SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. __)
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Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE AQUINAS FUNDS, INC.
(Name of Registrant as Specified in its Charter)
THE AQUINAS FUNDS, INC.
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on
which the filing fee is calculated and state how it was
determined):
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and date of
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<PAGE>
THE AQUINAS FUNDS, INC.
5310 Harvest Hill Road
Suite 248
Dallas, Texas 75230
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 14, 1997
To the Shareholders of THE AQUINAS FUNDS, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
THE AQUINAS FUNDS, INC. (the "Company") will be held at 5310 Harvest Hill
Road, Suite 248, Dallas, Texas, on Thursday, the 14th day of August, 1997,
at 8:30 A.M. local time for the following purposes:
1. With respect to all shareholders of the Company (i.e.,
shareholders of the Aquinas Fixed Income Fund, the Aquinas Equity
Income Fund, the Aquinas Equity Growth Fund and the Aquinas Balanced
Fund), to elect five directors to serve an indefinite term until
their respective successors are chosen and have qualified (Proposal
No. 1).
2. With respect to the shareholders of each of the Aquinas
Fixed Income Fund and the Aquinas Balanced Fund, to consider and act
upon a proposal to approve a new portfolio management (sub-advisory)
agreement between the Company, Aquinas Investment Advisers, Inc. and
Atlantic Asset Management Partners, L.L.C. for each of the Aquinas
Fixed Income Fund and the Aquinas Balanced Fund (Proposal Nos. 2(a)
and 2(b)).
3. To transact such other business with respect to the Company
as may properly come before the meeting or any adjournments thereof.
Only shareholders of record of the Company at the close of
business on June 20, 1997, the record date for this meeting, shall be
entitled to notice of and to vote at the meeting or any adjournments
thereof.
YOUR VOTE IS IMPORTANT AND ALL SHAREHOLDERS ARE ASKED TO BE
PRESENT IN PERSON OR BY PROXY. IF YOU ARE UNABLE TO ATTEND THE MEETING IN
PERSON, WE URGE YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
AT YOUR EARLIEST CONVENIENCE USING THE STAMPED ENVELOPE PROVIDED. SENDING
IN YOUR PROXY WILL NOT PREVENT YOU FROM PERSONALLY VOTING YOUR SHARES AT
THE MEETING SINCE YOU MAY REVOKE YOUR PROXY BY ADVISING THE SECRETARY OF
THE COMPANY IN WRITING (BY SUBSEQUENT PROXY OR OTHERWISE) OF SUCH
REVOCATION AT ANY TIME BEFORE IT IS VOTED.
By Order of the Board of Directors
CHARLES CLARK
Secretary
Dallas, Texas
July 28, 1997
<PAGE>
THE AQUINAS FUNDS, INC.
5310 Harvest Hill Road
Suite 248
Dallas, Texas 75230
PROXY STATEMENT
The enclosed proxy is being solicited by and on behalf of the
Board of Directors of The Aquinas Funds, Inc. (the "Company") for use at
the Special Meeting of Shareholders to be held at 5310 Harvest Hill Road,
Suite 248, Dallas, Texas 75230, on Thursday, the 14th day of August, 1997
at 8:30 A.M. and at any adjournments thereof (the "Meeting"), for the
purposes set forth in the attached Notice of Special Meeting of
Shareholders. The Meeting could be adjourned if a quorum does not exist
or the Meeting is disrupted by fire or other emergency. For purposes of
any adjournment, proxies will be voted "FOR" adjournment unless otherwise
directed. A shareholder may otherwise direct by writing anywhere on the
enclosed proxy that the shareholder will vote against any adjournments.
Whether you expect to be personally present at the Meeting or
not, please complete, sign, date and return the accompanying form of
proxy. Timely executed proxies will be voted as you instruct. If no
choice is indicated, proxies will be voted for the nominees set forth in
this Proxy Statement and for the proposals set forth in the Notice of
Special Meeting of Shareholders. Any shareholder giving a proxy has the
power to revoke it at any time before it is exercised by giving notice
thereof to the Company in writing (by subsequent proxy or otherwise), but
if not so revoked, the shares represented by the proxy will be voted at
the Meeting. Presence at the Meeting of a shareholder who has signed a
proxy does not in itself revoke a proxy.
Proxies will be solicited by mail. In addition to solicitation
by mail, certain officers and employees of the Company may solicit by
telephone, telegraph and personally. Such officers and employees will not
be specifically paid for these services. The cost of solicitation
including preparing, assembling and mailing the proxy material will be
borne by the Company. The Notice of Special Meeting of Shareholders, this
Proxy Statement and the accompanying form of proxy are first being mailed
to shareholders of the Company beginning on or about July 28, 1997.
The Company has four separate portfolios (the "Funds"), each of
which has its own objective or objectives, assets, liabilities and net
asset value per share. The Funds are (1) the Aquinas Fixed Income Fund
(the "Fixed Income Fund"), (2) the Aquinas Equity Income Fund (the "Equity
Income Fund"), (3) the Aquinas Equity Growth Fund (the "Equity Growth
Fund") and (4) the Aquinas Balanced Fund (the "Balanced Fund").
