[Federal Register Volume 61, Number 167 (Tuesday, August 27, 1996)]
[Notices]
[Pages 44094-44097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21754]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22153; 812-10122]
The One Group, et al.; Notice of Application
August 20, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANTS: The One Group (the ``Trust''), Banc One Investment Advisors
Corporation (the ``Adviser''), The One Group Services Company (the
``Distributor''), BISYS Fund Services Limited Partnership, BNY Hamilton
Distributors, Inc., Concord Financial Group, Inc., Emerald Asset
Management, Inc., Pilot Funds Distributors, Inc., 231 Broker-Dealer
Services, Inc., UST Distributors, Inc., Victory Broker/Dealer Services,
Inc., Vista Fund Distributors, Inc., Branch Banking and Trust Company,
First Chicago Investment Management Company, and NBD Bank.
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
from section 12(d)(1) of the Act, and under sections 6(c) and 17(b) of
the Act from section 17(a) of the Act.
SUMMARY OF APPLICATION: The order would permit certain portfolios of
the Trust (the ``Portfolios'') to operate as ``funds of funds'' by
investing substantially all of their assets in other portfolios (the
``Underlying Portfolios'') of the Trust. The order also would allow
other groups of investment companies that are distributed by the
Distributor (the ``Distributor Funds'') to operate a ``fund of funds''
arrangement within their respective fund complexes (``Distributor Funds
of Funds''), whereby the Distributor Funds of Funds will invest in
shares of underlying Distributor Funds (the ``Underlying Distributor
Funds'').
FILING DATES: The application was filed on May 3, 1996 and was amended
on August 16, 1996.
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 September 16,
1996, 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 SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 774 Park Meadow Drive, Westerville, Ohio 43081.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Robert A.
Robertson,
[[Page 44095]]
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 SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is registered as an open-end management investment
company under the Act. The Trust is comprised of separate investment
portfolios, each of which will pursue a distinct set of investment
objectives and policies.\1\ The Portfolios will initially consist of
the following eight separately managed portfolios: The One Group
Aggressive Growth Fund, The One Group Growth Fund, The One Group Growth
and Income Fund, The One Group Municipal Balanced Fund, The One Group
Conservative Growth Fund, The One Group Fixed Income Fund, The One
Group Municipal Balanced Fund, and The One Group Tax-Free Income Fund.
The Underlying Portfolios are the other investment portfolios of the
Trust.
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\1\ Although certain portfolios of the One Group Funds do not
presently intend to rely on the requested order, any such registered
investment company, or portfolio therefore, would be covered by the
order if it later proposed to enter into a fund of funds arrangement
in accordance with the terms described in the application.
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2. Applicants request that any relief granted pursuant to this
application also apply to any open-end management investment company
that currently or in the future is part of the same ``group of
investment companies'' as defined in rule 11a-3 as the Trust
(collectively, the ``One Group Funds'').\2\ Applicants also request
that any such relief apply to any other ``group of investment
companies'' distributed by the Distributor (Distributor Funds) or any
entity that controls, is controlled by, or is under common control with
the Distributor Fund of Funds would be substantially similar to those
of the Portfolios.
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\2\ Rule 11a-3 under the Act defines the ``same group of
investment companies'' as two or more companies that: (a) hold
themselves out to investors as related companies for purposes of
investment and investor services; and (b) that have a common
investment adviser or principal underwriter.
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3. The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 and is an indirect, wholly owned
subsidiary of Banc One Corporation, a bank holding company incorporated
in the State of Ohio.\3\ The Adviser is responsible for the overall
management of the Portfolios' investment affairs and also serves as
investment adviser to the Underlying Portfolios. The Adviser may charge
the Portfolios, and will charge the Underlying Portfolios, investment
advisory fees. In certain cases the Underlying Portfolios have one or
more sub-advisers. The Adviser pays the sub-advisers out of the
advisory fees paid by the Underlying Portfolios.
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\3\ The following entities serve as investment advisers to
investment companies for which the Controlled Distributors serve as
principal underwriter/distributor and presently intend to rely on
the order: Branch Banking and Trust Company, First Chicago
Investment Management Company, and NBD Bank. Other entities which
serve as investment advisers to investment companies for which the
Controlled Distributors serve as principal underwriter/distributor
do not presently intend to rely on the order. However, each such
investment adviser and the investment company which it advises may
rely on the order in the future if the adviser and investment
company determine to establish and operate a fund-of-funds in
accordance with the representations and conditions in the
application.
