[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

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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

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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