The following proposals will be presented to the shareholders at
the Meeting:
Proposal No. 1 Election of Directors
Proposal No. 2(a) Approval of New Portfolio Management
(Sub-Advisory) Agreement for the Fixed
Income Fund
Proposal No. 2(b) Approval of New Portfolio Management
(Sub-Advisory) Agreement for the
Balanced Fund
The record holder of each outstanding share of a Fund is
entitled to one vote on all matters submitted to shareholders of that
Fund. The table below sets forth the Proposals for which shareholders of
each Fund are being solicited:
Fixed Equity Equity
Proposal Income Income Growth Balanced
No. Fund Fund Fund Fund
1 Yes Yes Yes Yes
2(a) Yes No No No
2(b) No No No Yes
See "Vote Required" under each Proposal for information as to
the required vote on each Proposal.
Only shareholders of record of the Funds at the close of
business on June 20, 1997 will be entitled to notice of and to vote at the
Meeting. On that date, there were 3,958,987.273 issued and outstanding
shares of the Fixed Income Fund, 4,142,081.985 issued and outstanding
shares of the Equity Income Fund, 1,871,154.061 issued and outstanding
shares of the Equity Growth Fund and 2,211,897.176 issued and outstanding
shares of the Balanced Fund.
As of June 20, 1997, the only shareholder of the Company, who to
the Company's knowledge owned more than 5% of the outstanding securities
of any Fund was The Catholic Foundation, 5310 Harvest Hill Road, Suite
248, Dallas, Texas, which owned 1,268,625.667 shares (32.0% of the
outstanding shares) of the Fixed Income Fund, of which 825,407.394 shares
(65.1%) were owned as trustee and 443,218.273 shares (34.9%) were
beneficially owned; 354,299.200 shares (8.6% of the outstanding shares) of
the Equity Income Fund, of which 354,299.200 shares (100.0%) were owned as
trustee; 334,337.139 shares (17.9% of the outstanding shares) of the
Equity Growth Fund, of which 118,427.298 shares (35.4%) were owned as
trustee and 215,909.841 shares (64.6%) were beneficially owned; and
1,604,227.325 shares (72.5% of the outstanding shares) of the Balanced
Fund, of which 448,217.424 shares (27.9%) were owned as trustee and
1,156,009.901 shares (72.1%) were beneficially owned. No other person
owns of record or beneficially 5% or more of the outstanding securities of
any Fund. By virtue of its stock ownership, The Catholic Foundation is
deemed to "control," as that term is defined in the 1940 Act, the Balanced
Fund. Although The Catholic Foundation controls the Balanced Fund, it
does not control the Company. The Catholic Foundation has sufficient
voting power to approve the new portfolio management (sub-advisory)
agreement for the Balanced Fund (Proposed No. 2(b)) without the support of
any other shareholders.
As of June 20, 1997, the officers and directors of the Company
owned less than 1% of the outstanding securities of each Fund.
THE COMPANY WILL FURNISH, WITHOUT CHARGE, ITS ANNUAL REPORT FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1996 TO ANY SHAREHOLDER UPON REQUEST.
REQUESTS FOR SUCH REPORT SHOULD BE DIRECTED TO CHARLES CLARK AT 5310
HARVEST HILL ROAD, SUITE 248, DALLAS, TEXAS 75230 OR BY CALLING 1-800-
423-6369.
1. PROPOSAL TO ELECT FIVE DIRECTORS
Five directors are to be elected at the Meeting to serve an
indefinite term until their respective successors are chosen and
qualified. The table set forth below identifies the five nominees for
election as directors of the Company and provides information as to the
age, principal occupation and background for the last five years. All of
the nominees are members of the present Board of Directors. Mr. Corboy,
Mr. Marquez and Mr. Strauss became directors in October 1993. Sister
Gonzalez became a director in February 1996. Mr. Clark became a director
in February 1997.
Each nominee has consented to being named in this Proxy
Statement and to serve if elected. The Company has no reason to believe
that any of the nominees will be unable to serve as director. However, in
such event, the persons named as proxies will have discretionary authority
to select and vote for substituted nominees. It is the intention of the
persons named in the enclosed proxy to vote the shares represented by the
proxies FOR the election of the nominees named below, unless shareholders
specify that their vote be withheld as to all nominees or individual
nominees. The Company's Board of Directors recommends a vote FOR all
nominees.
Directors will be elected by a plurality of votes of the
shareholders (assuming a quorum is present). "Plurality" means that the
individuals receiving the largest number of votes are elected as
Directors, up to the maximum number of Directors to be chosen at the
Meeting. Consequently, any shares not voted at the Meeting, whether due
to abstentions, broker non-votes or otherwise, will have no impact on the
election of directors.
Name of Nominee Position with Principal Occupation
and Age the Company During Past 5 Years
Michael R. Corboy Director President of Corboy Investment
66 Company, a private investment
company.
Sister Imelda Director A member of the staff of the
Gonzalez, CDP National Association of
56 Treasurers of Religious
Institutions since April 1997;
formerly Treasurer General and
Chief Financial Officer of the
Congregation of Divine
Providence of San Antonio,
Texas.
Thomas J. Marquez Director Self-employed private investor
59 since 1990.
Charles Clark* Director President of Olmsted-Kirk
58 Paper Company; Secretary,
Treasurer, and a Director of
Aquinas Investment Advisers,
Inc. since April 1997.
