[Federal Register Volume 62, Number 182 (Friday, September 19, 1997)]
[Notices]
[Pages 49267-49269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24970]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22821; 812-10520]
The Reserve Private Equity Series, et al.; Notice of Application
September 12, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under section 6(c) of the
Investment Company Act of 1940 (the
[[Page 49268]]
``Act'') from the provisions of section 15(a) of the Act of and rule
18f-2.
-----------------------------------------------------------------------
SUMMARY OF APPLICATION: Applicants request an order to permit them to
enter into and materially amend investment management agreements with
the funds' subadvisers without shareholder approval.
APPLICANTS: The Reserve Private Equity Series, The Reserve Fund, The
Reserve Tax-Exempt Trust, The Reverse New York Tax-Exempt Trust, and
The Reserve Institutional Trust (collectively, the ``Funds''); Reserve
Management Co., Inc. (the ``Manager'') and Resrv Partners, Inc.
FILING DATES: The application was filed on February 7, 1997 and amended
on July 21, 1997. Applicants have agreed to file an amendment during
the notice period, the substance of which is reflected in this notice.
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
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on October 7, 1997
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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, 810 Seventh Avenue, New York, New York 10019.
FOR FURTHER INFORMATION CONTACT:
John K. Forst, Attorney Advisor, at (202) 942-0569, or Mary Kay Frech,
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 from
the SEC's Public Reference Branch, 450 Fifth Street, NW., Washington,
DC 20549 (tel. 202-942-8090).
Applicants' Representations
1. Each Fund is registered under the Act as an open-end management
investment company with one or more series (``Series'').\1\ The Reserve
Fund, The Reserve Tax-Exempt Trust, The Reserve New York Tax-Exempt
Trust, and The Reserve Institutional Trust are business trusts
organized under Massachusetts law. The Reserve Private Equity Series is
a business trust organized under Delaware law.
---------------------------------------------------------------------------
\1\ Applicants request that the order also extend to (a) Any
other Series organized in the future, and (b) any other open-end
management investment company (a ``Future Company'') advised or
managed by the Manager, or a person controlling, controlled by, or
under common control with the Manager, in the future, provided that
such Future Company operates in the same manner as the Funds and
complies with the conditions of the order requested in the
application.
---------------------------------------------------------------------------
2. The Manager is registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act``). The Manager serves
as investment manager to each Series pursuant to an investment
management agreement between the manager and each Fund. The Manager
provides general management services to the Funds and is responsible
for the day-to-day administration of the Series' activities. The
manager is paid a fee based on average daily net assets of each Series.
3. The Reserve Private Equity Series currently employs subadvisers,
each of which is registered as an investment adviser under the Advisers
Act. The Reserve Private Equity Series currently employs only on
subadviser for each one of its Series, but may employ multiple
subadvisers for each Series in the future. The other Funds do not have
Series that currently employ subadvisers, but they may do so in the
future. All investment decisions for the Series that employ subadvisers
are made by the subadvisers, who have discretionary authority to invest
all or a portion of the assets of a Series, subject to the general
supervision of the Manager and the board of trustees of each Fund. The
Manager recommends subadvisers to the Fund's board, and also will
recommend the termination of a subadviser when the Manager deems a
termination to be in the best interests of a Series. Subadvisers
provide advisory services pursuant to a written advisory agreement
(``Subadvisory Agreement''). The subadvisers' fees are paid by the
Manager out of the fees paid by a Series to the Manager at rates
negotiated by the Manager. The fees are based on assets allocated to
the subadviser.
Applicants' Legal Analysis
1. Section 15(a) of the Act makes it unlawful for any person to act
as investment adviser to a registered 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 to permit the Funds and the Manager to enter into and
materially amend Subadvisory Agreements without shareholder approval.