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4. The Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934 (``1934 Act'') and is a member of the
National Association of Securities Dealers, Inc. (``NASD''). The
Distributor serves as the Portfolios' principal underwriter/distributor
and administrator. Each Controlled Distributor is, or, in the case of
Controlled Distributors created in the future will be a broker-dealer
registered under the 1934 Act and a member of the NASD, and will serve
as the principal underwriter/distributor for Distributor Funds and may
serve as the Distributor Funds' administrator. Each Controlled
Distributor is or will be a wholly owned subsidiary of The BISYS Group,
Inc. The BISYS Group, Inc. is holding company that furnishes financial
or informational services to bank proprietary investment companies and
community banks. The BISYS Group, Inc. has no affiliation (other than
through the service relationships of its wholly owned subsidiaries)
with any investment company or its bank sponsor. The BISYS Group, Inc.
is not affiliated with Bank One Corporation or with the Adviser.
5. Applicants propose a fund of funds arrangement where each
Portfolio will invest in shares of Underlying Portfolios that are part
of the same ``group of investment companies.'' Each Portfolio that will
make investments in reliance on the proposed order will invest in other
investment companies only to the extent contemplated by the requested
relief. However, each Portfolios also may invest directly in stocks,
bonds, and money market investments. Exemptive relief is not sought
with respect to such other investments.
6. Each Portfolio initially proposes to allocate its assets among
one or more Underlying Portfolios representing the following asset
classes: cash; fixed income; domestic equity; and international equity.
The Portfolios will be designed for long-term investors, including tax-
deferred retirement plan participants. The Portfolios will provide an
efficient and simple method of allowing investors to structure a
comprehensive asset allocation program. In addition, each Distributor
Fund of Funds would invest in shares of Underlying Distributor Funds
that are part of the same ``group of investment companies'' as the
Distributor Funds of Funds. The structure, investment allocations,
expenses and purpose of each Distributor Fund of Funds would be similar
to those of the Portfolios.
Applicants' Legal Analysis
1. Section 12(d)(1)(A) of the Act 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 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 request an order permitting the
Portfolios to acquire shares of the Underlying Portfolios, and the
Distributor Funds of Funds to acquire shares of the Underlying
Distributor Funds, beyond the section 12(d)(1) limits.
3. The restrictions in section 12(d)(1) were intended to prevent
certain abuses perceived to be associated with the pyramiding of
investment companies, including: (a) unnecessary duplication of costs,
e.g. sales loads, advisory fees, and administrative costs; (b) undue
influence by the fund holding company over its underlying funds; (c)
the threat of large scale redemptions of the securities of the
underlying investment
[[Page 44096]]
companies; and (d) unnecessary complexity.
4. Applicants believe that the proposed arrangement will not raise
the fee layering concerns contemplated by section 12(d)(1). Applicants
contend that the proposed arrangement will not involve the layering of
advisory fees since, before approving any advisory contract under
section 15(a) of the Act, the board of trustees of the Trust or the
board of trustees or directors of the Distributor Fund of Funds,
including a majority of the trustees or directors who are not
``interested persons,'' as defined in section 2(a)(19) of the Act, 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 Underlying
Distributor Fund advisory contract.
5. Applicants state that the proposed structure will not raise the
sales charge layering concerns underlying section 12(d)(1). Any sales
charges or service fees relating to the shares of a Portfolio or
Distributor Fund of Funds will not exceed the limits set forth in
Article III, section 26 of the Rules of Fair Practice of the NASD when
aggregated with any sales charges or service fees that the Portfolio or
Distributor Fund of Funds pays relating to Underlying Portfolio or
Underlying Distributor Fund shares. The aggregate sales charges at both
levels, therefore, will not exceed the limit that otherwise lawfully
could be charged at any single level. Applicants expect that, overall,
administrative and other expenses will be reduced at both levels under
the proposed arrangement and, therefore, an investment in a Portfolio
or Distributor Fund of Funds should not be significantly more expensive
than a direct investment in an Underlying Portfolio or Underlying
Distributor Fund. Applicants believe that all of the One Group Funds
and Underlying Distributor Funds are likely to benefit from the
existence of the Portfolios and Distributor Funds of Funds since
increased distribution and the resulting increase of assets under
management will produce additional cost savings.
6. Applicants also believe that the concern that the acquiring fund
might be able to control the management decisions of the underlying
fund through the threat of large redemptions is not relevant to the
proposed arrangements. There is little risk that the Adviser will
exercise inappropriate control over the Underlying Portfolios. The
Portfolios only will acquire shares of Underlying Portfolios that are
One Group Funds. Because the Adviser is the investment adviser to the
Underlying Portfolios as well as to the Portfolios, a redemption from
one Underlying Portfolio will simply lead to the investment of the
proceeds in another Underlying Portfolio. Applicants believe that the
same will be true in the case of the Distributor Funds of Funds since
they will invest in Underlying Distributor Funds that are part of the
same ``group of investment companies.''
7. Applicants believe that the proposed arrangement will be
structured to minimize large scale redemption concerns. The Portfolios
and Distributor Funds of Funds will be designed for intermediate and
long term investment purposes. This will reduce the possibility of the
Portfolios and Distributor Funds of Funds from being used as short-term
investment vehicles and further protect the Portfoios and the
Distributor Funds of Funds and their respective Underlying Portfolios
and the Underlying Distributor Funds from unexpected large redemptions.
