[Federal Register Volume 61, Number 170 (Friday, August 30, 1996)]
[Notices]
[Pages 46004-46006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22226]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 22172; 812-10304]
Quantitative Group of Funds, et al.; Notice of Application
August 26, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Quantitative Group of Funds (``Quantitative''), The One
Group (``One Group,'' together with Quantitative, the ``Trusts''),
Quantitative Advisors Inc. (``Quantitative Advisors''), Banc One
Investment Advisors Corporation (``Banc One,'' and together with
Quantitative Advisors, the ``Advisors''), and Boston International
Advisors, Inc. (``BIA'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from section 15(a) of the Act.
SUMMARY OF APPLICATION: The order would permit the implementation,
without shareholder approval, of new sub-advisory contracts for a
period of up to 120 days following the date of the change in control of
BIA, the sub-adviser to the Trusts. The order also would permit BIA to
receive from the Trusts fees earned under the new sub-advisory
contracts following approval by the Trusts' shareholders.
FILING DATE: The application was filed on August 15, 1996. Applicants
have agreed to file an amendment during the notice period, the
substance of which is included in this notice.
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 20,
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 who wish to
be notified of a hearing may request notification of a
[[Page 46005]]
hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: Quantitative and Quantitative Advisors, 55 Old
Bedford Road, Lincoln, Massachusetts 01773; One Group, 3435 Stelzer
Road, Columbus, Ohio 43219; Banc One, 774 Park Meadow Road, Columbus,
Ohio 43271; and BIA, 75 State Street, Boston, Massachusetts 02109.
FOR FURTHER INFORMATION CONTACT: Marianne H. Khawly, Staff Attorney, at
(202) 942-0562, or Alison E. Baur, 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 is available for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Trusts are open-end, management investment companies
registered under the Act. Quantitative International Equity Fund and
Quantitative Foreign Frontier Fund are series of Quantitative and The
One Group International Equity Index Fund is a series of One Group (the
series are referred to collectively as the ``Funds''). Quantitative
Advisors serves as investment adviser to the Quantitative Funds and
Banc One serves as investment adviser to the One Group Fund. BIA
provides sub-advisory services to each Fund pursuant to certain sub-
advisory agreements (the ``Existing Sub-Advisory Agreements'').
2. Independence Investment Associates, Inc. (``IIA''), pursuant to
an agreement dated July 31, 1996 (the ``Stock Purchase Agreement'')
among IIA, BIA, and all of the stockholders of BIA (the
``Stockholders''), will acquire, subject to the satisfaction or waiver
of certain conditions, control of BIA by purchasing 100% of BIA's
outstanding shares of capital stock from the Stockholders (the ``Stock
Purchase''). Following the consummation of the transactions provided
for under the Stock Purchase Agreement (the ``Closing''), it is
anticipated that BIA will change its name to Independence International
Associates, Inc.
3. The Closing is subject to the satisfaction or waiver of several
conditions, including certain conditions relating to the acquisition of
advisory client consents. The Stock Purchase Agreement provides that
transfer of ownership of BIA's shares will take place at the Closing.
BIA reasonably believes that the Closing may take place by October 1,
1996, although unforeseen circumstances could cause a delay. The Stock
Purchase will result in a change of control of BIA. Accordingly, the
change of control will result in the assignment of the Existing Sub-
Advisory Agreements and the termination of each such agreement
according to its terms.
4. Applicants seek an exemption to permit the implementation,
without shareholder approval, of new sub-advisory agreements among the
Funds, the Advisors, and BIA. The requested exemption would cover an
interim period of not more than 120 days (the ``Interim Period'')
beginning on the Closing date and continuing through the date new sub-
advisory agreements are approved or disapproved by the Funds'
shareholders (but in no event later than March 1, 1997). During the
Interim Period, hat portion of the advisory fees paid the Advisors to
BIA for sub-advisory services would be paid into escrow.
