Federal Register / Vol. 62, No. 25 / Thursday, February 6, 1997 / Notices 5659

1The Victory Portfolios, Investment Company Act

Release Nos. 22366 (Dec. 3, 1996) (notice) and

22432 (Dec. 31, 1996) (order).

2On January 1, 1997, in reliance only on section

12(d)(1)(G) of the Act, KeyChoice Growth Fund,

KeyChoice Moderate Growth Fund, and KeyChoice

Income and Growth Fund, the initial Direct Funds,

commenced operations with investments limited to

Underlying Portfolios.

Securities and Exchange Commission at

the address below. Any comments

concerning the accuracy of the

estimated average burden hours for

compliance with Commission rules and

forms should be directed to Michael E.

Bartell, Associate Executive Director,

Office of Information Technology,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549 and Desk Officer for the

Securities and Exchange Commission,

Office of Information and Regulatory

Affairs, Office of Management and

Budget, Room 3208, New Executive

Office Building, Washington, DC 20503.

Dated: January 29, 1997.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–2911 Filed 2–5–97; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–22486; 812–10164]

SBSF Funds, Inc. d/b/a Key Mutual

Funds, et al.; Notice of Application

January 30, 1997.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of Application for

Exemption Under the Investment

Company Act of 1940 (the ‘‘Act’’).

APPLICANTS: SBSF Funds, Inc. d/b/a Key

Mutual Funds (‘‘KMF’’), The Victory

Portfolios (‘‘VP’’), KeyCorp Mutual

Fund Advisers, Inc. (‘‘KMFAI’’), and

Spears, Benzak, Salomon & Farrell, Inc.

(‘‘SBS&F’’).

RELEVANT ACT SECTIONS: Order requested

under section 12(d)(1)(J) of the Act for

an exemption from sections 12(d)(1)(A)

and (B) of the Act, and under sections

6(c) and 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 them

to implement a ‘‘fund of funds’’

arrangement. In addition to the fund of

funds investing in other funds in the

same group of investment companies,

such fund of funds also may invest a

portion of its assets in funds that are not

part of the same group of investment

companies in reliance on Section

12(d)(1)(F) of the Act.

FILING DATES: The application was filed

on May 20, 1996, and amended on

January 22, 1997. Applicants have

agreed to file an amendment, the

substance of which is incorporated

herein, 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 p.m. on

February 24, 1997, 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 5th

Street, N.W., Washington, D.C. 20549.

KMF and VP, 3435 Stelzer Road,

Columbus, OH 43219; KMFAI, 127

Public Square, Cleveland, OH 44114;

SBS&F, 45 Rockefeller Plaza, New York,

NY 10111.

FOR FURTHER INFORMATION CONTACT:

David W. Grim, Staff Attorney, at (202)

942–0571, or Mercer E. Bullard, Branch

Chief, at (202) 942–0564 (Office of

Investment Company Regulation,

Division of Investment Management).

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. KMF is a Maryland corporation

registered under the Act as an open-end

management investment company

currently consisting of eight operating

portfolios and one inactive portfolio. VP

is a Delaware business trust registered

under the Act as an open-end

management investment company

currently consisting of 24 operating and

four inactive portfolios.

2. Applicants request relief to permit

the series of KMF, VP, and any other

investment company created in the

future that is part of the same ‘‘group of

investment companies’’ as KMF or VP,

as defined in section 12(d)(1)(G)(ii) of

the Act (the ‘‘Direct Funds’’), to

purchase shares of investment

companies or series thereof, existing or

created in the future, that are part of the

same ‘‘group of investment companies’’

(the ‘‘Underlying Portfolios’’) as the

Direct Funds, and to permit the

Underlying Portfolios to sell such shares

to, and redeem such shares from, the

Direct Funds. Some of the Underlying

Portfolios may rely upon a ‘‘manager of

managers’’ exemptive order granted by

the SEC that permits the Underlying

Portfolios to select a sub-adviser

without the approval of their

shareholders, subject to certain

conditions.1

3. The investment policies of the

Direct Funds also permit each Fund to

invest a portion of its assets in

government securities, certain shortterm obligations, and, subject to receipt

of the request exemptive relief, shares of

other investment companies that are not

part of the same ‘‘group of investment

companies’’ as KMF and VP (‘‘Other

Portfolios’’). Investments in Other

Portfolios will conform to the

requirements of section 12(d)(1)(F) of

the Act.2

4. SBS&F currently serves as

investment adviser to four of the

operating funds of KMF. SBS&F is a

wholly-owned subsidiary of KeyCorp

Asset Management Holdings, Inc.

