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A New Fund Concept

Quintara Funds may be onto something new with its performance-based fees.

"This is totally unique. There is nothing out there like this," said John Benvenuto, a senior consultant with Financial Research Corp. It's very unusual to tie performance to the subadvisors of a fund, let alone have five of them vying for a special bonus, he said.

Just more than 14% of all open-end mutual funds are subadvised, according to Morningstar. Few have multiple subadvisors. Even fewer, only 22, have both multiple managers and a performance incentive fee, whether that incentive fee is paid directly to the advisor or filtered down to the subadvisor(s).

The Accessor Funds, a no-load family of nine mutual funds in Seattle offers a variation on the theme, but has only one subadvisor presiding over each of its funds. Eight of its funds (a government money fund is excluded) pay a set management fee to the fund's advisor, Accessor Capital Management. But each fund's subadvisor earns a subadvisory fee that may be increased or decreased depending upon the individual fund's performance and, in some cases, the total asset level of the fund.

There's been no visible push to add performance incentive fees, according to fund data company Lipper. Although USAA Investment Management of San Antonio recently received shareholder approval to add a performance-based fee beginning in July of 2002, as of June 30, 2001, only 1.76% of all fund share classes had a performance incentive fee, compared to a similar 1.63% of share classes in June 1998.

Based upon its Quintara's peculiar structure, Lipper would actually classify the Quintara Funds arrangement as co-advisors, because each gets paid a separately charged fee, said Lipper VP of portfolio evaluation Jeff Keil. Keil also noted that a 50 basis point fee being paid to Quintara as the fund's adviser and subadviser evaluator and coordinator is rather high.

Quintara CEO Matthew Sadler noted that he is currently in negotiations to hire the five, yet unnamed, subadvisers for each fund. He also said that he expects to launch additional similarly structured funds in other asset classes in the future as part of the Quintara Funds group.