5. The sub-advisory agreements among BIA, the Advisors, and each
Fund to be entered into upon consummation of the Stock Purchase
(collectively, the ``New Sub-Advisory Agreements'') are identical to
the Existing Sub-Advisory Agreements, except for their effective dates,
escrow provisions, and as described below. For each Fund, except the
One Group Fund, the fee levels for sub-advisory services will remain
the same as in the Existing Sub-Advisory Agreement. The New Sub-
Advisory Agreement between BIA and Banc One (the ``New Banc One
Agreement''), however, will provide for higher fees than those which
are payable to BIA under its Existing Sub-Advisory Agreement with Banc
One. These higher fees were separately negotiated from, and are in no
way connected with, the Stock Purchase. The New Banc One Agreement will
be submitted for the approval of the One Group Fund's shareholders, and
the higher fees, if approved, will be payable only to BIA from and
after the date of such approval. No exemption from the provisions of
section 15(a) of the Act is being sought with respect to the approval
of the higher fees.
6. In accordance with section 15(c) of the Act,\1\ the board of
trustees (the ``Board'') of Quantitative met on July 9, 1996 and the
Board of One Group met on May 21, 1996 and determined that the New Sub-
Advisory Agreements would be in the best interests of the respective
Funds and their shareholders. The Boards, including a majority of the
disinterested trustees, voted to approve the New Sub-Advisory
Agreements.
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\1\ Section 15(c) provides, in relevant part, that it shall be
unlawful for any registered investment company to enter into an
investment advisory contract unless the terms of such contract have
been approved by the vote of a majority of directors, who are not
parties to such contract or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such
approval.
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7. Applicants propose to enter into an escrow arrangement with an
unaffiliated financial institution. The arrangement would provide that:
(a) the portion of the Advisors' fees payable by the Advisors to BIA
during the Interim Period under the New Sub-Advisory Agreements would
be paid into an interest-bearing escrow account maintained by the
escrow agent \2\; (b) the amounts in the escrow account (including
interest earned on such paid fees) would be paid to BIA only upon
approval of the respective Fund's shareholders of such Fund's New Sub-
Advisory Agreements or, in the absence of such approval, to the Fund;
and (c) the escrow agent would release the monies only upon receipt of
a certificate from an officer of the respective trust (none of whom is
an interested person of BIA) stating that the monies are to be
delivered to BIA and that the respective New Sub-Advisory Agreement has
received the requisite Fund shareholder vote or, if the moneys are to
be delivered to the respective Fund, that the Interim Period has ended,
and the respective New Sub-Advisory Agreement has not received the
requisite Fund shareholder vote. Before any certificate is sent, the
respective Board will be notified.
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\2\ The higher fees that will be applicable under the New Sub-
Advisory Agreement for the One Group Fund will not be deposited in
an escrow account because they will not begin to accrue until after
the One Group Fund's shareholders approve the New Sub-Advisory
Contract.
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Applicants' Legal Analysis
1. Applicants request an order pursuant to section 6(c), exempting
them from section 15(a) of the Act to the extent necessary (i) to
permit the implementation during the Interim Period, without prior
shareholder approval, of the New Sub-Advisory Agreements and (ii) to
permit BIA to receive from the respective Advisor upon approval by the
respective Fund's shareholders any and all fees earned under the
applicable New Sub-Advisory Agreement implemented during the Interim
Period.
2. Section 15(a) of the Act prohibits an investment adviser from
providing investment advisory services to an investment company except
under a written contract that has been approved
[[Page 46006]]
by a majority of the voting securities of the investment company.
Section 15(a) further requires that the written contract provide for
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 contract by the assignor or of a controlling block of the
assignor's outstanding voting securities by a security holder of the
assignor. The Stock Purchase will result in an ``assignment'' within
the meaning of section 2(a)(4) of the Existing Sub-Advisory Agreements,
terminating each such agreement according to its terms.
