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U.S. Securities and Exchange Commission

United States of America
before the
Securities and Exchange Commission

Securities Act of 1933
Release No. 8136 / October 2, 2002

Investment Advisers Act of 1940
Release No. 2065 / October 2, 2002

Investment Company Act Of 1940
Release No. 25761 / October 2, 2002

Administrative Proceeding
File No. 3-10907


In the Matter of

THE THURLOW FUNDS, INC.,
THURLOW CAPITAL MANAGEMENT,
INC. AND THOMAS F. THURLOW,

Respondents.


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ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDING, MAKING FINDINGS, IMPOSING REMEDIAL SANCTIONS AND ISSUING CEASE-AND-DESIST ORDERS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public administrative proceeding be instituted against The Thurlow Funds, Inc. (the "Thurlow Funds"), Thurlow Capital Management, Inc. ("Thurlow Capital Management") and Thomas F. Thurlow ("Thurlow") (collectively "Respondents") pursuant to Section 8A of the Securities Act of 1933 (the "Securities Act"), Sections 203(e) and (f) of the Investment Advisers Act of 1940 (the "Advisers Act") and Sections 9(b) and (f) of the Investment Company Act of 1940 (the "Investment Company Act").

II.

In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement (the "Offer") to the Commission, which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying any of the findings contained herein, except as to the jurisdiction of the Commission over them and over the subject matter of this proceeding, which Respondents admit, Respondents consent to the entry of this Order Instituting Public Administrative Proceeding, Making Findings, Imposing Remedial Sanctions and Issuing Cease-and-Desist Orders (the "Order").

Accordingly, IT IS HEREBY ORDERED that a proceeding pursuant to Section 8A of the Securities Act, Sections 203(e) and (f) of the Advisers Act and Sections 9(b) and (f) of the Investment Company Act be, and hereby is, instituted.

III.

On the basis of this Order and Respondents' Offer, the Commission makes the following findings:

A. Nature of the Proceedings

This proceeding involves outdated performance returns on an Internet website advertising the Thurlow Growth Fund. The Thurlow Growth Fund is a mutual fund offered by the Thurlow Funds, Inc., a registered investment company whose Chief Executive Officer and Chairman of the Board is Thomas F. Thurlow. As late as December 2000, the website prominently proclaimed returns for Thurlow Growth Fund of 422% from inception through March 10, 2000. This information, while factually accurate, was rendered misleading by Thurlow's failure to disclose that Thurlow Growth Fund's total returns had declined by more than half between March 10, 2000 and September 30, 2000, the most recent quarter. Previously, the Commission's staff had advised the Thurlow Funds that the website for the Thurlow Growth Fund included out-of-date performance returns, and the Thurlow Funds advised the Commission's staff that such deficiencies would be addressed. The Thurlow Funds did not address the deficiencies consistently.

B. Respondents

1. The Thurlow Funds, Inc. (the "Thurlow Funds") is and has been, during all relevant periods, an investment company registered under the Investment Company Act since May 1997. The Thurlow Funds offers a single series of shares called the Thurlow Growth Fund.

2. Thurlow Capital Management, Inc. ("Thurlow Capital Management") is and has been, during all relevant periods, the Thurlow Funds' investment adviser. Thurlow Capital Management has been an investment adviser registered under the Advisers Act since April 1997.

3. Thomas F. Thurlow is and has been, during all relevant periods, the president and sole shareholder of Thurlow Capital Management, as well as Chairman of the Board and Chief Executive Officer of the Thurlow Funds.

C. Facts

1. Since at least 1998, Thurlow Capital Management, on behalf of the Thurlow Funds, has maintained a website for the purpose of advertising the Thurlow Growth Fund. Thurlow has primary responsibility for providing the information contained on the website.

2. In June 1998, following a routine examination, the Commission's staff sent a deficiency letter to the Thurlow Funds specifying that performance returns advertised on its website for the Thurlow Growth Fund were not current to its most recently ended calendar quarter, causing a failure to comply with the requirements of Rule 482(e)(3)(ii) under the Securities Act. In a letter dated July 13, 1998, counsel for the Thurlow Funds responded, advising the staff that, going forward, Thurlow Funds had indicated that it would "at the end of each calendar quarter either remove or update any performance data on its website."

3. On December 21, 2000, the Commission's staff conducted an examination of the Thurlow Funds and confirmed that as of December 19, 2000, the website for the Thurlow Growth Fund prominently displayed a graph entitled "Performance since Inception (August 7, 1997 to March 10, 2000)." This graph claimed a total return for the Thurlow Growth Fund of 422% for this period (compared to substantially lower returns for the Dow Jones, S&P 500, and NASDAQ indices for the same time period).