John L. Strauss* Director Principal of Barrow, Hanley,
57 Mewhinney & Strauss, an
investment advisory firm;
Director of Aquinas Investment
Advisers, Inc. since 1993.
___________
*Interested person as defined in the Investment Company Act of 1940.
Mr. Clark and Mr. Strauss are deemed to be "interested persons"
of the Company because they are officers and/or directors of Aquinas
Investment Advisers, Inc., the current investment adviser to the Funds.
The officers of the Company are Mr. Frank Rauscher, 53,
President and Treasurer, Mr. John J. Kickham, 55, Vice President, and Mr.
Clark, Secretary. All of such person serve for an indefinite term. Mr.
Rauscher became an officer in August 1994 and President on May 7, 1997.
Since August, 1994, Mr. Rauscher has been Chief Operating Officer of
Aquinas Investment Advisers, Inc. Prior thereto he was President and
Chief Executive Officer of American Federal Bank. Since November, 1995,
Mr. Kickham has been President of Quarterdeck of Texas, Inc., a mortgage
banking firm. From November 1994 through November 1995, he was President
of Wing Industries, a door manufacturer. Prior thereto he was President
of the Kickham Group, Inc., a private investment company.
None of the nominees serve as directors of public companies.
The Company does not compensate any of its officers or directors
for their services to the Company, except those directors who are not
"interested persons" of the Company. The Company's standard method of
compensating the directors who are not "interested persons" of the Company
is to pay each such director a fee of $500 for each meeting of the Board
of Directors attended. Total fees paid by the Company to such persons
were $5,000 for the fiscal year ended December 31, 1996. Sister Gonzalez
has assigned all fees that she receives as a director to her religious
order. The Company does not provide pension or retirement benefits to its
directors and officers.
The table below sets forth the compensation paid to directors
during the fiscal year ended December 31, 1996:
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Estimated Total Compensation
Compensation Benefits Accrued as Annual from the Company
from the Part of the Benefits Upon and Fund Complex
Name of Person, Position Company Company's Expenses Retirement Paid to Directors
<S> <C> <C> <C> <C>
Bernard P. DiFiore(1), $0 $0 $0 $0
Director, President and Treasurer
Charles Clark (2), 0 0 0 0
Director
Michael R. Corboy, 1,500 0 0 1,500
Director
Sister Imelda Gonzalez, CDP, 1,000 0 0 1,000
Director
Thomas J. Marquez, 1,500 0 0 1,500
Director
C. Williams Pollock (3), 1,000 0 0 1,000
Director
John L. Strauss, 0 0 0 0
Director
Charles J. Tusa(4), 0 0 0 0
Director and Secretary
(1) Mr. DiFiore resigned as a director and officer of the Company in May
1997.
(2) Mr. Clark became a director of the Company on February 28, 1997.
(3) Mr. Pollock resigned as a director of the Company in April 1997.
(4) Mr. Tusa resigned as a director and officer of the Company in
February 1997.
</TABLE>
The Board of Directors has no audit, nominating, compensation or
other similar committees. The Board of Directors met four times during
the fiscal year ended December 31, 1996. Of the nominees who were
directors in 1996, Mr. Strauss attended all four of the meetings of the
Board of Directors and Sister Gonzalez and Messrs. Corboy and Marquez
attended two of the four meetings.
2(a). PROPOSAL TO APPROVE A NEW PORTFOLIO MANAGEMENT (SUB-ADVISORY)
AGREEMENT FOR THE FIXED INCOME FUND
2(b). PROPOSAL TO APPROVE A NEW PORTFOLIO MANAGEMENT (SUB-ADVISORY)
AGREEMENT FOR THE BALANCED FUND
Introduction
The Company presently has a management and advisory agreement
("Management Agreement") with Aquinas Investment Advisers, Inc., 5310
Harvest Hill Road, Suite 248, Dallas, Texas 75230 (the "Adviser"), with
respect to each of the Fixed Income Fund and the Balanced Fund, pursuant
to which the Adviser provides consulting, investment and administrative
services to the Funds. In addition, the Company and the Adviser have
portfolio management agreements (sub-advisory agreements) with Atlantic
Asset Management Partners, L.L.C. ("AAM") and one other portfolio manager
with respect to the Fixed Income Fund, and the Company and the Adviser
have portfolio management agreements (sub-advisory agreements) with each
of AAM and four other portfolio managers with respect to the Balanced Fund
(the portfolio management agreements with AAM are collectively referred to
as the "Current Portfolio Management Agreements"). The Management
Agreement and the Current Portfolio Management Agreements were approved by
the Company's Board of Directors, including a majority of those Directors
who were not "interested persons" of the Funds on November 16, 1993 and by
the original shareholder of the Company with respect to the Fixed Income
Fund and the Balanced Fund on December 22, 1993. The Adviser and the
Company have entered into new portfolio management agreements with AAM
(the "New Portfolio Management Agreements") with respect to each of the
Fixed Income Fund and the Balanced Fund. The New Portfolio Management
Agreements were approved by the Company's Board of Directors, including a
majority of those directors who were not "interested persons" of the
Company, on June 19, 1997. The New Portfolio Management Agreements will
take effect on September 1, 1997 assuming they are approved by the
shareholders of the Fixed Income Fund and the Balanced Fund at the
Meeting.
