[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]


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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.

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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.
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    \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.
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    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

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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