(‘‘KAMHI’’), which is a wholly-owned

subsidiary of KeyBank National

Association, a national banking

association, which, in turn, is a whollyowned subsidiary of KeyCorp, a bank

holding company. KMFAI currently

serves as investment adviser to VP and

to four funds of KMF, including the

Direct Funds. In addition, KMFAI has

been retained to act as investment

adviser to a fund of KMF that has yet

to commence operations. KMFAI is a

wholly-owned subsidiary of KAMHI.

5. The Underlying Portfolios will pay

investment advisory fees to KMFAI and/

or SBS&F. In addition, the Underlying

Portfolios will pay fees to their various

service providers for all other services

relating to their operations. The Direct

Funds pay investment advisory fees to

their investment adviser(s), as well as

fees to the Direct Funds’ various service

providers. By investing in other

investment companies, shareholders of

the Direct Funds indirectly will pay

their proportionate share of any

Underlying Portfolio fees and expenses.

Similarly, the Direct Funds’

shareholders indirectly pay their

proportionate share of any Other

Portfolio fees and expenses.

6. The Direct Funds will pay no frontend sales loads or contingent deferred

sales charges in connection with the

purchase or redemption of shares of

either Underlying Portfolios or Other

Portfolios. In addition, sales charges,

distribution-related fees, and service
5660 Federal Register / Vol. 62, No. 25 / Thursday, February 6, 1997 / Notices

fees charged in connection with shares

of the Direct Funds will not exceed the

limits set forth on Rule 2830 of the

Conduct Rules of the National

Association of Securities Dealers, Inc.

(the ‘‘NASD’’) when aggregated with any

sales charges, distribution-related fees,

and service fees that the Direct Funds

pay relating to Underlying Portfolio and

Other Portfolio shares.

Applicants’ Legal Analysis

1. Section 12(d)(1)(A) provides that no

registered investment company may

acquire securities of another investment

company if such securities represent

more than 3% of the acquired

company’s outstanding voting stock,

more than 5% of the acquiring

company’s total assets, or if such

securities, together with the securities of

any other acquired investment

companies, represent more than 10% of

the acquiring company’s total assets.

Section 12(d)(1)(B) provides that no

registered open-end investment

company may sell its securities to

another investment company if the sale

will cause the acquiring company to

own more than 3% of the acquired

company’s voting stock, or if the sale

will cause more than 10% of the

acquired company’s voting stock to be

owned by investment companies.

2. Section 12(d)(1)(F) of the Act

provides that section 12(d)(1) shall not

apply to an acquiring company if the

company and its affiliates own no more

than 3% of an acquired company’s

securities, provided that the acquiring

company does not impose a sales load

of more than 1.5% on its shares. In

addition, the section provides that no

acquired company is obligated to honor

any acquiring company redemption

request in excess of 1% of the acquired

company’s securities during any period

of less than 30 days, and the acquiring

company must vote its acquired

company shares either in accordance

with instructions from its shareholders

or in the same proportion as all other

shareholders of the acquired company.

Applicants state that no exemptive relief

is sought with respect to investments by

the Direct Funds in shares of Other

Portfolios.

3. Section 12(d)(1)(G) of the Act

provides that section 12(d)(1) shall not

apply to the securities of an acquired

company purchased by an acquiring

company if: (i) the acquiring company

and the acquired company are part of

the same group of investment

companies; (ii) the acquiring company

holds only securities of acquired

companies that are part of the same

group of investment companies,

government securities, and short-term

paper; (iii) the aggregate sales loads and

distribution-related fees of the acquiring

company and the acquired company are

limited; and (iv) the acquired company

has a policy that prohibits it from

acquiring securities of registered openend investment companies or registered

unit investment trusts in reliance on

section 12(d)(1) (F) or (G). Section

12(d)(1)(G)(ii) defines the term ‘‘group

of investment companies’’ to mean any

two or more registered investment

companies that hold themselves out to

investors as related companies for

purposes of investment and investor

services. Because the Direct Funds will

invest in shares of Other Portfolios, they

cannot rely on the exemption from

section 12(d)(1) (A) and (B) afforded by

section 12(d)(1)(G).

4. Applicants request relief from the

limitations of section 12(d)(1) (A) and

(B) to the extent necessary to permit (i)

the Direct Funds to purchase an

unlimited amount of the outstanding

voting shares of each Underlying

Portfolio; (ii) the securities of each

Underlying Portfolio to have an

aggregate value of as much as 100% of

the total assets of the Direct Funds: (iii)

the Direct funds to invest up to 100%

of their assets in the securities of the

Underlying Portfolios; and (iv) each of

the Underlying Portfolios to sell more

than 10% of its total outstanding voting

stock to the Direct Funds.

5. Applicants believe that the purpose

of section 12(d)(1) was to limit and

address the perceived adverse

consequences of ‘‘pyramiding’’ of

investment companies in a fund of

funds arrangement, including the

duplicative costs involved in such a

structure, the exercise of undue

influence or control over the underlying

series, and the potential adverse impact

of large-scale redemptions.

