[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

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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

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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