Federal Register: December 31, 2001 (Volume 66, Number 250)
DOCID: FR Doc 01-32076
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
DOCUMENT ID: [Investment Company Act Release No. 25325; 812-12288]
NOTICE: NOTICES
ACTION: Investment Company Act of 1940:
DOCUMENT ACTION: Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the ``Act'') for an exemption from section 15(a) of the Act and rule 18f2 under the Act.
SUBJECT CATEGORY:
One Fund, Inc., Ohio National Fund, Inc., Dow Target Variable Fund LLC, and Ohio National Investments, Inc.; Notice of Application
DOCUMENT SUMMARY:
December 21, 2001.
SUMMARY:
One Fund, Inc. et al.,
DOCUMENT BODY 2:
December 21, 2001.
SUPPLEMENTAL INFORMATION
The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 205490102 (telephone (202) 9428090).
Applicants' Representations
1. ONE Fund and ON Fund are Maryland corporations registered under
the Act as openend management investment companies. ON Fund offers its
shares only to separate accounts of The Ohio National Life Insurance
Company (``ONLI'') and Ohio National Life Assurance Corporation
(``ONLAC''), as the underlying investments for variable annuities
issued by ONLI and variable life insurance contracts issued by ONLAC.
Dow Fund is an Ohio limited liability company registered under the act
as an openend management investment company. Dow Fund presently sells
its interests only to separate accounts of ONLI as a funding option to
support certain benefits under variable annuity contracts issued by
ONLI. Each Fund is comprised of multiple series (``Portfolios''), each with its own investment objectives and policies.\1\
\1\ Applicants also request relief with respect to all
registered openend investment companies and their series that in
the future are advised by the Adviser or any entity controlling,
controlled by, or under common control (within the meaning of
section 2(a)(9) of the Act) with the Adviser that are managed in a
manner consistent with the application, and comply with the terms
and conditions in the application (``Future Funds''). All registered
openend management investment companies that currently intend to
rely on the requested order are named as applicants. If the name of
any Portfolio contains the name of a manager, as defined below, the
Manager's name will be preceded by the name of the Adviser. [[Page 67581]]
2. The Adviser, an Ohio corporation, serves as investment adviser to each of the Portfolios, and is registered under the Investment Advisers Act of 1940 (the ``Advisers Act''). The Adviser is a wholly owned subsidiary of ONLI.
3. The Adviser serves as investment adviser to the Portfolios pursuant to investment advisory agreements between the Adviser and the Funds that were approved by each Fund's board of directors (``Board''), including a majority of the Directors who are not ``interested persons,'' as defined in section 2(a)(19) of the Act, of the Fund or the Adviser (``Independent Directors''), and by the shareholders of each Fund (the ``Investment Advisory Agreements''). Under the terms of the Investment Advisory Agreements, the Adviser administers the business and affairs of the Funds. The Adviser has overall general supervisory responsibility for the investment program of the Portfolios. The Adviser also selects, contracts with, and compensates subadvisers (``Managers'') to manage the investment and reinvestment of the assets of the Portfolios. Each Manager is an investment adviser registered under the Advisers Act, or exempt from registration under the Advisers Act, and performs services pursuant to a written agreement with the Adviser (``Portfolio Management Agreement''). As compensation for its services, the Adviser receives a fee from the Funds computed separately for each of the Portfolios. Managers' fees are paid by the Adviser out of these fees from the Portfolios.
4. The Adviser selects Managers based on the continuing quantitative and qualitative evaluation of their skills and proven abilities in managing assets pursuant to a specific investment style. The Adviser monitors the compliance of Managers with the investment objectives and related policies of each Portfolio and reviews the performance of each Manager in order to assure continuing quality of performance. The Adviser may recommend to the Board reallocation of Portfolio assets among Managers, if necessary, or recommend that the Fund employ or terminate particular Managers, to the extent the Adviser deems appropriate to achieve the overall objectives of a particular Portfolio.
5. Applicants request relief to permit the Adviser subject to the oversight of the Board to enter into and materially amend Portfolio Management Agreements without shareholder approval. The requested relief will not extend to a Manager that is an affiliated person, as defined in section 2(a)(3) of the Act, of the Fund or the Adviser, other than by reason of serving as a Manager to one or more of the Portfolios (an ``Affiliated Manager''.)
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is unlawful for any person to act as an investment adviser to a registered investment company except pursuant to a written contract that has been approved by the vote of the company's outstanding voting securities. Rule 18f2 under the Act provides that each series or class of stock in a series company affected by a matter must approve such matter if the Act requires shareholder approval.
2. Section 6(c) of the Act provides that the Commission may exempt any person, security, or transactions or any class or classes of persons, securities, or transactions from any provision of the Act, or from any rule thereunder, 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 exemption under section 6(c) of the Act from section 15(a) of the Act and rule 18f2 under the Act to permit them to enter into and materially amend Portfolio Management Agreements without shareholder approval.
