Securities and Exchange Commission (“Commission”).Start Printed Page 48894
Notice of application under section 17(b) of the Investment Company Act of 1940 (“Act”) for an exemption from section 17(a) of the Act.
Summary of Application: Applicants request an order to permit the proposed reorganization of the following series of the Victory Portfolios: U.S. Government Obligations Fund (“U.S. Government”) with and into Gradison Government Reserves Fund (“Gradison”); and Investment Quality Bond Fund (“Investment Quality”) with and into Intermediate Income Fund (“Intermediate Income”). Because of certain affiliations, applicants may not rely on rule 17a-8 under the Act.
Applicants: The Victory Portfolios (“Trust”) and Victory Capital Management Inc. (“Adviser”).
Filing Dates: The application was filed on July 24, 2001. Applicant have agreed to file an amendment 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 October 10, 2001, 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 may request notification of a hearing by writing to the Commission's Secretary.
Secretary, Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Applicants c/o S. Elliot Cohan, Esq., Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York 10022.
FOR FURTHER INFORMATION CONTACT:
John L. Sullivan, Senior Counsel, at (202) 942-0681, or Mary Kay Frech, Branch Chief, at (202) 942-0564 (Division of Investment Management, Office of Investment Company Regulation).
The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 20549-0102 (tel. 202-942-8090).
1. The Trust, a Delaware business trust, is registered under the Act as an open-end management investment company and currently offers 30 series, including Gradison, U.S. Government, Intermediate Government, and Investment Quality (each, a “Fund.”). The Adviser, a New York corporation and wholly owned subsidiary of KeyCorp, is registered under the Investment Advisers Act of 1940 and is the investment adviser to the Funds. Each of McDonald & Co. Securities, Inc. and SNBOC and Company, each a wholly owned subsidiary of KeyCorp, owns of records, and may under certain circumstances have the power to vote, more than 5% of the outstanding voting securities of each Fund.
2. On May 23, 2001, the board of trustees of the Funds (“Board”), including a majority of the trustees who are not “interested persons,” as defined in section 2(a)(19) of the Act (“Independent Trustees”), approved two separate Agreements and Plans of Reorganization and Termination (each, a “Plan”), under which U.S. Government will reorganize into Gradison, and Investment Quality will reorganize into Intermediate Income (Gradison and Intermediate Income are “Acquiring Funds,” and U.S. Government and Investment Quality are “Acquired Funds”). Under the Plans, each Acquiring Fund will acquire all of the assets and substantially all of the liabilities of the corresponding Acquired Fund in exchange for shares of the Acquring Fund (each, a “Reorganization”). The shares of each Acquiring Fund exchanged will have an aggregate net asset value equal to the aggregate net asset value of the corresponding Acquired Fund's shares determined as of the close of business on the business day preceding the closing date of the Reorganizations (“Closing Date”), which is currently anticipated to occur on October 12, 2001. On the Closing Date, each Acquired Fund will liquidate and distribute pro rata the classes of shares of the Acquiring Fund received in the Reoganization to the shareholders of the Acquired Fund. The value of the assets of the Funds will be determined in the manner set forth in the Funds' then-current prospectus and statement of additional information.
3. Applicants state that the investment objectives and policies of each Acquiring Fund are similar to those of the corresponding Acquired Fund. U.S. Government offers two classes of shares, and Gradison currently offers only one class of shares. In connection with the Reorganizations, Gradison will introduce a new class, and shareholders of U.S. Government will receive shares of Gradison subject to the same sales charges and distribution fees as their current shares. Investment Quality and Intermediate Income both offer two classes of shares. Shareholders of Investment Quality will receive shares of intermediate Income subject to the same sales charges, distribution fees and shareholder servicing fees as their current shares. No sales charge will be imposed in connection with the Reorganizations. The Funds will be responsible for paying pro rata one-half of the expenses incurred in connection with the Reorganizations, and the Adviser will be responsible for paying the other one-half of the expenses.
4. The Board, including a majority of the Independent Trustees, determined that the Reorganizations are in the best interests of the Funds and their shareholders and that the interests of the existing shareholders would not be diluted by the Reorganizations. In approving the Reorganizations, the Board considered various factors, including: (a) The investment objectives, policies and limitations of the Acquiring and Acquired Funds: (b) the terms and conditions of the Reorganizations; (c) the tax-free nature of the Reorganizations; (d) the expenses of the Acquiring and Acquired Funds; and (e) the economies of scale that are likely to result from the larger asset base of the combined Funds.
5. The Reorganizations are subject to a number of conditions, including that: (a) the shareholders of each Acquired Fund approve the respective Plan; (b) the Acquiring and Acquired Funds receive opinions of counsel that the Reorganizations 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 Reorganizations. Either Plan may be terminated by the mutual consent of the Acquiring and Acquired Fund or by either Fund in the case of a breach of the Plan. Applicants agree not to make any material changes to either Plan without prior approval of the Commission or its staff.
6. The mailing of the combined prospectus and proxy statement to shareholders of the Acquired Funds began on July 24, 2001, and definitive proxy materials were filed with the Start Printed Page 48895Commission on July 24, 2001. The shareholders of Investment Quality approved the Reorganization at a meeting held on September 13, 2001. The meeting of shareholders of U.S. Government is scheduled for September 27, 2001.
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, among others: (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/trustees, 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 Reorganizations because the Funds may be deemed to be affiliated by reasons other than having a common investment adviser, common directors/trustees, and/or common officers. Each of McDonald & Co. Securities, Inc. and SNBOC and Company owns of record, and may under certain circumstances have the power to vote, more than 5% of the outstanding voting securities of both Acquiring Funds and Acquired Funds. Accordingly, each Acquiring Fund may be deemed an affiliated person of a affiliated person of its corresponding Acquired Funds for a reason other than having a common investment adviser, common directors/trustees 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 evidence establishes that the terms of the proposed 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, 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 complete the Reorganizations. Applicants submit that the Reorganizations satisfy the standards of section 17(b). Applicants state that the Reorganizations will be based on the relative net asset values of the Acquiring and Acquired Funds' shares. Applicants also state that the investment objectives and policies of the Funds are similar. Applicants state that the board, including the Independent Trustees, has made the requisite determinations that the participation of the Acquiring and Acquired Funds in the Reorganizations is in the best interests of each Fund and that such participation will not dilute the interests of the existing shareholders of each Fund.Start Signature
For the Commission, by the Division of Investment Management, under delegated authority.
Margaret H. McFarland,
1. A deferred sales charge may be imposed on certain redemptions of one class of shares of Intermediate Income and the corresponding class of shares of Investment Quality. Following the Closing Date, shareholders of Investment Quality, who purchased shares that would have been subject to the deferred sales charge upon redeeming their shares had the Reorganization not occurred, can redeem their shares of Intermediate Income received in the Reorganization without the imposition of a deferred sales charge.Back to Citation
[FR Doc. 01-23741 Filed 9-21-01; 8:45 am]
BILLING CODE 8010-01-M