Gradison Growth Trust, et al.; Notice of Application February 2, 1999

The following is a summary of the application. The complete application may be obtained for a fee from the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 20549 (telephone (202) 942-8090).

Applicants' Representations

1. The Trust is an Ohio business trust that is registered under the Act as an open-end management investment company. The Trust currently offers four portfolios, one of which is the International Fund (``Fund''). 2. The Adviser is registered under the Investment Advisers Act of 1940 (``Advisers Act'') and serves an investment adviser to the Fund pursuant to an investment advisory agreement. The Adviser is a wholly- owned subsidiary of KeyCorp. 3. The Subadviser, which is organized as a Scottish limited partnership, is registered under the Advisers Act. The Subadviser serves as a subadviser to the Fund pursuant to an investment subadvisory agreement with the Adviser. The Adviser pays the Subadviser out of the fee that the Adviser receives from the Fund. 4. On October 24, 1998, PIMCO Advisors LP (``PIMCO''), a general partner of the Subadviser, and certain of

PIMCO's affiliates entered into an agreement pursuant to which they will sell 75% general partner interest in the Subadviser to Alleghany Asset Management, Inc. (``AAM'') and certain of its affiliates (the ``Transaction''). Upon consummation of the Transaction, the Subadviser will become a subsidiary of AAM, which in turn is the investment management of Alleghany Corporation. Applicants expect consummation of the Transaction on or about March 1, 1999. 5. Applicants state that the Transaction may result in an assignment, and thus termination, of the existing subadvisory agreement between the Adviser and the Subadviser. Applicants request an exemption to permit the implementation, during the Interim Period and prior to obtaining shareholder approval, of the New Agreement. The requested exemption would cover an Interim Period commencing on the later of the date the Transaction is consummated or the date the requested order is issued \1\ and continuing until the New Agreement is approved or disapproved by Fund shareholders (but in no event later than March 22, 1999).\2\ The requested order also would permit the Subadviser to receive all fees earned under the New Agreement during the Interim Period, subject to approval of the New Agreement by Fund shareholders. Applicants state that the New Agreement will contain substantially the same terms and conditions as the subadvisory agreement most recently approved by the Fund's shareholders, except for changes to the commencement and termination dates. ---------------------------------------------------------------------------

\1\ Applicants state that if the consummation of the Transaction precedes the issuance of the requested order, the Subadviser will serve after the consummation of the Transaction and prior to the issuance of the order in a manner consistent with its fiduciary duty to provide investment subadvisory services to the Fund even though approval of the New Agreement has not yet been secured from the Fund's shareholders. Applicants submit that, in such an event, the Subadviser will be entitled to receive from the Adviser, from the date of the consummation of the Transaction until the issuance of the order, no more than the actual out-of-pocket cost to the Subadviser for providing investment subadvisory services to the Fund. \2\ On October 23 1998, the Adviser's parent company was acquired by KeyCorp. In anticipation of that acquisition, Applicants obtained an order from the Commission to permit the implementation, without shareholder approval, of new investment advisory and subadvisory agreements with the Fund for a period of up to 150 days. See Gradison-McDonald Cash Reserve Trust, Investment Company Act Rel. Nos. 23442 (Sept. 22, 1998) (notice) and 23484 (Oct. 14, 1998) (order) (``Prior Order''). Under the Prior Order, the Fund must hold a shareholder meeting no later than March 22, 1999. ---------------------------------------------------------------------------

6. On September 14 and November 6, 1998, the Trust's Board of Trustees (``Board'') met to evaluate whether the terms of the New Agreement are in the best interests of the Fund and its shareholders. The Board, including a majority of the trustees who are not ``interested persons'' of the Fund, as that term is defined in section 2(a)(19) of the Act (``Independent Trustees''), approved the New Agreement and voted to recommend that the Fund's shareholders approve the New Agreement. Proxy materials for the shareholders meeting were mailed on February 1, 1999. 7. Fees earned by the Subadviser under the New Agreement during the Interim Period will be maintained in an interest-bearing escrow account with an unaffiliated financial institution. The escrow agent will release the amounts held in the escrow account (Including any interest earned): (i) to the Subadviser upon approval of the New Agreement by the Fund's shareholders; or (ii) to the Fund, if the Interim Period has ended and the Fund's shareholders have not approved the New Agreement. Before any such release is made, the Board will be notified.