3. Applicants state that the Series' shareholders rely on the
Manager for investment management and expertise in selecting
subadvisers. The Manager seeks to enhance Series' performance and
reduce market risk by allocating a Series' assets among multiple
``specialist'' subadvisers. Applicants state that the Manager employs a
comprehensive screening process of reviewing the qualifications and
capabilities of potential new subadvisers, and engages in a thorough
on-going analysis of the continued advisability as to the retention of
its existing subadvisers. Applicants contend that the Manager's
continuing quantitative and qualitative evaluation of the subadvisers
will permit new subadvisers to be introduced or, at such time as multi-
subadvisers are utilized, the proportion of shareholders' assets
subject to particular subadviser styles to be reallocated, to the
extent the Manager deems appropriate to achieve the overall investment
objectives of the particular Series. Applicants assert that
shareholders are, in effect, electing to have the Manager select one or
more subadvisers best suited to achieve each Series' investment
objective. Applicants state that the subadvisers are concerned only
with the selection of portfolio investments in accordance with a
Series' investment objectives and policies.
4. Applicants contend that, because shareholders rely on the
Manager for investment results and overall management services, it is
the investment advisory agreements with the Manager (``Management
Agreements'') over which shareholders should exercise control.
Management 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 Subadvisory Agreements would impose costs on the Series
without advancing shareholder interests. Applicants also believe that
requiring shareholder approval of new subadvisers and amendments to
Subadvisory Agreements would prevent the Funds from promptly and timely
employing
[[Page 49269]]
subadvisers best suited to the needs of the Series. Applicants believe
that shareholders' interests are adequately protected by their voting
rights with respect to the Management Agreements and the
responsibilities assumed by the Manager and the Funds' boards.
6. Applicants contend that shareholders will be provided with
adequate information about subadvisers. Funds' prospectuses and
statements of additional information will contain all required
information regarding each subadviser. Within 90 days of the hiring of
a new subadviser, a Fund will furnish shareholders with all the
information that would have been provided in a proxy statement.
7. 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. For
the reasons stated above, applicants believe that the requested
exemptive relief satisfies this standard.
Applicants' Conditions
Applicants agree that any order of the SEC granting the requested
relief will be subject to the following conditions:
1. Before a Series may rely on the order requested in the
application, the operation of the Series 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 Series or, in the case of a
new Series whose public shareholders purchased shares on the basis of a
prospectus containing the disclosure contemplate by condition 2 below,
by the sole initial shareholder(s) before offering shares of such
Series to the public.
2. Any Series 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, the Series will hold itself
out to the public as employing the subadviser structure described in
the application. The prospectus will prominently disclose that the
Manager has ultimate responsibility to oversee the subadvisers and
recommend their hiring, termination, and replacement.
3. The Manager will provide management and administrative services
to the Funds and, subject to the review and approval of their
respective boards of trustees, will set the overall investment
strategies of the Series; recommend subadvisers; where appropriate,
allocate and reallocate the assets of the Series among subadvisers; and
monitor and evaluate the investment performance of the subadvisers,
including their compliance with the investment objectives, policies,
and restrictions of the Series.
4. A majority of each board of trustees 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''),
and the nomination of new or additional Independent Trustees will be
placed within the discretion of the then existing Independent Trustees.
5. The Funds will not enter into Subadvisory Agreements with any
subadviser that is an ``affiliated person,'' as defined in section
2(a)(3) of the Act, of the Series, or the Manager other than by reason
of serving as a subadviser to one or more of the Series (an
``Affiliated Subadviser'') without such agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Series.
6. When a change of subadviser is proposed for a Series with an
Affiliated Subadviser, the board of trustees of the applicable Fund
including a majority of the Independent Trustees, will make a separate
finding, reflected in the minutes of the meeting of the board of
trustees of the Fund, that the change of subadviser is in the best
interest of the Series and its shareholders and does not involve a
conflict of interest from which the Manager, or an Affiliated
Subadviser derives an inappropriate advantage.
7. No director, trustee, or officer of a Fund or the Manager 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 Manager or any entity that controls, is controlled by, or under
common control with the Manager, or ownership of less than 1% of the
outstanding securities of any class of equity or debt securities 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, the affected
Series will furnish its shareholders with all information about the new
subadviser 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. The Fund will meet this condition by
providing shareholders, within 90 days of the hiring of a subadviser
with an information statement meeting the requirements of Regulation
14C and Schedule 14C under the Securities Exchange Act of 1934 (``1934
Act''). The information statement also will meet the requirements of
Item 22 of Schedule 14A under the 1934 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24970 Filed 9-18-97; 8:45 am]
BILLING CODE 8010-01-M
