[Federal Register Volume 61, Number 230 (Wednesday, November 27, 1996)]
[Notices]
[Pages 60312-60314]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30223]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22345; 812-10234]
Calvert Social Investment Fund, et al.; Notice of Application
November 20, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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Applicants: Calvert Social Investment Fund, The Calvert Fund, Calvert
Tax-Free Reserves, Calvert Cash Reserves, Calvert Municipal Fund, Inc.,
Calvert World Values Fund, Inc., Calvert New World Fund, Inc., First
Variable Rate Fund, and Acacia Capital Corporation (collectively, the
``Funds''), Calvert Asset Management Company, Inc. (``CAMC''), and
Calvert-Sloan Advisers LLC (``Calvert-Sloan'' or, together with CAMC,
the ``Advisers'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) of the
Act from the provisions of section 15(a) of the Act and rule 18f-2
thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit them to
enter into and materially amend contracts with the Funds' subadvisers
without shareholder approval.
FILING DATES: The application was filed on July 3, 1996, and amended on
September 3, 1996, and November 18, 1996.
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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on December 16,
1996, and should be accompanied by proof of service on applicant, 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: Funds and Advisers, 4550 Montgomery Avenue, Suite
1000N, Bethesda, Maryland 20814.
FOR FURTHER INFORMATION CONTACT: Mercer E. Bullard, Branch Chief, (202)
942-0564, or Elizabeth G. Osterman, Assistant Director, (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.
Applicants' Representations
1. Each Fund is registered under the Act as an open-end management
investment company with one or more series (the ``Portfolios'').\1\
Calvert Social Investment Fund, The Calvert Fund, Calvert Tax-Free
Reserves, Calvert Cash Reserves, and First Variable Rate Fund are
business trusts organized under Massachusetts law. Calvert Municipal
Fund, Inc., Calvert World Values Fund, Inc., Calvert New World Fund,
Inc., and Acacia Capital Corporation are corporations organized under
Maryland law. Acacia Capital Corporation has six Portfolios, which are
sold only to insurance companies for their separate accounts and not to
individual investors.
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\1\ Applicants also request relief with respect to any
additional Portfolio organized in the future and any other open-end
management investment company advised by an Adviser, or a person
controlling, controlled by, or under common control with an Adviser,
in the future, provided that such investment company operates in
substantially the same manner as the Funds and complies with the
conditions to the requested order.
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2. CAMC is registered as an investment adviser under the Investment
Advisers Act of 1940 (``Advisers Act''). CAMC is an indirect wholly-
owned subsidiary of Acacia Mutual Life Insurance Company. Calvert-
Sloan, a registered investment adviser under the Advisers Act, is a
joint venture between Calvert Group, Ltd., the corporate parent of
CAMC, and Sloan Holdings, Inc., a wholly-owned subsidiary of Sloan
Financial Group, Inc. (``SFG''). SFG is the corporate parent of two of
the subadvisers to the Portfolios, NCM Capital Management Group, Inc.,
and New Africa Advisers, Inc. The Advisers are paid a fee based on
average daily net assets for investment advisory services. Some
Portfolios pay their Adviser a performance-based incentive fee that
conforms to section 205 of the Advisers Act and rules thereunder.
3. CAMC serves as investment manager to each Portfolio (other than
the Calvert New Africa Fund, a series of Calvert New World Fund, Inc.)
pursuant to investment management agreements between the CAMC and each
Fund. Calvert-Sloan serves as investment manager of the Calvert New
Africa Fund.
4. A number of Portfolios employ subadvisers (``Subadvisers''),
each of which is registered as an investment adviser under the Advisers
Act. Certain Portfolios currently employ more than one Subadviser (the
``Multi-Adviser Portfolios''), and others employ one Subadviser (the
``Single Subadviser Portfolios''). Certain Funds do not have Portfolios
that currently employ Subadvisers, but they may do so in the future.
Investment decisions for Portfolios that employ Subadvisers are made by
the Subadvisers, who have discretionary authority to invest all or a
portion of the assets of a Portfolio, subject to the general
supervision of the Advisers and the board of each Fund. Subadvisers
provide advisory services pursuant to an written advisory agreement
(``Investment Subadvisory Agreement''). The Subadvisers' fee are paid
by the Advisers at rates negotiated by the Advisers. The fees are based
on assets allocated to the Subadviser. Some Subadvisers receive a
performance-based incentive fee that conforms to section 205 of the
Advisers Act and rules thereunder.
Applicants' Legal Analysis
1. Section 15(a) of the Act makes it unlawful for any person to act
as investment adviser to a registered
[[Page 60313]]
investment company except pursuant to a written contract that has been
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 such matter if the
Act requires shareholder approval.
2. Applicants request an exemption from section 15(a) of the Act
and rule 18f-2 thereunder to permit the Funds and the Advisers to enter
into and materially amend Investment Subadvisory Agreements without
shareholder approval.
3. Applicants believe that the Advisers' constant supervision of
the Subadvisers will permit the proportion of shareholders' assets
subject to particular Subadviser styles to be reallocated (or new
Subadvisers introduced) in response to changing market conditions or
Subadviser performance, in an attempt to improve a Portfolio's overall
performance. Applicants assert that shareholders are, in effect,
electing to have the Advisers select one or more Subadvisers best
suited to achieve the Portfolio's investment objective. Applicants
state that shareholders rely on the Advisers for investment management
and the Advisers' expertise to select Subadvisers.