4. Although the performance calculation was accurate for that period, the Thurlow Growth Fund's total return from inception through September 30, 2000 - the most recent completed quarter prior to the examination - was only 191%. Thus, the Thurlow Growth Fund's total return since inception had declined by more than half between March 10, 2000 (the date at which Thurlow Growth Fund had its highest net asset value) and September 30, 2000. Although other portions of the website had been changed as recently as November 2000, the website had not been modified to update the March 10, 2000 performance figures.

5. As a result, the website emphasized the Thurlow Growth Fund's performance through March 10, 2000, essentially the time at which its performance had peaked, while failing to adequately disclose the decline over the subsequent two quarters.

IV.

By virtue of the conduct described above, the Thurlow Funds willfully1 violated and Thurlow Capital Management and Thurlow willfully aided and abetted and caused violations of:

A. Section 17(a)(2) of the Securities Act, which makes it unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and

B. Section 34(b) of the Investment Company Act, which makes it unlawful for any person to make any untrue statement of a material fact or to omit to state any fact necessary in order to prevent the statements made, in the light of the circumstances under which they were made, from being materially misleading in any registration statement, application, report, account, record, or other document the keeping of which is required pursuant to section 31(a) of the Investment Company Act. By not satisfying the requirement of Rule 482(e)(3)(ii) of the Securities Act that advertised historical performance information be "current to the most recent calendar quarter ended prior to the submission of the advertisement for publication," the website is "materially misleading" by the definition set forth in Rule 34b-1 of the Investment Company Act.

V.

Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by Respondents and impose the sanctions specified therein.

ACCORDINGLY, IT IS HEREBY ORDERED that:

A. Thurlow Capital Management and Thomas F. Thurlow be, and hereby are, censured;

B. The Thurlow Funds, Thurlow Capital Management and Thomas F. Thurlow shall cease and desist from committing or causing any violation and any future violation of Section 17(a)(2) of the Securities Act and Section 34(b) of the Investment Company Act;

C. Thomas F. Thurlow shall pay a civil money penalty of $20,000 to the United States Treasury within seven days of the entry of this Order. Such payment shall be: (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, VA 22312-0003; and (4) submitted under cover of a letter identifying Thomas F. Thurlow as a Respondent in this proceeding, the name and file number of this proceeding, a copy of which cover letter and money order or check shall be sent to District Administrator, Securities and Exchange Commission, San Francisco District Office, 44 Montgomery Street, Suite 1100, San Francisco, CA 94104; and

D. The Thurlow Funds, Thurlow Capital Management and Thomas F. Thurlow shall comply with their undertakings to:

1. Make a written representation, on a quarterly basis for the period of five years from the date of this Order, confirming that any and all websites for any and all series of shares of the Thurlow Funds do not include any performance history, either graphic or textual, which shall be sent to District Administrator, Securities and Exchange Commission, San Francisco District Office, 44 Montgomery Street, Suite 1100, San Francisco, CA 94104. In the alternative, if such performance history is included on any website for any series of shares of the Thurlow Funds, Respondents shall retain for a period of five years from the date of this Order an Independent Consultant not unacceptable to the staff of the Commission to verify that any performance figures included in the website are current and in compliance with the rules and regulations set forth under the federal securities laws, and to make quarterly reports concerning those verifications to the staff. If such Independent Consultant is retained, Respondents shall require the Independent Consultant to enter into an agreement that provides that for the period of engagement and for a period of two years from completion of the engagement, the Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with Respondents, or any of their present or former affiliates, directors, officers, employees, or agents acting in their capacity as such. The agreement will also provide that the Independent Consultant will require that any firm with which he/she is affiliated or of which he/she is a member, and any person engaged to assist the Independent Consultant in performance of his/her duties under this Order shall not, without prior written consent of the San Francisco District Office of the Securities and Exchange Commission, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Respondents, or any of their present or former affiliates, directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement;

2. Mail a copy of this Order, together with a cover letter in a form not unacceptable to the staff of the Commission, to each of the existing shareholders of the Thurlow Growth Fund within thirty (30) days from the date of this Order;

3. Within thirty (30) days from the date of this Order, execute and deliver to District Administrator at the Commission's San Francisco District Office an affidavit that the Thurlow Funds has provided this Order to the existing shareholders of the Thurlow Growth Fund in accordance with the terms of this Order;

4. From the effective date of this Order until the expiration of twelve (12) months, maintain a link to this Order on the home page of any and all websites for any and all series of shares of the Thurlow Funds in a form not unacceptable to the staff of the Commission;

5. Within thirteen (13) months from the date of this Order, execute and deliver to District Administrator at the Commission's San Francisco District Office

an affidavit that the Thurlow Funds has maintained a link to this Order on the home page of any and all websites for any and all series of shares of the Thurlow Funds in accordance with this Order.

By the Commission.

Jonathan G. Katz
Secretary

1 "Willfully" as used in the Order means intentionally committing the act which constitutes the violation. See Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). There is no requirement that the actor also be aware that he is violating one of the Rules or Acts.

 

http://www.sec.gov/litigation/admin/33-8136.htm


Modified: 10/02/2002