[Federal Register Volume 63, Number 26 (Monday, February 9, 1998)]
[Notices]
[Pages 6585-6587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3224]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23019; 812-10934]
SBSF Funds, Inc. d/b/a Key Mutual Funds, et al.; Notice of
Application
February 3, 1998.
AGENCY: Securities and exchange Commission (``SEC'').
ACTION: Notice of application for exemption under section 17(b) of the
Investment Company Act of 1940 (the ``Act'') from section 17(a) of the
Act.
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SUMMARY OF APPLICATION: Applicants request an order that would permit
certain series of the Victory Portfolios to acquire all of the assets
and assume all of the liabilities of certain series of SBSF Funds, Inc.
d/b/a Key Mutual Funds.
APPLICANTS: The Victory Portfolios, on behalf of eight of its series;
SBSF Funds, Inc. d/b/a/ Key Mutual Funds (the ``Key Funds''), on behalf
of eight of its series; and Key Asset Management Inc. (``KAM'').
FILING DATES: The application was filed on December 30, 1997.
Applicants have agreed to file an amendment, the substance of which is
incorporated in this notice, during the notice period.
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 .m. on March 2, 1998 and
should be accompanied by proof of service on the 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 SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants: SBSF Funds, Inc. d/b/a Key Mutual Funds and Victory
Portfolios, 3435 Stelzer Road, Columbus, Ohio 44114 and Rockefeller
Plaza, New York, New York 10111.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Attorney Adviser, at (202) 942-0574, or Nadya B.
Roytblat, Assistant Director, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
[[Page 6586]]
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch, 450 5th Street, N.W., Washington,
D.C. 20549 (tel. 202-942-8090).
Applicants' Representations
1. The Victory Portfolios, a Delaware business trust, is registered
under the Act as an open-end management investment company. The Victory
Portfolios is comprised of thirty series (the ``Victory Funds''), each
having a separate investment objective and investment policy. The
shares of each of the Victory Funds are registered under the Securities
Act of 1933 (the ``1933 Act''). Eight of the Victory Funds--Victory
LifeChoice Growth Investor Fund, Victory LifeChoice Conservative
Investor Fund, Victory LifeChoice Moderate Investor Fund, Victory
Federal Money Market Fund, Victory Special Growth Fund, Victory Stock
Index Fund, Victory Convertible Securities Fund, and Victory
Diversified Stock Fund--are referred to as the ``Acquiring Funds.'' Two
of the Acquiring Funds are multiple class funds: the Victory
Diversified Stock Fund offers Class A and Class B shares; and the
Victory Federal Money Market Fund offers Investor Class and Select
Class shares.
2. Key Funds, a Maryland Corporation, is registered under the Act
as an open-end management investment company. Key Funds currently
offers eight series: KeyChoice Growth Fund, KeyChoice Income and Growth
Fund, KeyChoice Moderate Growth Fund, Key Money Market Mutual Fund, Key
Stock Index Fund, SBSF Capital Growth Fund, SBSF Convertible Securities
Fund, and SBSF Fund (the ``Acquired Funds''). Each Acquired Fund has a
distinct investment objective and investment policy and issues only one
class of shares that are registered under the 1933 Act.
3. KAM, a New York corporation, is an investment adviser registered
under the Investment Advisers Act of 1940. KAM is the investment
adviser to the Acquiring Funds and the Acquired Funds (collectively,
the ``Funds''). KAM is a wholly-owned subsidiary of KeyBank N.A., which
is a wholly-owned subsidiary of KeyCorp, a financial services holding
company (``KeyBank''). BISYS Fund Services, Inc. and its affiliates
(collectively, ``BISYS'') serve as the administrator, distributor, and
accounting agent for the Funds.
4. Society National Bank and Company (``Society Bank'') is a
subsidiary of KeyBank and KeyCorp. As of December 26, 1997, Society
Bank, record holder for the benefit of various customers (including
employees of KeyCorp and its affiliates), owned 97.97% of Victory Stock
Index Fund, 98.32% of Victory Special Growth Fund, 83.65% of Victory
Diversified Stock Fund, 94.47% of KeyStock Index Fund, 99.11% of
KeyChoice Growth Fund, 98.56% of KeyChoice Moderate Growth Fund, and
97.98% of KeyChoice Income and Growth Fund.
5. The shares of four of the Acquiring Funds, Victory Stock Index
Fund, Victory Special Growth Fund, Victory Convertible Securities Fund,
and Victory Diversified Stock Fund, Carry a front-end sales load of
5.75%. Shares of the Acquired Funds are not subject to a front-end
sales load. Shares of the Acquired Funds and the Acquiring Funds are
not subject to asset-based sales charges or contingent deferred sales
charges.
6. The Victory Portfolios, on behalf of the Acquiring Funs, and the
Key Funds, on behalf of the Acquired Funds, entered into an Agreement
and Plan of Reorganization (the ``Plan'') to effectuate transactions
contemplated in the Plan (the ``Reorganization''). The Plan provides
that on or about March 16, 1998 and March 23, 1998 (``Closing Dates''),
the assets of each Acquired Fund will be transferred to the
corresponding Acquiring Fund in exchange for the issuance of full and
fractional shares of the Acquiring Fund. The Acquiring Funds will
assume the liabilities of the corresponding Acquired Funds. For
purposes of the Reorganization, each Acquiring Fund's shares will 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 days
preceding the Closing Dates (the ``Valuation Dates'').
