[Federal Register Volume 64, Number 43 (Friday, March 5, 1999)]
[Notices]
[Pages 10730-10732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-5443]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23722; 812-11470]
The Victory Portfolios, et al.; Notice of Application
February 26, 1999.
agency: Securities and Exchange Commission (``Commission'').
action: Notice of an application under section 17(b) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 17(a)
of the Act.
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summary of the application: Applicants request an order to permit the
Victory Special Growth Fund, a series of The Victory Portfolios, to
acquire all of the assets and liabilities of the Gradison Opportunity
Growth Trust, a series of Gradison Growth Trust. Because of certain
affiliations, applicants may not rely on rule 17a-8 under the Act.
applicants: The Victory Portfolios (``Victory''), Gradison Growth Trust
(``Gradison''), and Key Asset Management Inc. (``Adviser'').
filing dates: The application was filed on January 13, 1999. Applicants
have agreed to file an amendment to the application during the notice
period, the substance of which is reflected in this notice.
hearing or notification of hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on March 22, 1999, 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 Commission's Secretary.
addresses: Secretary, Commission, 450 Fifth Street, NW, Washington, DC
20549. Applicants, c/o S. Elliot Cohan, Esq., Kramer Levin Naftalis &
Frankel LLP, 919 Third Avenue, New York, New York 10022-3852.
for further information contact: Emerson S. Davis, Sr., Senior Counsel,
at (202) 942-0714, or George J. Zornada, 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 from
the Commission's Public Reference Branch, 450 Fifth Street, NW,
Washington, DC 20549 (telephone (202) 942-8090).
Applicants' Representations
1. Victory, a Delaware business trust, is registered under the Act
as an open-end management investment company and is currently comprised
of thirty series, including the Victory Special Growth Fund (the
``Acquiring Fund''). Gradison, an Ohio business trust, is registered
under the Act as an open-end management investment company. Gradison
Opportunity Value Fund (the ``Acquired Fund'') is a series of Gradison.
2. The Adviser, a New York corporation, is registered under the
Investment Advisers Act of 1940 (``Advisers Act'') and is the
investment adviser to the Acquiring Fund. At the time of the
Reorganization, as defined below, the Adviser will be a bank holding
company subsidiary of KeyCorp, a financial services holding company.
McDonald Investments, Inc. (``McDonald'') is registered under the
[[Page 10731]]
Advisers Act and is the investment adviser to the Acquired Fund.
McDonald's parent corporation has merged with Key Corp and McDonald
plans to combine its advisory services with the Adviser. A pooled
investment vehicle managed by a division of the Adviser for the benefit
of KeyCorp employees (the ``Cash Balance Fund'') owns 42.6% of the
Acquiring Fund.
3. On November 6, 1998, and December 11, 1998, the boards of
trustees of Victory and Gradison (together, the ``Boards''), including
a majority of the trustees who are not ``interested persons,'' as
defined in section 2(a)(19) of the Act (``Independent Trustees''),
respectively, approved an Agreement and Plan Reorganization and
Termination (``Plan''). Under the Plan, on the date of the exchange
(the ``Closing Date''), which is currently anticipated to be March 25,
1999, the Acquiring Fund will acquire all of the assets and liabilities
of the Acquired Fund in exchange for Class G shares of the Acquiring
Fund that have an aggregate net asset value (``NAV'') equal to the
aggregate NAV of the Acquired Fund as of the close of business on the
business day preceding the Closing Date. On the Closing Date, or as
soon as practical thereafter, the Acquired Fund will liquidate and
distribute pro rata the Class G shares of the Acquiring Fund to the
shareholders of the Acquired Fund (the ``Reorganization''). The value
of the assets of the Funds will be determined in the manner set forth
in the Funds' then-current prospectuses and statements of additional
information.
4. Applicants state that the investment objectives, policies, and
limitations of the Acquiring Fund are similar to those of the Acquired
Fund. Class G shares of the acquiring Fund are not subject to any sales
charge or redemption fee, but do pay and asset-based sales charge that
is the same as the asset-base sales charge imposed on shares of the
Acquired Fund. For a period of at least two years following the
Reorganization, the Adviser has agreed to waive or reimburse expenses
so that the total fund operating expenses of the Acquiring Fund would
not exceed the total fund operating expenses of the Acquired Fund.