Under the Current Portfolio Management Agreements, the Adviser
pays AAM an annual fee based on the value of the assets of the Fixed
Income Fund and the Balanced Fund managed by AAM. Under the New Portfolio
Management Agreements, the Adviser will pay AAM a fee based, in part, on
the investment performance of the Fixed Income Fund and Balanced Fund.
Under both the Current Portfolio Management Agreements and the New
Portfolio Management Agreements, the Adviser, and not the Company, pays
AAM's fee. Consequently, the fees paid by the Fixed Income Fund and the
Balanced Fund will not be changed if the New Portfolio Management
Agreements are approved. For the reasons discussed below, the Company's
Board of Directors believes that it is in the best interests of the Fixed
Income Fund and the Balanced Fund and their shareholders to replace the
Current Portfolio Management Agreements with the New Portfolio Management
Agreements.
Description of Management Agreement and Current and New Portfolio
Management Agreements
Pursuant to the Management Agreement, the Adviser (i) provides
or oversees the provision of all general management and administrative,
investment advisory and portfolio management, and distribution services
for the Funds; (ii) provides the Funds with office space, equipment and
personnel necessary to operate and administer the Funds' business, and to
supervise the provision of services by third parties such as the portfolio
managers and custodian; (ii) develops the investment programs, selects
portfolio managers, allocates assets among portfolio managers and monitors
the portfolio managers' investment programs and results; and (iv) is
authorized to select or hire portfolio managers to select individual
portfolio securities held in the Funds. The Adviser bears the expenses it
incurs in providing these services as well as the costs of preparing and
distributing explanatory materials concerning the Funds. The Adviser also
provides asset management consulting services - including the objective-
setting and asset-allocation technology, and portfolio manager research
and evaluation assistance.
For its services, the Adviser receives an annual management fee
from each Fund. The annual management fees, payable monthly on a pro rata
basis, are .60% of the average daily net assets for the Fixed Income Fund
and 1.00% of the average daily net assets for the Balanced Fund. The
Adviser has agreed to reimburse the Fixed Income Fund to the extent
aggregate annual operating expenses exceed 1.00% of the Fixed Income Fund
average daily net assets and has agreed to reimburse the Balanced Fund to
the extent aggregate annual operating expenses exceed 1.50% of the
Balanced Fund's average daily net assets.
For the fiscal year ended December 31, 1996, the fees paid to
the Adviser for management and investment advisory services were $203,761
(net of reimbursements of $10,507) for the Fixed Income Fund and $278,719
for the Balanced Fund. However the fees paid to the Adviser with respect
to the assets managed by AAM were $103,918 (net of reimbursements of
$5,359) for the Fixed Income Fund and $52,957 for the Balanced Fund.
The specific security investments for each Fund are made by
portfolio managers selected for the Funds by the Adviser. The Adviser and
the Company enter into portfolio management (sub-advisory) agreements with
respect to a specific Fund with each of the portfolio managers for the
Fund. Under the portfolio management agreements, the portfolio manager is
authorized to make specific portfolio investments for that segment of the
assets of a Fund under its management in accordance with the particular
Fund's investment objectives and the portfolio manager's investment
approach and strategies.
The Current Portfolio Management Agreements for the Fixed Income
Fund and Balanced Fund are identical to the New Portfolio Management
Agreement except for the fees payable by the Adviser to AAM (see
"Comparison of Fee Rates"). Under the New Portfolio Management
Agreements, AAM is responsible for decisions to buy and sell securities
for its segment of the Fixed Income Fund and the Balanced Fund, broker-
dealer selection and negotiation of brokerage commission rates. These
activities of AAM are subject to the control and direction of the
Company's Board of Directors and the Adviser and are identical to the
activities of AAM under the Current Portfolio Management Agreements.
Each of the New Portfolio Management Agreements will continue in
effect for an initial period beginning as of the date approved by
shareholders and ending February 26, 1998 (the date on which the Current
Portfolio Management Agreements are scheduled to terminate unless
continued) and thereafter will remain in effect as long as its continuance
is specifically approved at least annually by (i) the Company's Board of
Directors, or by the vote of a majority (as defined in the 1940 Act) of
the outstanding shares of the particular Fund; and (ii) by the vote of a
majority of the directors of the Company who are not parties to the New
Portfolio Management Agreements or interested persons of AAM, cast in
person at a meeting called for the purpose of voting on such approval.
The New Portfolio Management Agreements provide that they may be
terminated at any time without the payment of any penalty by the Company's
Board of Directors or by vote of a majority of the particular Fund's
shareholders, on thirty days written notice to AAM, and by AAM on the same
notice to the Company and shall be automatically terminated if assigned.
Comparison of Fee Rates
Under the Current Portfolio Management Agreements, for AAM's
services to the Fixed Income Fund and the Balanced Fund, the Adviser pays
AAM a fee, computed daily and payable monthly, at the following annual
rate based on average daily net assets under management:
Assets Fee Rate
0 to $15 million 0.380%
$15 million to $45 million 0.300%
$45 million to $100 million 0.200%
Over $100 million 0.100%
No performance or incentive fees are paid to AAM. As of the close of
business on December 31, 1996, the total net assets of the Fixed Income
Fund and Balanced Fund were $37,228,994 and $29,670,007, respectively.