7. The Reorganization will be effected for each Acquired Fund's
shareholder at NAV without the imposition of any sales charges. On, or
as soon as practicable after the Closing Dates, each Acquired Fund will
liquidate and distribute pro rata the shares of the corresponding
Acquiring Fund to its shareholders of record determined as of the
relevant Valuation Date. Shareholders of the KeyChoice Growth Fund,
KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, Key
Stock Index Fund, SBSF Capital Growth Fund, SBSF Convertible Securities
Fund, and SBSF Fund will be issued Class A shares of the Victory
LifeChoice Growth Investor Fund, Victory LifeChoice Conservative
Investor Fund, Victory LifeChoice Moderate Investor Fund, Victory Stock
Index Fund, Victory Special Growth Fund, Victory Convertible Securities
Fund, and Victory Diversified Stock Fund, respectively. Key Money
Market Mutual Fund's shareholders will be issued Investor Class shares
of the Victory Federal Money Market Fund.
8. Victory LifeChoice Growth Investor Fund, Victory LifeChoice
Conservative Investor Fund, Victory LifeChoice Moderate Investor Fund,
Victory Federal Money Market Fund-Investor Class, and Victory
Convertible Securities Fund (the ``New Victory Funds'') were
established for the sole purpose of receiving assets of the
corresponding Acquired Funds. Each New Victory Fund has materially the
same investment objectives, policies, and restrictions as its
corresponding Acquired Fund. The remaining Acquiring Funds have
investment objectives and policies that are similar to the
corresponding Acquired Funds.
9. On December 2 and 3, 1997, the boards of directors of the Funds
(``the Boards''), including a majority of the members who are not
``interested persons'' (``Independent Board Members''), unanimously
approved the Plan and Reorganization. The Boards determined that the
Reorganization is in the best interests of the Funds. The Boards also
determined that the interests of the Funds' existing shareholders will
not be diluted as a result of the Reorganization.
10. The Boards considered various factors in reaching their
decision to approve the Plan and Reorganization, including: (i) The
efficiency of the present arrangement in which the Acquired Funds and
the Acquiring Funds operate as separate entities within the same fund
complex; (ii) the expectation that Victory Portfolios' promotion to a
larger marketing base will enhance the asset growth potential of the
Funds; (iii) the asset growth and the elimination of certain
redundancies in the administration and operation of the Funds may
result in economies of scale and lower expenses ratios; (iv) the
substantial similarities in the investment objectives of each Acquiring
Fund and the corresponding Acquired Fund; (v) no sales charges will be
imposed in the Reorganization; (vi) substantially all of the Acquired
Funds' shareholders will not be subject to sales charges when making
subsequent purchases of Victory Portfolios because the Acquired Funds'
shareholders will qualify for sales charge waivers; (vii) the
expectation that the current shareholders of the Acquired Funds will be
subject to equal or lower expenses as shareholders of the Acquiring
Funds; and (viii) the Reorganization is expected to be tax-free.
[[Page 6587]]
11. The Reorganization is subject to certain conditions described
in the Plan, including: (a) That the parties shall have received
exemptive relief from the SEC with respect to the issues that are the
subject of the application; and (b) that shareholders of the Acquired
Funds will have approved the Reorganization. Applicants agree not to
make any material changes to the Plan without prior SEC approval.
Applicants' Legal Analysis
1. Section 17(a) of the Act, in relevant part, prohibits an
affiliated person of a registered investment company, or any affiliated
person of such person, acting as principal, from knowingly selling to
or purchasing from such registered investment company or any company
controlled by such registered company, and security or other property.
2. Section 2(a)(3) of the Act defines the term ``affiliated
person'' of another person to include, in pertinent part, any person
directly or indirectly owning, controlling, or holding with power to
vote, 5% or more of the outstanding voting securities of such other
person, and any person directly or indirectly controlling, controlled
by, or under common control with such other person, and if such other
person is an investment company, any investment thereof.
3. 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 solely by reason of having a common investment
adviser, common directors/trustees, and/or common officers, provided
that certain conditions are satisfied.
4. Applicants believe that they may not rely upon rule 17a-8
because the Funds may be affiliated for reasons other than those set
forth in the rule. Applicants state that because of Society Bank's
ownership of shares of several of the Funds, the Acquiring Funds may be
deemed an affiliated person of the Acquired Funds, and vice versa, for
reasons not based solely on their common adviser, KAM. Consequently,
applicants are requesting an order under section 17(c) of the Act
exempting them from section 17(a) of the Act to the extent necessary to
consummate the Reorganization.
5. Section 17(b) of the Act provides that the SEC may exempt a
transaction from the provisions of section 17(a) if 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; the proposed transaction is
consistent with the policy of each registered investment company
concerned; and the proposed transaction is consistent with the general
purposes of the Act.
6. Applicants submit that the terms of the Reorganization satisfy
the standards set forth in section 17(b) of the Act. Applicants also
submit that the terms of the Reorganization are fair and reasonable and
do not involve overreaching on the part of any person concerned.
Applicants state that the Boards, including the Independent Board
Members, have reviewed the terms of the Reorganization as set forth in
the Plan, including the consideration to be paid or received, and have
found that participation in the Reorganization is in the best interest
of the Funds. Applicants also state that the Boards have found that the
interests of existing shareholders of each Fund will not be diluted as
a result of the Reorganization. Applicants note that the investment
objectives, policies, and restrictions of each Acquiring Fund are
substantially similar to those of each corresponding Acquired Fund.
Applicants also note that the exchange of each Acquired Fund's assets
and liabilities for the shares of the corresponding Acquiring Fund will
be based on the Funds' relative NAVs.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-3224 Filed 2-6-98; 8:45 am]
BILLING CODE 8010-01-M