Applications, hearings, determinations, etc.: Quantitative Group of Funds et al.,

[Federal Register: December 22, 1998 (Volume 63, Number 245)]

[Notices]

[Page 70813-70815]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr22de98-108]

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.

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 filedon 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'').

   \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.

   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. 98-33814Filed12-21-98; 8:45 am]

   BILLING CODE 8010-01-M