for selecting among the portfolio securities of the
Partnership, (iv) the possibility of the Equity Fund's incurring
excessive brokerage costs as a result of redemptions of shares by
former partners of the Partnership, (v) the allocation of the costs of
the Exchange, (vi) the possibility of adverse tax consequences to
future shareholders of the Equity Fund resulting from the carrying
forward of unrealized capital gains from the Partnership to the Equity
Fund, and (vii) the benefits from the Exchange accruing to the General
Partner and the Adviser.
7. The Exchange will not be effected unless: (a) the registration
statements of the Equity Fund have been declared effective, (b) the
limited partners of the Partnership have approved the Plan, (c) the
requested order has been granted, and (d) the Trust has received an
opinion of counsel that (i) the distribution of shares from the
Partnership to its limited partners, which will be in liquidation of
the Partnership, will not cause taxable gain or loss to be recognized
by the limited partners, (ii) the basis to the limited partners for the
shares will be equal to the adjusted basis of the limited partners'
interests in the Partnership, and (iii) the limited partners' holding
periods with respect to the shares will include the Partnership's
holding periods with respect to the shares.
8. The Exchange has been proposed primarily for two reasons. First,
the Exchange will permit limited partners of the Partnership to pursue
as shareholders of the Equity Fund substantially the same investment
objective and policies in a larger fund. Second, the Equity Fund will
be simpler to operate because complicated allocation calculations that
the Partnership must make would not apply to the Equity Fund, and
operating as a registered investment company would eliminate other
administrative burdens and filing requirements currently faced by the
Partnership.
9. The General Partner will assume all costs of the Exchange,
including the cost of transferring the Partnership's portfolio
securities to the account of the Equity Fund and the cost of issuing
shares of the Equity Fund in the Exchange, as well as the legal fees
and expenses relating to the application for exemptive relief and
obtaining an opinion of counsel on certain tax matters. No brokerage
commission, fee, or other remuneration will be paid in connection with
the Exchange.
10. After the Exchange is accomplished, the former portfolio
manager of the Partnership and then-current manager of the Equity Fund
intends for the foreseeable future to manage the assets of the Equity
Fund in substantially the same manner as he had previously managed the
Partnership, except as may be necessary or desirable (a) in order to
qualify as a regulated investment company under the Internal Revenue
Code of 1986, (b) in order to comply with investment restrictions
adopted by the Equity Fund in accordance with the requirements of the
Act or securities laws of states where the Fund's shares will be
offered, or (c) in light of changed market conditions.
Applicants' Legal Conclusions
1. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company from selling to or purchasing
from such investment company any security. Applicants state that the
Partnership may be considered an affiliated person of the Trust because
the Partnership and the Trust may be deemed under the control of the
Adviser, because of its being the investment adviser of both the
Partnership and the Trust. Thus, unless the requested relief is
granted, the proposed Exchange may be prohibited under section 17(a) of
the Act if the Exchange is viewed as a principal transaction between
the Trust and the Partnership.
2. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 17(a) if evidence establishes that the terms
of the transaction, including the consideration to be paid or received,
are reasonable and fair and do not involve overreaching on the part of
any person concerned, the transaction is consistent with the policies
of the registered investment company, and the transaction is consistent
with the general purposes of the Act.
3. Applicants believe that the proposed transaction satisfies the
criteria of section 17(b). Applicants contend the terms of the Exchange
are reasonable and fair because the Equity Fund and the Partnership
have similar investment objectives and policies, and the Equity Fund
will attempt to provide investors with portfolio securities
substantially similar to that held by the Partnership. Applicants also
note that the Equity Fund will acquire the Partnership securities at
their independent ``current market price,'' as defined in rule 17a-7.
Applicants believe that this price will be as advantageous to the
Equity Fund as open-market purchases. In addition, by acquiring
suitable securities from the Partnership, applicants argue that the
Equity Fund will avoid incurring brokerage and other transaction costs.
Applicants further note that the terms of the Exchange will result in
no gain or loss being recognized by partners of the Partnership.
Finally, applicants note that shares of the Equity Fund will be issued
at net asset value.
4. Applicants believe the Exchange is consistent with the policies
of the Equity Fund because the Equity Fund will acquire securities that
the Adviser has previously purchased on the basis of substantially
similar objectives and policies. After the Exchange, limited partners
will hold substantially the same assets as the Equity Fund's
shareholders as they had previously held as limited partners of the
Partnership. In this sense, the Exchange can be viewed as a change in
the form in which assets are held, rather than as a disposition giving
rise to section 17(a) concerns. Finally, applicants believe the
proposed Exchange does not give rise to the abuses that section 17(a)
was designed to prevent and is consistent with the policies underlying
the adoption of rule 17(a)-7.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-28004 Filed; 10-31-96; 8:45 am]
BILLING CODE 8010-01-M