However, the value of the assets managed by AAM were $19,002,184 for the
Fixed Income Fund and $6,013,017 for the Balanced Fund on such date.
The New Portfolio Management Agreements eliminate the
breakpoints included in the Current Portfolio Management Agreements and
provide for a performance fee rate (the "Performance Fee Rate"), which
will range from a floor of 0.10% to a cap of 0.50%, as more specifically
described below. The Performance Fee Rate is a fulcrum fee with the
fulcrum (or mid-point) being 0.30%. In determining the applicable
Performance Fee Rate, the total return of the assets of each of the Fixed
Income Fund and the Balanced Fund under the management of AAM will be
compared over a rolling twelve month period to the performance of the
Lehman Brothers Aggregate Bond Index (the "Index"). In order to achieve
the fulcrum rate, AAM must outperform the Index by 1.20% (i.e., if the
total return of the Index is 5.00%, the total return of the assets under
the management of AAM must be 6.20%). The cap will be reached if AAM
outperforms the Index by 2.20% or more and the floor will be reached if
AAM outperforms the Index by .20% or less. The Index measures the total
investment return (capital change plus income) provided by a universe of
fixed income securities, weighted by the market value outstanding of each
security. The Index encompasses four classes of investment grade fixed
income securities in the United States: U.S. Treasury and agency
securities, corporate debt obligations (including Yankee debt issued or
guaranteed by foreign sovereign governments, municipalities, or
governmental or international agencies), mortgage-backed securities, and
asset-backed securities. The securities included in the Index generally
meet the following criteria, as defined by Lehman Brothers: an effective
maturity of not less than one year; an outstanding market value of at
least $100 million for U.S. Government issues and $25 million for all
other issues; and investment grade quality - i.e., rated a minimum of Baa
by Moody's Investors Service, Inc. or rated a minimum BBB by Standard &
Poor's Corporation.
The New Portfolio Management Agreements provide that beginning
on September 1, 1997 and ending August 31, 1998 (the "Initial Period"),
for its services to the Fixed Income Fund and the Balanced Fund, the
Adviser will pay AAM a fee, computed daily and paid monthly, at the annual
rate of 0.10% of the average daily assets of each of the Fixed Income Fund
and the Balanced Fund. On or before September 10, 1998, the Adviser will
pay AAM a "catch up" fee in an amount equal to (a) the product of average
daily net assets of each of the Fixed Income Fund and the Balanced Fund
during the Initial Period multiplied by Performance Fee Rate for August
1998 (as described below), less (b) the sum of all payments made by the
Adviser to AAM during the Initial Period.
Beginning September 1, 1998, for its services to the Fixed
Income Fund and the Balanced Fund, the Adviser will pay AAM a fee,
computed daily and paid monthly determined by multiplying the average
daily net assets of each of the Fixed Income Fund and the Balanced Fund
during the month by 1/12 of the Performance Fee Rate. The Performance Fee
Rate is determined by applying the following formula:
Performance Fee Rate = 0.30% + [0.20 x (Excess Return - 1.20%)]
However, the Performance Fee Rate may never be lower than 0.10% and may
never be greater than 0.50%. "Excess Return" is equal to AAM's Total
Return less the Benchmark Total Return for the twelve month period
beginning on the first day of the eleventh month prior to the month for
which the Performance Fee Rate is calculated and ending on the last day of
such month (e.g., the Performance Fee Rate for August 1998 is based on
total returns for the period beginning September 1, 1997 and
ending August 31, 1998). The "Benchmark Total Return" is the change in
the level of the Index during the measuring period. "AAM's Total Return"
is the change in value of assets of the Fixed Income Fund and the Balanced
Fund under the management of AAM plus any interest paid or accrued on such
assets less brokerage commission paid on the acquisition or disposition of
such assets during the measuring period. The value of the assets under
the management of AAM is based on the prices used in calculating the daily
net asset value of the Fixed Income Fund and the Balanced Fund. AAM's
Total Return is adjusted on a time-weighted basis for any assets added to
or withdrawn from the assets under the management of AAM.
For the fiscal year ended December 31, 1996, the fees paid by
the Adviser to AAM for management and investment advisory services under
the Current Portfolio Management Agreements were $64,813 for the Fixed
Income Fund and $19,135 for the Balanced Fund. If the Performance Fee
Rate proposed under the New Portfolio Management Agreements had been put
in effect on January 1, 1996, the fees paid by the Adviser to AAM would
have been $18,387 for the Fixed Income Fund and $9,351 for the Balanced
Fund. Such fees would represent a 71.6% decrease for the Fixed Income
Fund and a 51% decrease for the Balanced Fund.
Description of AAM
AAM is a registered investment adviser. Its address is 40
Signal Road, Stamford, Connecticut 06902. AAM is controlled by Ronald
Sellers, whose address is the same as that of AAM. AAM manages fixed-
income portfolios and asset allocation strategies for institutional
clients including foundations, endowments and public and corporate
employee benefit plans. As of June 30, 1997, AAM and its affiliates
managed approximately $2.6 billion in assets. Set forth below are the
names, addresses and principal occupations of the principal executive
officers and members of AAM.
