[Federal Register Volume 64, Number 65 (Tuesday, April 6, 1999)]
[Notices]
[Pages 16767-16769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-8364]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23767; 812-9204]
The Aquinas Funds, Inc., et al.; Notice of Application
March 30, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of 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 18f-2 under the Act.
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SUMMARY OF APPLICATION: The requested order would permit applicants,
The Aquinas Funds, Inc. (``Company'') and Aquinas Investment Advisers,
Inc. (``Adviser''), to enter into and materially amend subadvisory
agreements without obtaining shareholder approval.
FILING DATES: The application was filed on September 2, 1994, and was
amended on September 20, 1995, and January 13, 1999. Applicants have
agreed to file an amendment during the notice period, the substance of
which is reflected 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
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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 April 26, 1999, 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 Fifth Street, N.W., Washington, D.C.
20549-0609; Applicants, 5310 Harvest Hill Road, Suite 248, Dallas, TX
75230.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at
(202) 942-0574 or Nadya Royblat, Assistant Director, 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 at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. The Company is registered under the Act as an open-end
management investment company offering shares in four separate
portfolios: Aquinas Fixed Income Fund, Aquinas Equity Income Fund,
Aquinas Equity Growth Fund, and Aquinas Balanced Fund (``Funds''), each
with its own distinct investment objectives, policies, and
restrictions.\1\ The Company is organized as a Maryland corporation.
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\1\ Applicants request that the relief apply to any registered
open-end investment company that in the future is advised by the
Adviser or any person controlling, controlled by, or under common
control (within the meaning of section 2(a)(9) of the 1940 Act) with
the Adviser (a ``Future Fund''), provided that such Future Fund
operates in substantially the same manner as the Company with
respect to the Adviser's responsibility to select, evaluate, and
supervise portfolio managers and complies with the terms and
conditions of the application. All existing investment companies
(and series thereof) that currently intend to rely on the order have
been named as applicants.
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2. The Adviser, registered under the Investment Advisers Act of
1940 (``Advisers Act''), serves as investment adviser to the Company
pursuant to an investment advisory agreement (``Management
Agreement''). Specific portfolio management for each Fund is provided
by at least two portfolio managers (``Portfolio Managers''), each of
which is registered under the Advisers Act.
3. Under the Management Agreement, the Adviser, subject to approval
by the Company's board of directors (``Board''), provides each Fund
with general management and administration services, develops the
investment programs, selects, hires, and monitors Portfolio Managers,
and allocates assets among the Portfolio Managers. Portfolio Managers
are selected for the Funds based primarily upon the research and
recommendations of the Adviser, which evaluates quantitatively and
qualitatively the Portfolio Manager's skills and results in managing
assets for specific asset classes, investment styles and strategies.
For these services, the Adviser receives an annual management fee from
each Fund based on the Fund's average net assets.
4. Under sub-advisory agreements between the Company and the
Adviser and the Portfolio Managers (``Portfolio Management
Agreements''), each Portfolio Manager purchases and sells portfolio
securities for its segment of a Fund in accordance with the Fund's
investment objectives, restrictions, and policies. The Adviser pays the
Portfolio Managers' fees out of the fees the Adviser receives from the
Fund.
5. Applicants request an order to permit the Adviser to enter into
and materially amend Portfolio Management Agreements without obtaining
shareholder approval.\2\ The requested relief will not extend to a
Portfolio Manager that is an ``affiliated person'' (as defined in
section 2(a)(3) of the Act) of the Company, the Adviser, or the Funds,
other than by reason of serving as a Portfolio Manager to one or more
of the Funds (an ``Affiliated Portfolio Manager''). None of the current
Portfolio Managers is an Affiliated Portfolio Manager.
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\2\ Applicants state that the manner of operation of the Funds'
multi-manager system and the substance and effect of the requested
order has been disclosed in the Funds' prospectus since the
effective date of the Funds' Registration Statement on Form N-1A.
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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 under a written contract approved by a
majority of the investment company's outstanding voting shares. Rule
18f-2 under the Act provides that each series or class of stock in a
series company affected by a matter must approve the matter if the Act
requires shareholder approval.