Applicants' Legal Analysis

1. Section 15(a) of the Act provides, in relevant part, that it is unlawful for any person to serve as an investment adviser to a registered investment company, except pursuant to a written contract that has been approved by the vote of a majority of the outstanding voting securities of the investment company. Section 15(a) further requires the written contract to provide for its automatic termination in the event of its assignment. Section 2(a)(4) of the Act defines ``assignment'' to include any direct or indirect transfer of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor. Section 2(a)(9) of the Act defines ``control'' as the power to exercise a controlling influence over the management or policies of a company, and beneficial ownership of more than 25% of the voting securities of a company is presumed under Section 2(a)(9) to reflect control. Applicants state that the Transaction may result in an assignment of the existing subadvisory agreement and that such agreement will terminate according to its terms. 2. Rule 15a-4 under the Act provides, in relevant part, that if an investment advisory contract with a registered investment company is terminated by an assignment, an investment adviser may act as such for the company for 120 days under a written contract that has not been approved by the company's shareholders, provided that; (i) the new contract is approved by that company's board of directors,including a majority of the non-interested directors; (ii) the compensation to be paid under the new contract does not exceed the compensation that would have been paid under the contract most recently approved by the company's shareholders; and (iii) neither the adviser nor any controlling person of the adviser ``directly or indirectly receives money or other benefit'' in connection with the assignment. Applicants state that they may not be entitled to rely on rule 15a-4 because the Subadviser may be deemed to receive a benefit in connection with the Transaction. 3. Section 6(c) of the Act provides that the SEC may exempt any person, security, or transaction from any provision of the Act or any rule thereunder if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with both the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicants believe that the requested relief meets this standard. 4. Applicants state that the terms and timing of the Transaction were determined in response to a number of business factors beyond the scope of the Act and substantially unrelated to the Fund. Applicants assert that there is insufficient time to obtain shareholder approval of the New Agreement before the Transaction is consummated. Applicants further assert that the requested relief would prevent any disruption in the delivery of investment subadvisory services to the Fund during the period following consummation of the Transaction. 5. Applicants represent that, under the New Agreement during the Interim Period, the Fund will receive substantially identical investment subadvisory services, provided in substantially the same manner, as it received prior to the consummation of the Transaction. Applicants state that, in the event of any material change in personnel of the Subadviser providing services pursuant to the New Agreement during the Interim Period, the Subadviser will apprise and consult the Board to assure that the Board, including a majority of the independent Trustees,is satisfied that the services provided by the Subadviser will not be diminished in scope and quality. 6. Applicants note that the fees payable to the Subadviser under the New Agreement during the Interim Period will be at the same rate as the fees paid under the subadvisory agreement most recently approved by the Fund's shareholders.

Applicants' Conditions

Applicants agree as conditions to the issuance of the exemptive order requested by the application that: 1. The New Agreement will have substantially the same terms and conditions as the subadvisory agreement most recently approved by the Fund's shareholders, except for the commencement and termination dates. 2. Fees earned by the Subadviser under the New Agreement during the Interim Period will be maintained in an interest-bearing escrow account with an unaffiliated financial institution. The escrow agent will release those fees (including any interest earned on those fees): (i) to the Subadviser upon approval of the New Agreement by the Fund's shareholders; or (ii) to the Fund, if the Interim Period has ended and the Fund's shareholders have not approved the New Agreement. 3. The Fund will promptly schedule a meeting of its shareholders to vote on approval of the New Agreement, which will be held within the Interim Period (but in no event later than March 22, 1999). 4. The Adviser and/or one or more of its affiliates or subsidiaries or the Subadviser, but not the Fund, will pay the cost of preparing and filing the application. The Adviser and/or one or more of its affiliates or subsidiaries, but not the Fund, will pay the costs relating to the solicitation of shareholder approval of the New Agreement. 5. The Subadviser will take all appropriate actions to ensure that the scope and quality of subadvisory and other services provided to the Fund during the Interim Period under the New Agreement will be at least equivalent, in the judgment of the Board, including a majority of the Independent Trustees, to the scope and quality of services provided under the subadvisory agreement most recently approved by the Fund's shareholders. In the event of any material change in personnel providing services pursuant to the New Agreement during the Interim Period, the Subadviser will apprise and consult the Board to assure that the Board, including a majority of the Independent Trustees, is satisfied that the services provided by the Subadviser will not be diminished in scope or quality.

For the SEC, by the Division of Investment Management, under delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. 99-2932 Filed 2-5-99; 8:45 am] BILLING CODE 8010-01-M