[Federal Register Volume 63, Number 245 (Tuesday, December 22, 1998)]
[Notices]
[Pages 70813-70815]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33814]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23600; 812-11144]
Quantitative Group of Funds, et al.; Notice of Application
December 15, 1998.
Agency: Securities and Exchange Commission (``SEC'').
Action: Notice of application 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: Applicants, Quantitative Group of Funds (the
``Trust'') and Quantitative Advisors, Inc. (the ``Adviser''), request
an order that would permit them to enter into and materially amend sub-
advisory agreements without shareholder approval.
Filing Dates: The application was filed on May 11, 1998, and amended on
August 31, 1998, and November 23, 1998. Applicants have agreed to file
an
[[Page 70814]]
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 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 January 11,
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. Applicants, 55 Old Bedford Road, Lincoln, Massachusetts 01773.
For Further Information Contact: Edward P. Macdonald, 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 at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. no. 202-942-8090).
Applicants' Representations
1. The Trust, a Massachusetts business trust, is registered under
the Act as an open-end management investment company. The Trust
consists of six separate series (``Funds'')
2. The Adviser, registered under the Investment Advisers Act of
1940 (the ``Advisers Act''), serves as investment adviser for the Trust
under an investment advisory agreement (``Adviser Agreement''). Under
the Adviser Agreement, the Adviser is responsible for providing
investment advisory and administrative services to the Funds and is
also responsible for selecting subadvisers (``Fund Managers''), subject
to the ultimate approval of the board of trustees for each Fund (the
``Board''). The Trust pays the Adviser a fee for its services with
respect to each Fund.
3. Under agreements between Fund Managers and the Adviser (``Fund
Manager Agreements'') each Fund Manager provides day-to-day portfolio
management services to its respective Fund. Each Fund currently uses a
single Fund Manager. All Fund Managers are registered under the
Advisers Act, and none of the Fund Managers is an affiliated person of
the Adviser within the meaning of section 2(a)(3) of the Act. The
Adviser pays each Fund Manager out of the fees its receives from each
Fund.
4. In selecting Fund Managers, the Adviser considers a number of
criteria, including the nature of the strategy employed by the Fund
Manager, the Fund Manager's performance in utilizing investment
strategies similar to those used by the Funds, and the Fund Manager's
reputation in the community. The Adviser monitors the Fund Managers'
investment programs and performance on a daily basis and reports these
results to the Board quarterly. In addition, the Adviser reviews
brokerage matters, oversees compliance by the Funds with various
federal and state statutes and carries out the directives of the Board.
5. Applicants request relief from section 15(a) of the Act and rule
18f-2 under the Act to permit the Adviser to enter into and amend fund
Manager Agreements without shareholder approval.\1\ The requested
relief will not extend to a Fund Manager that is an ``affiliated
person'' of either the Trust or the Adviser, as defined in section
2(a)(3) of the Act other than by reason of serving as Fund Manager to a
Fund (``Affiliated Fund Manager'').
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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 Act) with the
Adviser and which operates in substantially in the same manner as
the Trust. Applicants also request that the relief apply to any
series of the Trust that may be created in the future. Applicants
state that all existing investment companies that currently intend
to rely on the requested order have been named as applicants, and
any other existing or future investment companies that subsequently
rely on the requested order will comply with the terms and
conditions in the application.
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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 company's outstanding voting securities. Rule 18f-2
under the Act provides that each series or class of stock in a series
company affected by a matter must approve that matter if the Act
requires shareholder approval.
2. Section 6(c) authorizes the SEC to exempt persons or
transactions from the provisions of the Act to the extent that an
exemption is 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 state that the Funds' investors rely on the Adviser
to provide overall management and operational services to the Funds,
while the Fund Managers are responsible for the day-to-day management
of the Funds. Applicants state that the Funds have employed an Adviser/
Fund Manager structure since their inception in 1985, and that the
Adviser has significant experience in selecting Fund Managers.
Applicants assert that the requested relief will permit them to use
that structure more efficiently. Applicants note that the Adviser
Agreement will remain subject to the shareholder approval requirements
of section 15(a) of the Act and rule 18f-2 under the Act.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Fund may rely on the order requested in the
application, the operation of the Fund in the manner described in the
application will be approved by a majority of its outstanding voting
securities, as defined in the Act, or, in the case of a new Fund whose
public shareholders purchased shares on the basis of a prospectus
containing the disclosure contemplated by condition 2 below, by the
sole initial shareholder(s) before offering shares of that Fund to the
public.
2. Each Fund will disclose in its prospectus the existence,
substance, and effect of the order granted pursuant to the application.
In addition, each Fund will hold itself out of the public as employing
the ``manager of managers'' approach described in the application. The
prospectuses will prominently disclose that the Adviser has ultimate
responsibility to oversee the Managers and recommend their hiring,
termination, and replacement.
3. The Adviser will provide general management and administrative
services to the Funds, including overall supervisory responsibility for
the general management and investment of the Funds' securities
portfolios, and, subject to review and approval by each Board with
respect to its respective Fund, will: (i) set the Funds' overall
investment strategies; (ii) select Fund Managers; (iii) when
appropriate, allocate and reallocate a Fund's assets among multiple
Fund Managers; (iv) monitor and evaluate the performance of Fund
Managers; and (v) ensure that
[[Page 70815]]
the Fund Managers comply with the relevant Fund's investment
objectives, policies and restrictions.
4. At all times, a majority of the Board will be persons who are
not ``interested persons,'' within the meaning of section 2(a)(19) of
the Act, of the Fund (``Independent Trustees''), and the nomination of
new or additional Independent Trustees will be at the discretion of the
then existing Independent Trustees.
5. The Adviser will not enter into a Fund Manager's Agreement with
any Affiliated Manager without that agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
6. When a Fund Manager change is proposed for a Fund with an
Affiliated Manager, the Board, including a majority of the Independent
Trustees, will make a separate finding, reflected in the Board minutes,
that the 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 Fund Manager derives an appropriate
advantage.
7. No director, trustee or officer of the Funds or director or
officer of the Adviser will own directly or indirectly (other than
through a pooled investment vehicle over which such persons do not have
control) any interest in any Fund 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 Fund Manager or an entity
that controls, is controlled by, or is under common control with a Fund
Manager.
8. Within 90 days of the hiring of any new Fund Manager,
shareholders will be furnished all information about the new Fund
Manager or Fund Manager Agreement that would be included in a proxy
statement, including any change in the disclosure caused by the
addition of a new Fund Manager. The information will include disclosure
as to the level of fees to be paid to the Adviser and each Fund
Manager. Each Fund will meet this condition by providing shareholders,
within 90 days of the hiring of a Fund Manager, with an information
statement meeting the requirements of Regulation 14C and Schedule 14C
under the Securities Exchange Act of 1934 (``Exchange Act''). The
information statement also will meet the requirements of Item 22 of
Schedule 14A under the Exchange Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-33814 Filed 12-21-98; 8:45 am]
BILLING CODE 8010-01-M