Shareholders of the Acquired Fund will not incur any sales charges in
connection with the Reorganization. Legal and audit expenses of the
Reorganization will be borne by Victory and expenses related to the
registration of shares will be borne by the Acquiring Fund's
distributor, BISYS Fund Services, Inc.
5. The Boards, including all of the Independent Trustees,
determined that the Reorganization is in the best interests of the
shareholders of the Acquired Fund and the Acquiring Fund, and that the
interests of the existing shareholders of the Acquired Fund and
Acquiring Fund would not be diluted by the Reorganization. In assessing
the Reorganization, the Boards considered various factors, including:
(a) The investment objectives, policies and limitations of the Acquired
and Acquiring Funds; (b) the terms and conditions of the
Reorganization; (c) the tax free-nature of the Reorganization; (d) the
expense ratios of the Acquiring and Acquired Funds; and (e) alternative
options to the Reorganization.
6. The Reorganization is subject to a number of conditions
precedent, including that: (a) The shareholders of the Acquired Fund
approve the Plan; (b) the Acquiring and Acquired Funds receive opinions
of counsel that the Reorganization will be tax-free for the Funds; and
(c) applicants receive from the Commission an exemption from section
17(a) of the Act for the Reorganization. The Plan may be terminated and
the Reorganization abandoned by mutual consent of the Boards or by
either party in case of a breach of the Plan. Applicants agree not to
make any material changes to the Plan without prior Commission
approval.
7. Definitive proxy solicitation materials have been filed with the
Commission and were mailed to shareholders of the Acquired Fund on
January 31, 1999. A special meeting of shareholders is scheduled for
March 5, 1999.
Applicants' Legal Analysis
1. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person, acting as principal, from selling any security to, or
purchasing any security from, the company. Section 2(a)(3) of the Act
defines an ``affiliated person'' of another person to include (a) any
person directly or indirectly owning, controlling, or holding with
power to vote 5% or more of the outstanding voting securities of the
other person; (b) any person 5% or more of whose securities are
directly or indirectly owned, controlled, or held with power to vote by
the other person; (c) any person directly or indirectly controlling,
controlled by or under common control with the other person; and (d) if
the other person is an investment company, any investment adviser of
that company.
2. Rule 17a-8 under the Act exempts from the prohibitions of
section 17(a) mergers, consolidations, or purchases or sales of
substantially all of the assets of registered investment companies that
are affiliated persons, or affiliated persons of an affiliated person,
solely by reason of having a common investment adviser, common
directors, and/or common officers, provided that certain conditions set
forth in the rule are satisfied.
3. Applicants believe that they may not rely on rule 17a-8 in
connection with the Reorganization because the Funds may be deemed to
be affiliated by reasons other than having a common investment adviser,
common directors, and/or common officers. Applicants state that KeyCorp
may be deemed to have an indirect pecuniary interest in the assets held
by the Cash Balance Fund. Applicants further state that because the
Cash Balance Fund owns 42.6% of the Acquiring Fund, the Acquiring Fund
may be deemed an affiliated person of an affiliated person of the
Acquired Fund for a reason other than having a common investment
adviser, common directors and/or common officers.
4. Section 17(b) of the Act provides that the Commission may exempt
a transaction from the provisions of section 17(a) if the evidence
establishes that the terms of the proposed transaction, including the
consideration to be paid, are reasonable and fair and do not involve
overreaching on the part of any person concerned, and that the proposed
transaction is consistent with the policy of each registered investment
company concerned and with the general purposes of the Act.
5. Applicants request an order under section 17(b) of the Act
exempting them from section 17(a) to the extent necessary to consummate
the Reorganization. Applicants submit that the Reorganization satisfies
the standards of section 17(b) of the Act. Applicants believe that the
terms of the Reorganization are fair and reasonable and do not involve
overreaching. Applicants state that the Reorganization will be based on
the relative NAVs of the Acquiring and Acquired Funds' shares.
Applicants also state that the investment objectives, policies and
restrictions of the Funds are, in material respects, substantially
similar. In addition, applicants state that the Boards, including all
of the Independent Trustees, have made the requisite determinations
that the participation of the Acquiring and Acquired Funds in the
Reorganization is in the best interests of each Fund and that such
participation will not dilute the interests of shareholders of the
Funds.
[[Page 10732]]
For the Commission, by the Division of Investment Management,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-5443 Filed 3-4-99; 8:45 am]
BILLING CODE 8010-01-M