3. Rule 15a-4 provides, in relevant part, that if an investment
adviser's investment advisory contract with an investment company is
terminated by assignment, the adviser may continue to act as such for
120 days at the previous compensation rate if a new contract is
approved by the board of directors of the investment company and if
neither the investment adviser nor a controlling person thereof
directly or indirectly receives money or other benefit in connection
with the assignment. In the case of the Quantitative Funds, applicants
cannot rely on rule 15a-4 because of the benefits to the Stockholders
arising from the Stock Purchase. In the case of the One Group Fund, the
applicants cannot rely on rule 15a-4 because of the increase in fees
payable to BIA under the New Sub-Advisory Agreement.
4. Applicants state that a proxy solicitation to the shareholders
of the Funds is a complicated and time-consuming task. The task will
include the preparation, clearance, and mailing of proxy materials, and
the solicitation efforts required to obtain the requisite votes.
Because of the complexity of the proxy solicitation and the fact that
the Funds have not had sufficient advance notice of the Stock Purchase,
applicants state that it will not be possible for the Funds to obtain
shareholder approval of the New Sub-Advisory Agreements in accordance
with section 15(a) of the Act prior to the Closing.
5. Applicants submit that to deprive BIA of sub-advisory fees
during the Interim Period for no reason other than the fact that the
Closing will result in an assignment of the Existing Sub-Advisory
Agreements would be an unduly harsh and unreasonable penalty and would
serve no useful purpose. Applicants represent that the best interests
of the Funds' shareholders would be served if BIA receives fees for
services during the Interim Period as provided herein. These fees are
an important part of BIA's total revenue and are important to
maintaining its ability to provide services to the Funds.
6. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of the Act, if and
to the extent that 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. For
the reasons stated above, applicants believe that the requested relief
meets this standard.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by this application that:
1. The New Sub-Advisory Agreements will have the same terms and
conditions as the Existing Sub-Advisory Agreements, except in each case
for the dates of execution and termination, the inclusion of escrow
arrangements, and the inclusion of BIA's new name, and in the case of
the New Sub-Advisory Agreement for One Group, the new fee arrangement
(which will not be effective until shareholder approval).
2. That portion of each Advisors' fee earned by BIA during the
Interim Period will be maintained in an interest-bearing escrow
account, and amounts in the account (including interest earned on such
amounts) will be paid (a) to BIA in accordance with the New Sub-
Advisory Agreement, only upon approval of the respective Fund's
shareholders, or (b) in the absence of such approval prior to the
expiration of the Interim Period, to the respective Fund.
3. The Funds will hold meetings of shareholders to vote on approval
of the New Sub-Advisory Agreements on or before the earlier of the
120th day following the termination of the Existing Sub-Advisory
Agreements or March 1, 1997.
4. BIA and IIA will bear the costs of preparing and filing this
application and the costs relating to the preparation of proxy
materials for the solicitation of shareholder approval from the
Quantitative Funds' shareholders of the Quantitative Funds' New Sub-
Advisory Agreements. BIA and IIA also will bear 50% of the costs
relating to the preparation of proxy materials for the solicitation of
shareholder approval from the One Group Fund's shareholders of the One
Group Fund's New Sub-Advisory Agreement. The other 50% of the costs of
solicitation will be borne by Banc One.
5. BIA will take all appropriate actions to ensure that the scope
and quality of sub-advisory and other services provided to the Funds by
BIA during the Interim Period will be at least equivalent, in the
judgment of the respective Board, including a majority of the non-
interested Board members, to the scope and quality of services
previously provided. In the event of any material change in personnel
providing material services pursuant to the New Sub-Advisory
Agreements, BIA will apprise and consult with the Board of the affected
Fund or Funds to assure that they, including a majority of the non-
interested Board members, are satisfied that the services provided 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. 96-22226 Filed 8-29-96; 8:45 am]
BILLING CODE 8010-01-M