Position with AAM and Principal
Name and Address Occupation
Ronald W. Sellers President and Chief Executive Officer
40 Signal Road
Stamford, CT 06902
Connice A. Bavely Senior Vice President and Portfolio
Strategist
40 Signal Road
Stamford, CT 06902
Elaine S. Hunt Senior Vice President and Portfolio
Strategist
40 Signal Road
Stamford, CT 06902
Janet K. Navon Senior Vice President and Portfolio
Strategist
40 Signal Road
Stamford, CT 06902
Donald W. Trotter Senior Vice President and Portfolio
Strategist
11050 Roe Avenue
Suite 200
Overland Park, KS 66211-1216
AAM acts as sub-adviser to one other investment company having
an investment objective similar to the Fixed Income Fund, the TIFF U.S.
Bond Fund portfolio of TIFF Investment Program, Inc. At December 31, 1996
this fund had net assets of $44.6 million. AAM receives an investment
advisory from such fund calculated by applying the following formula:
Performance Fee Rate = 0.15% + [0.20% x (Excess Return - 0.65%)]
This performance fee rate may not be lower than 0.10% and may not be
greater than 0.60%. The benchmark return is the Lehman
Government/Corporate Index. AAM has advised the Company that it has not
waived, reduced or otherwise agreed to reduce its compensation under its
agreement with TIFF Investment Program, Inc.
AAM has no affiliations with the Company or the Adviser or any
of their directors, officers or employees.
The Evaluation by the Board of Directors and Directors' Recommendation
The Company's Board of Directors has determined that approving
the New Portfolio Management Agreements with AAM on behalf of the Fixed
Income Fund and the Balanced Fund will better provide the appropriate
incentives for AAM in making portfolio investments through the Performance
Fee Rate. To mitigate the concern that AAM might be encouraged to take
undue risks under the performance fee arrangement, the Company's Board of
Directors has instructed the Adviser to insist that AAM manage the assets
of the Fixed Income Fund and the Balanced Fund in the same manner that it
manages accounts without a performance fee. The Company's Board of
Directors believes that the New Portfolio Management Agreements with AAM
will enable the Fixed Income Fund and the Balanced Fund to obtain services
of high quality at costs deemed appropriate, reasonable and in the best
interests of the Fixed Income Fund and the Balanced Fund and their
shareholders.
In making its determinations, the Company's Board of Directors
took into consideration the fact that AAM has demonstrated its abilities
as a portfolio manager while serving as a portfolio manager to the Fixed
Income Fund and the Balanced Fund and that the terms of the Current
Portfolio Management Agreements and the New Portfolio Management
Agreements were identical except for the fees payable to AAM. The
Company's Board of Directors considered the fact that the Adviser and not
the Fixed Income Fund or the Balanced Fund pays the fees of AAM.
Consequently, if AAM performed poorly, the reduced fee would benefit the
Adviser and if AAM performed well, the increased fee would be paid by the
Adviser. While the Board of Directors recognized that this arrangement
might provide an incentive for the Adviser to tolerate poor performance,
it considered that factor to be mitigated by the fact that the
continuation of the New Portfolio Management Agreements requires the
annual approval of the directors who are not interested persons of the
Adviser. The Company's Board of Directors also believed that the
Adviser's payment of AAM's fees would result in a more stable expense
ratio and would accommodate the changing shareholder base of the Fixed
Income Fund and the Balanced Fund. (If the Fixed Income Fund and the
Balanced Fund paid AAM's fees, new shareholders in certain circumstances
could, in effect, pay investment advisory fees based on the performance of
AAM during periods in which its performance differed materially from AAM's
then current performance.)
Finally, the Company's Board of Directors determined that (i)
the Index was an appropriate benchmark since it included the types of
securities in which AAM invests; (ii) the performance required to achieve
the fulcrum (or mid-point) was an appropriate performance goal; and (iii)
the formula for determining the performance fee resulted in significant
fee adjustments only in response to significant performance differences.
Based upon its review, the Company's Board of Directors
concluded that the New Portfolio Management Agreements with AAM are
reasonable, fair and in the best interests of the Fixed Income Fund and
the Balanced Fund and their shareholders, and the fees provided in the New
Portfolio Management Agreements with AAM are fair and reasonable. In the
Board's view, retaining AAM to serve as a portfolio manager of the Fixed
Income Fund and the Balanced Fund, under the terms of the New Portfolio
Management Agreements with AAM is desirable and in the best interests of
each of the Fixed Income Fund and the Balanced Fund and their
shareholders. Accordingly, after consideration of the above factors, and
such other facts and information as it deemed relevant, the Company's
Board of Directors, including a majority of the directors who are not
parties to the New Portfolio Management Agreements or interest persons (as
defined in the 1940 Act) of any such party, approved the New Portfolio
Management Agreements with AAM and voted to recommend their approval by
the shareholders of the Fixed Income Fund and the Balanced Fund.
