[Federal Register Volume 65, Number 4 (Thursday, January 6, 2000)]
[Notices]
[Pages 795-797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-231]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 24227; 812-11670]
New Covenant Funds and New Covenant Trust Company, N.A.; Notice
of Application
December 29, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an 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,
New Covenant Funds (the ``Investment Company'') and New Covenant Trust
Company, N.A. (the ``Adviser''), to enter into and materially amend
subadvisory agreements without obtaining shareholder approval.
FILING DATES: The application was filed by July 2, 1999, and amended on
November 8, 1999. Applicants have agreed to file an amendment during
the notice period, the substance of which is reflected in this notice.
HEARING OF NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on January 24, 2000, 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 Commission's Secretary.
ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC
20549-0609; Applicants, 200 East 12th Street, Jeffersonville, Indiana
47130.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at
(202) 942-0574 or George J. Zornada, 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
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington,
DC 20549-0102 (202) 942-8090).
Applicants' Representations
1. The Investment Company, a Delaware business trust, is registered
under the Act as an open-end management investment company. The
Investment Company offers shares in four separate series: New Covenant
Growth Fund, New Covenant Balanced Growth Fund, New Covenant Income
Fund, and New Covenant Balanced Income Fund (the ``Funds''), each with
its own distinct investment objectives, policies, and restrictions.\1\
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\1\ Applicants also request relief for (a) any series of the
Investment Company organized in the future (``Future Series''), and
(b) any registered open-end management investment companies or
series of those companies advised in the future by the Adviser or a
person controlling, controlled by, or under common control (within
the meaning of section 2(a)(9) of the Act) with the Adviser that
uses the adviser/subadviser structure described in the application
and complies with the terms and conditions of the application
(together with Future Series, ``Future Funds''). Each existing
registered open-end management investment company that currently
intends to rely on the application is named as an applicant. (p. 5)
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[[Page 796]]
2. The Adviser is not required to be registered as an investment
adviser under the Investment Advisers Act of 1940 (the ``Advisers
Act''). The Advisers serves an investment adviser to each Fund pursuant
to an investment management agreement between the Adviser and the
Investment Company (``Investment Management Agreement''). The
Investment Management Agreement has been approved by the initial
shareholder of each Fund and by a majority of the Investment Company's
board of trustees (``Board''), including a majority of the trustees who
are not ``interested persons'' (as defined in section 2(a)(19) of the
Act) (the ``Independent Trustees'').
3. Under the Investment Management Agreement, the Adviser, subject
to Board oversight, provides general management of the Funds'
operations. The Advisers seeks to enhance performance and reduce market
risk by allocating management of the assets of certain of the Funds
among multiple specialist subadvisers (``Subadvisers''). Under
investment subadvisory agreements (``Investment Subadvisory
Agreements''), the specific investment decisions for each Fund are made
by one or more Subadvisers, each of whom has discretionary authority to
invest all or a portion of the assets of a particular Fund, subject to
general supervision by the Adviser and the Board. Currently, the
Adviser employees eight Subadvisers, each of which is registered under
the Advisers Act. Any future Subadviser will be registered under the
Advisers Act or will be exempt from registration. The Adviser monitors
the performance of each Fund and each Subadviser and will recommend
that the Board employee or terminate particular Subadvisers to achieve
the overall investment objectives of a particular Fund. The Adviser
pays the Subadvisers' fees out of the fees the Adviser receives from
the Funds. The Adviser selects Subadvisers for the Funds based on the
continuing quantitative and qualitative evaluation of their skills and
proven abilities in managing assets pursuant to a particular investment
style.
4. Applicants request relief to permit the Adviser to enter into
and materially amend Investment Subadvisory Agreements without
obtaining shareholder approval. The requested relief will not extend to
a Subadviser that is an ``affiliated person,'' as defined in section
2(a)(3) of the Act, of the Investment Company or the Adviser, other
than by reason of serving as a Subadviser to one or more of the Funds
(an ``Affiliated Subadviser''). None of the current Subadvisers is an
Affiliated Subadviser.
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 provides that the Commission may exempt
persons or transactions from the provisions of the Act, or from any
rule thereunder, 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 request an exemption under section
6(c) of the Act from section 15(a) of the Act and rule 18f-2 under the
Act to permit them to enter into and materially amend Investment
Subadvisory Agreements without shareholder approval.
3. Applicants assert that a Fund's investors rely on the Adviser
for investment management services and submit that the role of the
Subadvisers, from the perspective of the investor, is comparable to
that of the individual portfolio advisers employed by other advisory
firms. Applicants contend that requiring shareholder approval of the
Investment Subadvisory Agreements would increase the Investment
Company's expenses and delay the prompt implementation of actions
considered advisable by the Board. Applicants note that the Investment
Management Agreement will continue to be fully subject to section 15 of
the Act and rule 18f-2 thereunder.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Fund or a Future Fund may rely on the order requested
in the application, the operation of the Fund or a Future Fund in the
manner described in the application will be approved by a majority of
the Fund's or Future Fund's outstanding voting securities, as defined
in the Act, or, in the case of a Fund or Future 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 such Fund or Future Fund to
the public.
2. Any Fund or Future Fund relying on the requested relief will
disclose in its prospectus the existence, substance, and effect of any
order granted pursuant to the application. In addition, any such Fund
will hold itself out to the public as employing the ``Subadviser''
structure described in the application. The prospectus with respect to
the Funds and any Future Fund will prominently disclose that the
Adviser has the ultimate responsibility (subject to oversight by the
Board) to oversee the Subadvisers and recommend their hiring,
termination and replacement.
3. The Adviser will provide general management services to the
Investment Company and the Funds, including overall supervisory
responsibility for the general management and investment of each Fund,
and, subject to review and approval by the Board will (i) set each
Fund's overall investment strategies; (ii) evaluate, select, and
recommend Subadvisers to manage all or a part of Fund's assets; (iii)
when appropriate, allocate and reallocate a Fund's assets among
Subadvisers; (iv) monitor and evaluate the performance of Subadvisers;
and (v) implement procedure reasonably designed to ensure that the
Subadvisers comply with the relevant Fund's investment objective,
policies, and restrictions.
4. At all times, a majority of the Board will be Independent
Trustees, and the nomination of new or additional Independent Trustees
will be placed within the discretion of the then existing Independent
Trustees.
5. Neither the Investment Company nor the Adviser will enter into
Investment Subadvisory Agreements on behalf of the Funds with any
Affiliated Subadviser without such agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
6. When a change of Subadviser is proposed for a Fund with an
Affiliated Subadviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
minutes of meetings of the Board that any change of Subadviser is in
the best interest of the Fund and its shareholders, and does not
involve a conflict of interest from which the Adviser or Affiliated
Subadviser derives an inappropriate advantage.
[[Page 797]]
7. No trustee or officer of the Investment Company or director or
officer of the Adviser will own directly or indirectly (other than
through a pooled investment vehicle that is not controlled by any such
person) any interest in a Subadviser except for ownership of interests
in the Adviser or any entity that controls, is controlled by, or is
under common control with the Adviser, or ownership of less than 1% of
the outstanding securities of any class of equity or debt securities of
any publicly traded company that is either a Subadviser of an entity
that controls, is controlled by, or is under common control with a
Subadviser.
8. Within 90 days of the hiring of any new Subadviser, shareholders
will be furnished all information about the new Subadviser that would
be contained in a proxy statement, including any change in such
disclosure caused by the addition of the new Subadviser. 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 Subadviser.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-231 Filed 1-5-00; 8:45 am]
BILLING CODE 8010-01-M
