[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