2. Section 6(c) of the Act authorizes the SEC to exempt persons or
transactions from the provisions of the Act to the extent that the
exemption is necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policies and provisions of the Act. Applicants believe
that their requested relief meets this standard for the reasons
discussed below.
3. Applicants assert that a Fund's shareholders rely on the
Adviser's ability to select, monitor and replace the Portfolio
Managers. Applicants represent that the Adviser has substantial
experience in performing these functions for the Company and has
managed the Funds, since September 1994, with multiple Portfolio
Managers. Applicants submit that, from the perspective of an investor,
the role of the Portfolio Managers is comparable to that of individual
portfolio managers employed by other investment advisory firms.
Applicants content that granting the requested relief would enable the
Fund's Adviser/Portfolio Manager strategy to operate more efficiently
and without unnecessary delays. Applicants note that the Management
Agreement will continue to be fully subject to sections 15(a) and 15(c)
of the Act and rule 18f-2 under the Act.
Applicants' Conditions
Applicants agree that the requested order will be subject to the
following conditions:
1. The Company will disclose in its prospectus the existence,
substance and effect of any order granted pursuant to this application.
In addition, each Fund and any Future Fund will hold itself out to the
public as employing the management structure described in this
application. The prospectus with respect to the Funds and any Future
Fund will prominently disclose that the Adviser has the ultimate
responsibility for the investment performance of the Funds due to the
Adviser's responsibility to oversee the Portfolio Managers and
recommend their hiring, termination and replacement.
2. Within 90 days of the hiring of any new Portfolio Manager,
shareholders will be furnished relevant information about the new
Portfolio Manager that would be contained in a proxy statement,
including any change in such disclosure caused by the addition of the
new Portfolio Manager. Each Fund will meet this condition by providing
shareholders 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 within 90 days of the hiring of a
Portfolio Manager.
3. No director or officer of the Company or director or officer of
the
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Adviser will own directly or indirectly (other than through a pooled
investment vehicle that is not controlled by any such officer or
director) any interest in a Portfolio Manager, except for (i) ownership
of interests in the Adviser or any entity that controls, is controlled
by or is under common control with the Adviser, or (ii) ownership of
less than 1% of the outstanding securities of any class of equity or
debt of a publicly-traded company that is either a Portfolio Manager or
an entity that controls, is controlled by or is under common control
with a Portfolio Manager.
4. The Adviser will provide general investment management and
administrative services to the Funds and, subject to review and
approval by the Board will (i) set the Funds' overall investment
strategies; (ii) recommend Portfolio Managers; (iii) allocate and, when
appropriate, reallocate the Funds' assets among Portfolio Managers;
(iv) monitor and evaluate the investment performance of the Portfolio
Managers; and (v) ensure that the Portfolio Managers comply with the
investment objectives, policies and restrictions of the respective
Funds.
5. At all times, a majority of the Board will be persons each of
whom is not an ``interested person'' of the Company (as defined in
Section 2(a)(19) of the Act) (the ``Independent Directors''), and the
nomination of new or additional Independent Directors will be placed
within the discretion of the then existing Independent Directors.
6. Neither the Company nor the Adviser will enter into a Portfolio
Management Agreement for a Fund with any Affiliated Portfolio Manager
without such agreement, including the compensation to be paid
thereunder, being approved by the shareholders of the applicable Fund.
7. When a change of Portfolio Manager is proposed for a Fund with
an Affiliated Portfolio Manager, the Board including a majority of the
Independent Directors, will make a separate finding, reflected in the
minutes of the meeting of the Board, that such change is in the best
interests of the Fund and its shareholders and does not involve a
conflict of interest from which the Adviser or the Affiliated Portfolio
Manager derives an inappropriate advantage.
8. Before a Future Fund may rely on the requested order, the
operation of the Fund as described in the application will be approved
by the vote of a majority of the Fund's outstanding voting securities,
as defined in the Act, or, in the case of a Future Fund whose public
shareholders purchased shares on the basis of a prospectus containing
the disclosure contemplated by condition 1, by the initial shareholders
before offering shares of that Fund to the public.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-8364 Filed 4-5-99; 8:45 am]
BILLING CODE 8010-01-M