Vote Required
The favorable vote of the holders of a "majority" (as defined in
the 1940 Act) of the outstanding shares of the Fixed Income Fund and the
Balanced Fund, respectively, is required for the approval of each New
Portfolio Management Agreement for the particular Fund. Under the 1940
Act, the vote of the holders of a "majority" of the outstanding shares of
a Fund means the vote of the holders of the lesser of (a) 67% or more of
its shares present at the Meeting or represented by proxy if the holders
of 50% or more of its shares are so present or represented; or (b) more
than 50% of its outstanding shares. The failure to vote (whether by
broker non-vote or otherwise, except abstention), assuming more than 50%
of the outstanding shares of the Fund are present, has no effect if (a)
above is applicable and has the same effect as a vote against the proposal
if (b) above is applicable. As indicated above, The Catholic Foundation
has sufficient voting power to approve the New Portfolio Management
Agreement for the Balanced Fund. If a New Portfolio Management Agreement
is not approved at the Meeting, the Current Portfolio Management Agreement
will continue until its scheduled termination date.
INVESTMENT ADVISER AND ADMINISTRATOR
The Company's investment adviser is Aquinas Investment Advisers,
Inc., 5310 Harvest Hill, Suite 428, Dallas, Texas 75320. The Company's
administrator is Sunstone Financial Group, Inc., 207 East Buffalo Street,
Suite 400, Milwaukee, Wisconsin 53202. The Company has no principal
underwriter.
RECEIPT OF SHAREHOLDER PROPOSALS
Under the proxy rules of the Securities and Exchange Commission,
shareholder proposals meeting tests contained in those rules may, under
certain conditions, be included in the Company's proxy materials for a
particular meeting of shareholders. One of these conditions relates to
the timely receipt by the Company of any such proposal. Since the Company
does not have regular annual meetings of shareholders, under these rules,
proposals submitted for inclusion in the proxy materials for a particular
meeting must be received by the Company a reasonable time before the
solicitation of proxies for the meeting is made. The fact that the
Company receives a shareholder proposal in a timely manner does not insure
its inclusion in the Company's proxy materials since there are other
requirements in the proxy rules relating to such inclusion.
OTHER MATTERS
The Company's Board of Directors knows of no other matters that
may come before the Meeting. If any other matters properly come before
the Meeting, it is the intention of the persons acting pursuant to the
enclosed form of proxy to vote the shares represented by said proxies in
accordance with their best judgment with respect to such matters.
By Order of the Board of Directors
CHARLES CLARK
Secretary
Dallas, Texas
July 28, 1997
<PAGE>
PROXY PROXY
THE AQUINAS FUNDS, INC.
AQUINAS FIXED INCOME FUND
Special Meeting of Shareholders
to be held on August 14, 1997
This Proxy is Solicited on Behalf of the Board of Directors of The Aquinas
Funds, Inc.
The undersigned constitutes and appoints Charles Clark and Frank Rauscher,
and each of them, each with full power to act without the other, and each
with full power of substitution, the true and lawful proxies of the
undersigned, to represent and vote, as designated on the reverse side, all
shares of Aquinas Fixed Income Fund that the undersigned is entitled to
vote at the Special Meeting of Shareholders of The Aquinas Funds, Inc. to
be held at 5310 Harvest Hill Road, Suite 248, Dallas, Texas 75230, on
Thursday, the 14th day of August, 1997, at 8:30 a.m., local time, and at
any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2(a).
The undersigned acknowledges receipt of the Notice of said Special Meeting
and the accompanying Proxy Statement.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) on your account. Joint
owners should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, give full title as such.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
__________________________________ ________________________________
__________________________________ ________________________________
__________________________________ ________________________________
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
1. Election of Directors.
THE AQUINAS FUNDS, INC. For All With- For All
Nominees hold Except
[ ] [ ] [ ]
Charles Clark
AQUINAS FIXED INCOME FUND Michael R. Corboy
Sister Imelda Gonzalez, CDP
Mark box at right if an Thomas J. Marquez
address change or comment John L. Strauss
has been noted on the
reverse side of this card. [_]
RECORD DATE SHARES: INSTRUCTION: To withhold authority to
vote for any individual nominee, mark
the "For All Except" box and strike a
line through the name(s) of the
nominee(s). Your shares will be voted
for the remaining nominee(s).
2(a). Proposal to appove a new portfolio
management (sub-advisory)
agreement between The Aquinas
Funds, Inc., Aquinas Investment
Advisers, Inc. and Atlantic Asset
Management Partners L.L.C. with
respect to the Aquinas Fund Income
Fund. For Against Abstain
[ ] [ ] [ ]
3. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Please be sure Date
to sign and date
this Proxy.
The Board of Directors recommends a vote FOR
proposals 1 and 2(a).
Shareholder sign here
Co-owner sign here
DETACH CARD DETACH CARD
<PAGE>
PROXY PROXY
THE AQUINAS FUNDS, INC.
AQUINAS EQUITY GROWTH FUND
Special Meeting of Shareholders
to be held on August 14, 1997
This Proxy is Solicited on Behalf of the Board of Directors of The Aquinas
Funds, Inc.
The undersigned constitutes and appoints Charles Clark and Frank Rauscher,
and each of them, each with full power to act without the other, and each
with full power of substitution, the true and lawful proxies of the
undersigned, to represent and vote, as designated on the reverse side, all
shares of Aquinas Equity Growth Fund that the undersigned is entitled to
vote at the Special Meeting of Shareholders of The Aquinas Funds, Inc. to
be held at 5310 Harvest Hill Road, Suite 248, Dallas, Texas 75230, on
Thursday, the 14th day of August, 1997, at 8:30 a.m., local time, and at
any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1.
