[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