3. Applicants state that investment companies such as the Funds that use an adviser/subadviser structure divide responsibility for general management and investment advice between the Adviser and one or more Managers. Applicants assert that shareholders rely on the Adviser to select and monitor Managers best suited to achieve a Portfolio's investment objectives. Applicants content that from the perspective of the investor, the role of the Managers is comparable to that of individual portfolio managers employed by other investment advisory firms. Applicants contend that requiring shareholder approval of Portfolio Management Agreements would impose expenses and unnecessary delays on the Portfolios, and may preclude the Adviser from promptly acting in a manner considered advisable by the Board. Applicants note that the Investment Advisory Agreements will remain fully subject to the requirements of section 15(a) of the Act and rule 18f2 under the Act, including the requirements for shareholder approval.
Applicants' Conditions
Applicants agree that any order granting the requested relief will be subject to the following conditions:
1. No Portfolio will enter into a Portfolio Management Agreement with an Affiliated Manager without such agreement, including the compensation to be paid thereunder, being approved by the shareholders of the Portfolio (or, if the Portfolio serves as an investment medium for any subaccount of a registered separate account, pursuant to voting instructions by the unitholders of the subaccount.)
2. At all times, a majority of the Board will be Independent Directors, and the nomination of new or additional Independent Directors will be at the discretion of the then existing Independent Directors.
3. When a Manager change is proposed for a Portfolio with an Affiliated Manager, the Board, including a majority of the Independent Directors, will make a separate finding, reflected in the Fund's Board minutes, that the change is in the best interests of the Portfolio and its shareholders (or, if the Portfolio serves as a funding medium for any subaccount of a registered separate account, in the best interests of the Portfolio and the unitholders of any subaccount) and that the change does not involve a conflict of interests from which the Adviser or Affiliated Manager derives an inappropriate advantage.
4. Before a Portfolio may rely on the order, the operation of the Portfolio in the manner described in the application will be approved by a majority of the Portfolio's outstanding voting securities (or, if the Portfolio serves as a funding medium for any subaccount of a registered separate account, pursuant to voting instructions provided by the unitholders of the subaccount), as defined in the Act, or, in the case of a Portfolio or Future Fund whose public shareholders (or variable contract owners through a separate account) purchased shares on the basis of a prospectus(es) containing the disclosure contemplated by Condition 6 below, by the sole initial shareholder(s) before the shares of such Portfolio or Future Fund are offered to the public (or the variable contract owners through a separate account.)
5. The Adviser will provide general management services to the Funds and their Portfolios, including overall
[[Page 67582]]
supervisory responsibility for the general management and investment of
each Portfolio's securities portfolio, and subject to review and
approval by the Board, will (a) set the Portfolio's overall investment
strategies; (b) evaluate, select, and recommend Managers to manage all
or part of a Portfolios assets; (c) when appropriate, allocate and
reallocate a Portfolio's assets among multiple Managers; (d) monitor
and evaluate the performance of Managers; and (e) implement procedures
reasonably designed to ensure that the Managers comply with the
relevant Portfolio's investment objectives, policies, and restrictions.
6. Each Portfolio relying on the requested relief will disclose in its prospectus the existence, substance, and effect of any order granted pursuant to the application. In addition, any such Portfolio will hold itself out as employing the Adviser/Manager structure described in the application. The prospectus will prominently disclose that the Adviser has ultimate responsibility to oversee the Managers and recommend their hiring, termination and replacement.
7. No Director or officer of the Funds or officer or director of the Adviser will own directly or indirectly (other than through a pooled investment vehicle that is not controlled by that director or officer) any interest in a Manager except for (a) ownership of interests in the Adviser or any entity that controls, is controlled by, or is under common control with the Adviser; or (b) ownership of less than 1% of the outstanding securities of any class of equity or debt of a publiclytraded company that is either a Manager or an entity that controls, is controlled by or is under common control with a Manager.
8. Within 90 days of the hiring of any new Manager, the Adviser will furnish shareholders (or, if the Portfolio serves as a funding medium for any subaccount of a registered separate account, the Adviser will furnish the unitholders of the subaccount) with respect to the appropriate Portfolio all information about the new Manager that would be included in a proxy statement. Such information will include any changes caused by an addition of a new Manager. To meet this condition, the Adviser will provide shareholders (or, if the Portfolio serves as a funding medium for any subaccount) with an information statement meeting the requirements of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the Securities Exchange Act of 1934.
For the Commission, by the Division of Investment Management, under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 0132076 Filed 122801; 8:45 am]
BILLING CODE 801001M
FOR FURTHER INFORMATION CONTACT
Deepak T. Pai, Senior Counsel, at (202) 9420574 or Mary Kay Frech, Branch Chief, at (202) 9420564, (Division of Investment Management, Office of Investment Company Regulation).