The undersigned acknowledges receipt of the Notice of said Special Meeting
and the accompanying Proxy Statement.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) on your account. Joint
owners should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, give full title as such.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
______________________________________ _______________________________
______________________________________ _______________________________
______________________________________ _______________________________
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
1. Election of Directors.
For All With- For All
Nominees hold Except
THE AQUINAS FUNDS, INC. [ ] [ ] [ ]
Charles Clark
AQUINAS EQUITY GROWTH FUND Michael R. Corboy
Sister Imelda Gonzalez, CDP
Mark box at right if an Thomas J. Marquez
address change or comment John L. Strauss
has been noted on the
reverse side of this card. [_]
RECORD DATE SHARES: INSTRUCTION: To withhold authority to
vote for any individual nominee, mark
the "For All Except" box and strike a
line through the name(s) of the
nominee(s). Your shares will be voted
for the remaining nominee(s).
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Please be sure Date
to sign and date
this Proxy.
The Board of Directors recommends a vote FOR
proposal 1.
Shareholder sign here
Co-owner sign here
DETACH CARD DETACH CARD
<PAGE>
PROXY PROXY
THE AQUINAS FUNDS, INC.
AQUINAS EQUITY INCOME FUND
Special Meeting of Shareholders
to be held on August 14, 1997
This Proxy is Solicited on Behalf of the Board of Directors of The Aquinas
Funds, Inc.
The undersigned constitutes and appoints Charles Clark and Frank Rauscher,
and each of them, each with full power to act without the other, and each
with full power of substitution, the true and lawful proxies of the
undersigned, to represent and vote, as designated on the reverse side, all
shares of Aquinas Equity Income Fund that the undersigned is entitled to
vote at the Special Meeting of Shareholders of The Aquinas Funds, Inc. to
be held at 5310 Harvest Hill Road, Suite 248, Dallas, Texas 75230, on
Thursday, the 14th day of August, 1997, at 8:30 a.m., local time, and at
any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1.
The undersigned acknowledges receipt of the Notice of said Special Meeting
and the accompanying Proxy Statement.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) on your account. Joint
owners should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, give full title as such.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
___________________________________ __________________________________
___________________________________ __________________________________
___________________________________ __________________________________
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
1. Election of Directors.
For All With- For All
Nominees hold Except
[ ] [ ] [ ]
THE AQUINAS FUNDS, INC.
Charles Clark
AQUINAS EQUITY INCOME FUND Michael R. Corboy
Sister Imelda Gonzalez, CDP
Mark box at right if an Thomas J. Marquez
address change or comment John L. Strauss
has been noted on the
reverse side of this card. [_]
RECORD DATE SHARES: INSTRUCTION: To withhold authority to
vote for any individual nominee, mark
the "For All Except" box and strike a
line through the name(s) of the
nominee(s). Your shares will be voted
for the remaining nominee(s).
2. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Please be sure Date
to sign and date
this Proxy.
The Board of Directors recommends a vote FOR
proposal 1.
Shareholder sign here
Co-owner sign here
DETACH CARD DETACH CARD
<PAGE>
PROXY PROXY
THE AQUINAS FUNDS, INC.
AQUINAS BALANCED FUND
Special Meeting of Shareholders
to be held on August 14, 1997
This Proxy is Solicited on Behalf of the Board of Directors of The Aquinas
Funds, Inc.
The undersigned constitutes and appoints Charles Clark and Frank Rauscher,
and each of them, each with full power to act without the other, and each
with full power of substitution, the true and lawful proxies of the
undersigned, to represent and vote, as designated on the reverse side, all
shares of Aquinas Balanced Fund that the undersigned is entitled to vote
at the Special Meeting of Shareholders of The Aquinas Funds, Inc. to be
held at 5310 Harvest Hill Road, Suite 248, Dallas, Texas 75230, on
Thursday, the 14th day of August, 1997, at 8:30 a.m., local time, and at
any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2(b).
The undersigned acknowledges receipt of the Notice of said Special Meeting
and the accompanying Proxy Statement.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) on your account. Joint
owners should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, give full title as such.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_______________________________ ____________________________________
_______________________________ ____________________________________
_______________________________ ____________________________________
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
1. Election of Directors.
For All With- For All
Nominees hold Except
[ ] [ ] [ ]
THE AQUINAS FUNDS, INC.
Charles Clark
AQUINAS BALANCED FUND Michael R. Corboy
Sister Imelda Gonzalez, CDP
Mark box at right if an Thomas J. Marquez
address change or comment John L. Strauss
has been noted on the
reverse side of this card. [_]
RECORD DATE SHARES: INSTRUCTION: To withhold authority to
vote for any individual nominee, mark
the "For All Except" box and strike a
line through the name(s) of the
nominee(s). Your shares will be voted
for the remaining nominee(s).
2(b). Proposal to appove a new portfolio
management (sub-advisory)
agreement between The Aquinas
Funds, Inc., Aquinas Investment
Advisers, Inc. and Atlantic Asset
Management Partners L.L.C. with
respect to the Aquinas Fund Income
Fund. For Against Abstain
[ ] [ ] [ ]
3. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
Please be sure Date
to sign and date
this Proxy.
The Board of Directors recommends a vote FOR
proposals 1 and 2(b).
Shareholder sign here
Co-owner sign here
DETACH CARD DETACH CARD