Applicants believe that the proposed arrangement will not be
unnecessarily complex. No Underlying Portfolio or Underlying
Distributor Fund will acquire securities of any other investment
company in excess of the limits contained in section 12(d)(1)(A) of the
Act.
8. Section 17(a) generally makes it unlawful for an affiliated
person of a registered investment company to sell securities to, or
purchase securities from, the company. The Portfolios and the
Underlying Portfolios may be considered affiliated persons because they
share a common adviser and to the extent a Portfolio owns 5% of an
Underlying Portfolio's shares. Similar arguments may be made in the
case of the Distributor Funds of Funds and the Underlying Distributor
Funds. An Underlying Portfolio's issuance of its shares to the
Portfolio, and the sale by the Underlying Distributor Funds of their
shares to the Distributor Funds of Funds, could be deemed principal
transactions subject to section 17(a).
9. 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 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 provisions of the
Act. Applicants request an exemption under sections 6(c) and 17(b) to
allow the above transactions.\4\
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\4\ Section 17(b) applies to a specific proposed transaction,
rather than an ongoing series of future transactions. See Keystone
Custodian Funds, 21 S.E.C. 295, 298-99 (1945). Section 6(c), along
with section 17(b), frequently is used to grant relief from section
17(a) to permit an ongoing series of future transactions.
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10. Applicants believe that the proposed transactions meet the
standards of sections 6(c) and 17(b). The consideration paid for the
sale and redemption of shares of Underlying Portfolios and Underlying
Distributor Funds will be based on the net asset value of the
Underlying Portfolios and Underlying Distributor Funds, respectively,
subject to applicable sales charges. The proposed arrangements also
will be consistent with the policies as set forth in the registration
statement of each Portfolio and Distributor Fund of Funds. Applicants
also believe that the proposed transactions are consistent with the
general purposes of the Act.
Applicant's Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Each Portfolio and each Underlying Portfolio will be part of the
``same group of investment companies,'' as defined in rule 11a-3 under
the Act. In addition, each Distributor Fund of Funds and each
Underlying Distributor Fund will be part of the same ``group of
investment companies.''
2. No Underlying Portfolio or Underlying Distributor Fund will
acquire securities of any other investment company in excess of the
limits contained in section 12(d)(1)(A) of the Act.
3. A majority of the trustees of the Trust and a majority of the
trustees or directors of each Distributor Fund of Funds, will not be
``interested persons,'' as defined in section 2(a)(19) of the Act.
4. Any sales charges or service fees charged relating to the shares
of a Portfolio or Distributor Fund of Funds, when aggregated with any
sales charges or service fees paid by the Portfolio or Distributor Fund
of Funds relating to the securities of the respective Underlying
Portfolio or Underlying Distributor Fund, will not exceed the limits
set forth in Article III, section 26, of the NASD's Rules of Fair
Practice.
5. Before approving any advisory contract under section 15 of the
Act, the board of trustees of the Trust and the board of trustees or
directors of the Distributor Fund of Funds, including a majority of the
trustees or directors who are not ``interested persons,'' as defined in
section 2(a)(19), will find that
[[Page 44097]]
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 Underlying Distributor Fund advisory
contract. The finding, and the basis upon which the finding was made,
will be recorded fully in the minute books of the Portfolio or
Distributor Fund of Funds.
6. Applicants agree to provide the following information, in an
electronic format, to the Chief Financial Analyst of the SEC's Division
of Investment Management: monthly average total assets of each
Portfolio and Distributor Fund of Funds, and each respective Underlying
Portfolio and Underlying Distributor Fund; monthly purchases and
redemptions (other than by exchange) for each Portfolio and Distributor
Fund of Funds and each respective Underlying Portfolio and Underlying
Distributor Fund; monthly exchanges into and out of each Portfolio and
Distributor Fund of Funds and each respective Underlying Portfolio and
Underlying Distributor Fund; month-end allocations of each Portfolio's
assets among the Underlying Portfolios and of the assets of each
Distributor Fund of Funds among its Underlying Distributor Funds;
annual expense ratios for each Portfolio and each Distributor Fund of
Funds and each respective Underlying Portfolio and any Underlying
Distributor Fund; and a description of any vote taken by the
shareholders of any Underlying Portfolio and Underlying Distributor
Fund, including a statement of the percentage of votes cast for and
against the proposal by the Portfolio and the Distributor Fund of Funds
and by the other shareholders of the Underlying Portfolio and
Underlying Distributor Fund. The information will be provided as soon
as reasonably practicable following each fiscal year-end of the
Portfolio and each Distributor Fund of Funds (unless the Chief
Financial Analyst notifies applicants in writing that the information
need no longer be submitted.)
For the Commission, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-21754 Filed 8-26-96; 8:45 am]
BILLING CODE 8010-01-M