4. Applicants contend that, because shareholders rely on the
Advisers to select Subadvisers, it is the investment advisory
agreements with the Advisers (``Investment Advisory Agreements'') over
which shareholders should exercise control. Such Agreements would
continue to be subject to the shareholder approval requirements of
section 15 of the Act.
5. Applicants contend that requiring shareholder approval of
Subadvisers and Investment Subadvisory Agreements would impose costs on
the Funds without advancing shareholder interests. Applicants believe
that shareholders' interests are adequately protected by their voting
rights with respect to the Investment Advisory Agreements and the
responsibilities assumed by the Advisers and the Funds' boards. As
either Maryland corporations or Massachusetts business trusts, the
Funds generally are not required under state law to hold annual
shareholder meetings, and do not generally plan to hold such meetings,
unless legally required to do so, in order to avoid the attendant
costs.
6. Applicants believe that it has become increasingly difficult to
obtain shareholder quorums for shareholder meetings. Without the
requested relief, applicants believe that a Portfolio may be left with
a ``lame duck'' Subadviser while awaiting shareholder approval.
Applicants also believe that requiring shareholder approval of new
Subadvisers and amendments to Investment Subadvisory Agreements would
prevent the Funds from promptly and timely employing Subadvisers best
suited to the needs of the Funds.
7. Applicants contend that shareholders will be provided with
adequate information about Subadvisers. Prospectuses and Statements of
Additional Information will contain all required information regarding
each Subadviser. Within 90 days of the hiring of a new Subadviser or
material amendment of an Investment Subadvisory Agreement, the
Portfolio will furnish shareholders with all the information that would
have been provided in a proxy statement.
8. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of the Act if and
to the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Applicants believe that the requested exemptive relief satisfies this
standard.
Applicants' Conditions
Applicants agree that the order shall be subject to the following
conditions:
1. Before a Portfolio may rely on the order requested in the
application, the operation of the Portfolio in the manner described in
the application will be approved by a majority of the outstanding
voting securities, as defined in the Act, of the Portfolio (or, in the
case of the Acacia Capital Corporation, by the unitholders of any
separate account for which the Corporation serves as a funding medium),
or, in the case of a new Portfolio 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 Portfolio to the public.
2. Any Portfolio relying on the requested relief will disclose in
its prospectus the existence, substance, and effect of any order
granted pursuant to the application.
3. CAMC, or as the case may be, Calvert-Sloan, will provide
management and administrative services to the Portfolios and, subject
to the review and approval of their respective boards of trustees/
directors, will: set the overall investment strategies of the
Portfolios; recommend Subadvisers; allocate and, when appropriate,
reallocate the assets of the Portfolios among Subadvisers; and monitor
and evaluate the investment performance of the subadvisers, including
their compliance with the investment objectives, policies, and
restrictions of the Portfolios.
4. A majority of each board of trustees/directors of each Fund will
be persons each of whom is not an ``interested person'' of the Fund (as
defined in section 2(a)(19) of the Act) (the ``Independent Trustees/
Directors''), and the nomination of new or additional Independent
Trustees/Directors will be placed within the discretion of the then
existing Independent Trustees/Directors.
5. The Funds will not enter into Investment Subadvisory Agreements
on behalf of their Portfolios with any Subadviser that is an
``affiliated person,'' as defined in section 2(a)(3) of the Act, of the
Funds, the Portfolios, or the Advisers other than by reason of serving
as a Subadviser to one or more of the Portfolios (an ``Affiliated
Subadviser'') without such agreement, including the compensation to be
paid thereunder, being approved by the shareholders of the applicable
Portfolio.
6. When a change of Subadviser is proposed for a Portfolio with an
Affiliated Subadviser, the board of trustees/directors of the
applicable Fund, including a majority of the Independent Trustees/
Directors, will make a separate finding, reflected in the minutes of
meetings of the board of trustees/directors of the Portfolio that any
such change of Subadviser is in the best interest of the Portfolio and
its shareholders (or, in the case of the Acacia Capital Corporation, of
the unitholders of any separate account for which the Corporation
serves as a funding medium) and does not involve a conflict of interest
from which CAMC, Calvert-Sloan, or an Affiliated Subadviser derives an
inappropriate advantage.
7. No director, trustee, or officer of a Fund or an Adviser will
own directly or indirectly (other than through a pooled investment
vehicle that is not controlled by any such director, trustee, or
officer) 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 Manager, or 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 Subadviser or an entity that
controls, is controlled by, or is under common control with a
Subadviser.
8. Within 90 days of the hiring of any Subadviser or the
implementation of
[[Page 60314]]
any proposed material changed in an Investment Subadvisory Agreement,
the affected Portfolio will furnish its shareholders with all
information about the new Subadviser or Investment Subadvisory
Agreement that would be included in a proxy statement. Such information
will include any change in such disclosure caused by the addition of a
new Subadviser or any proposed material change in the Investment
Subadvisory Agreement of a Portfolio. The Portfolio will meet this
condition by providing shareholders, within 90 days of the hiring of
the Subadviser or implementation of any material change to the terms of
an Investment Subadvisory Agreement, 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. The Acacia Capital Corporation will ensure that
the information statement is furnished to the unitholders of any
separate account for which the Corporation serves as a funding medium.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-30223 Filed 11-26-96; 8:45 am]
BILLING CODE 8010-01-M