6. Applicants assert that the structure

of applicants’ fund of funds will include

safeguards designed to address multiple

layering of advisory fees. Applicants

state that, before approving any advisory

contract under section 15 of the Act, the

directors of the Direct Funds, including

a majority of the directors/trustees who

are not ‘‘interested persons,’’ as defined

in section 2(a)(19), will find that any

advisory fees charges under the contract

are based on services provided that are

in addition to, rather than merely

duplicative of, services provided under

any Underlying Portfolio advisory

contract. Applicants state further that

this finding, documented in the minute

books of the Direct Funds. Applicants

state that the directors of the Direct

Funds will make a similar finding with

respect to the Other Portfolios, as well,

which will be fully documented.

7. Applicants state that, to address the

issue of multiple layers of sales loads,

the Direct Funds will pay no front-end

or contingent deferred sales charge in

connection with the purchase or

redemption of shares of the Underlying

Portfolios, Applicants state further that,

as a condition to the requested

exemptive relief, any sales charges,

distribution-related fees, or service fees

relating to the shares of the Direct funds

will not exceed the limits set forth in

rule 2830 of the Conduct Rules of the

NASD when aggregated with any sales

charges, distribution-related fees, or

service fees that the Direct Funds may

pay relating to the acquisition, holding,

or disposition of Underlying Portfolio or

Other Portfolio shares. Applicants assert

that the aggregate sales charges,

therefore, will not exceed the amount

that otherwise lawfully could be

charged at either fund level.

8. Applicants state administrative and

similar fees will be charged at the Direct

Fund and Underlying Portfolio/Other

Portfolio levels. However, applicants

believe that the redundancy of

administrative fees and expenses

between the Direct Funds and the

Underlying Portfolios will be minimal,

because distinct services are being

provided at each level. Likewise,

applicants believe that distinct services

will be provided at each level of the

Direct Funds’ investment in Other

Portfolios, thus minimizing any

concerns of redundancy of

administrative fees and expenses. In any

event, applicants believe that

administrative and other expenses may

be reduced at both levels under the

proposed Direct Funds’ structure. Thus,

applicants believe that an investment in

the Direct Funds should not be

significantly more expensive than a

direct investment in an Underlying

Portfolio or Other Portfolio.

9. Applicants believe that the concern

of undue influence and control is

addressed by the proposed structure of

the Direct Funds. Applicants assert that

there is little risk that the Direct Funds’

adviser will exercise inappropriate

control over the Underlying Portfolios,

which are part of the same ‘‘group of

investment companies.’’ Applicants also

contend that the Other Portfolios cannot

be controlled in any meaningful way by

the Direct Funds because section

12(d)(1)(F) limits them, together with

their affiliates, the acquiring no more

than 3% of the total outstanding stock

of any Other Portfolio. In addition,

applicants note that section 12(D)(1)(F)

permits the Other Portfolios to reject

redemption requests by a Direct Fund

that exceed 1% of the Other Portfolio’s

total outstanding securities during any
Federal Register / Vol. 62, No. 25 / Thursday, February 6, 1997 / Notices 5661

period of less than 30 days. Applicants

state that, to protect further the

Underlying Portfolios and Other

Portfolios from unexpected large

redemptions, the Direct Funds generally

will be designed for intermediate and

long-term investors.

10. Applicants state that an additional

concern underlying section 12(d)(1) is

that the popularity of fund of funds

could lead to the creation of more

complex vehicles that would not serve

any meaningful purpose. Applicants

submit that these concerns are

addressed by the fact that no Underlying

Portfolio or Other Portfolio can acquire

securities of any other investment

company in excess of the limits

contained in section 12(d)(1)(A), except

to the extent that such Underlying

Portfolio or Other Portfolio (a) receives

securities of another investment

company as a dividend or as a result of

a plan of reorganization of a company

(other than a plan devised for the

purpose of evading section 12(d)(1) of

the Act); or (b) acquires (or is deemed

to have acquired) securities of another

investment company pursuant to

exemptive relief from the SEC

permitting such Underlying Portfolio or

Other Portfolio to (i) acquire securities

of one or more affiliated investment

companies for short-term cash

management purposes; or (II) engage in

interfund borrowing and lending

transactions.

11. Section 12(d)(1)(J) provides that

the SEC may exempt persons or

transactions from any provision of

section 12(d)(1) if and to the extent such

exemption is consistent with the public

interest and the protection of investors.

Applicants assert that the Direct Funds

will provide a simple answer to investor

demand for a diversified, professionally

managed fund and funds, and that the

structure of the Direct Funds is

consistent with the public interest and

the protection of investors.

12. Section 17(a) generally prohibits

an affiliated person of a registered

investment company from selling

securities to, or purchasing securities

from, the company. Applicants submit

that the Direct Funds and Underlying

Portfolios may be deemed to be

affiliated persons of one another by

virtue of being under common control of

their adviser, or because Direct Funds

own 5% or more of the shares of an

Underlying Portfolio. Applicants state

that sales by the Underlying Portfolios

of their shares to the Direct Funds could

be deemed to be principal transactions

between affiliated persons under section

17(a)

13. Section 6(c) of the Act provides

that the SEC may exempt persons or

transactions from any provision of the

Act if such exemption is necessary or

appropriate in the public interest and

consistent with the protection of

investors and the purposes fairly

intended by the policy and provisions of

the Act. Applicants believe that relief

under section 6(c) is appropriate for the

reasons discussed above.

14. Section 17(b) provides that the

SEC shall exempt a proposed

transaction from section 17(a) if

evidence establishes that (a) the terms of

the proposed transaction, including the

consideration to be paid or received, are

reasonable and fair and do not involve

overreaching; (b) the proposed

transaction is consistent with the

policies of the registered investment

company involved; and (c) the proposed

transaction is consistent with the

general purposes of the Act. Applicants

request an exemption under sections

6(c) and 17(b) to allow the transactions

described above.

15. Applicants believe that the terms

of the proposed arrangement are

reasonable and fair and do not involve

overreaching because the consideration

paid for the sale and redemption of

shares of Underlying Portfolios will be

based on the net asset values of the

Underlying Portfolios. Applicants note

the investment of assets of the Direct

Funds in shares of the Underlying

Portfolios and the issuance of shares of

the Underlying Portfolios to the Direct

Funds will be effected in accordance

with the investment restrictions of the

Direct Funds and will be consistent

with the policies as set forth in the

registration statement of the Direct

Funds. Applicants also believe that the

proposed arrangement is consistent with

the general purposes of the Act.

Applicants’ Conditions

Applicants agree that the order

granting the requested relief shall be

subject to the following conditions:

1. All Underlying Portfolios will be

part of the same ‘‘group of investment

companies,’’ as defined in section

12(d)(1)(G)(ii) of the Act, as the Direct

Funds.

2. No Underlying Portfolio or Other

Portfolio will acquire securities of any

other investment company in excess of

the limits contained in section

12(d)(1)(A) of the Act, except to the

extent that such Underlying Portfolio or

Other Portfolio (a) receives securities of

another investment company as a

dividend or as a result of a plan of

reorganization of a company (other than

a plan devised for the purpose of

evading section 12(d)(1) of the Act); or

(b) acquires (or is deemed to have

acquired securities of another

investment company pursuant to

exemptive relief from the SEC

permitting such Underlying Portfolio or

Other Portfolio to (i) acquire securities

of one or more affiliated investment

companies for short-term cash

management purposes; or (ii) engage in

interfund borrowing and lending

transactions.

3. Any sales charges, distributionrelated fees, and service fees relating to

the shares of the Direct Funds, when

aggregated with any sales charges,

distribution-related fees, and service

fees paid by the Direct Funds relating to

its acquisition, holding, or disposition

of shares of the Underlying Portfolios

(and Other Portfolios), will not exceed

the limits set forth in rule 2830 of the

NASD Conduct Rules.

4. Before approving any advisory

contract under section 15 of the Act, the

boards of directors/trustees of the Direct

Funds, including a majority of the

directors/trustees who are not

‘‘interested persons,’’ as defined in

section 2(a)(19), will find that the

advisory fees charged under the contract

are based on services provided that are

in addition to, rather than duplicative

of, services provided under any

Underlying Portfolio or Other Portfolio

advisory contract. This finding, and the

basis upon which the finding was made,

will be recorded fully in the minute

books of the Direct Funds.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–2905 Filed 2–5–97; 8:45 am]

BILLING CODE 8010–01–M

Issuer Delisting; Notice of Application

to Withdraw From Listing and

Registration; (Magellan Health

Services, Inc., Common Stock, 25¢ Par

Value; 11.25% Series A Senior

Subordinated Notes due 2004) File No.

1–6639

January 31, 1997.

Magellan Health Services, Inc.

(‘‘Company’’) has filed an application

with the Securities and Exchange

Commission (‘‘Commission’’), pursuant

to Section 12(d) of the Securities

Exchange Act of 1934 (‘‘Act’’) and Rule

12d2–2(d) promulgated thereunder, to

withdraw the above specified securities

(‘‘Securities’’) from listing and

registration on the American Stock

Exchange, Inc. (‘‘Amex’’).

The reasons alleged in the application

for withdrawing the Securities from

listing and registration include the

following: