[Federal Register Volume 66, Number 225 (Wednesday, November 21, 2001)]
[Notices]
[Pages 58533-58535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-29022]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25263; 812-12116]


MMA Praxis Mutual Funds and MMA Community Development 
Investments, Inc.; Notice of Application

November 14, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (``Act'') for an exemption 
from section 17(a) of the Act and an order permitting certain 
transactions under section 17(d) of the Act and rule 17d-1 thereunder.

-----------------------------------------------------------------------

SUMMARY: Applicants request an order to permit MMA Praxis Mutual Funds 
(``Trust'') and its series to invest in certain securities issued by 
MMA Community Development Investments, Inc. (``MMA-CDI'').
    Applicants: The Trust and MMA-CDI.
    Filing Dates: The application was filed on May 25, 2000. 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 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 December 10, 2001, 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, 3435 Stelzer Road, Columbus, Ohio 43219.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 942-0527 or Mary Kay French, 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, N.W., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Trust is registered under the Act as an open-end management 
investment company, and currently consists of three separate investment 
portfolios. The Trust's investment adviser is Menno Insurance Service 
d/b/a MMA Capital Management (``MMA Capital''), an investment adviser 
registered under the Investment Advisers Act of 1940. Applicants 
request that any relief granted pursuant to the application also apply 
to future series of the Trust (collectively, the ``Praxis Funds'') and 
any other registered investment companies and their series that are 
advised by MMA Capital or any entity controlling, controlled by or 
under common control with MAA Capital.\1\
---------------------------------------------------------------------------

    \1\ All existing investment companies that currently intend to 
rely on the requested order have been named as applicants, and any 
other existing or future investment companies that subsequently rely 
on the order will do so only in accordance with the terms and 
conditions set forth in the application.
---------------------------------------------------------------------------

    2. The board of trustees of the Trust (``Praxis Board'') has 
authorized each of the Praxis Funds to invest a limited portion of its 
assets in securities that offer a rate of return below the then 
prevailing market rate but which present attractive opportunities for 
furthering social and economic well-being of disadvantaged individuals 
and their communities. Applicants represent that since May 3, 1999, the 
prospectus of each of the Praxis Funds has disclosed the intention of 
the Praxis Funds to make community development investments. Applicants 
propose that the Praxis Funds invest a limited portion of their assets 
in securities issued by MMA-CDI, which will seek to channel those 
resources to national and international community development 
organizations. MMA-CDI is a not-for-profit corporation that is exempt 
from registration as an investment company under section 3(c)(10)(A) of 
the Act. MMA-CDI is designed to operate as a not-for-profit 
organization as part of the financial services arm of the Mennonite 
Church (``MMA''). MMA has sought to implement a program of community 
development investing that is consistent with both prudent financial 
management and its commitment to stewardship investing.
    3. The board of MMA-CDI (``MAA-CDI Board'') consist of six members, 
a majority of whom are selected by the Mennonite Foundation, one of 
several organizations that are conducted under the direction of the 
board of directors of MMA (``MMA-affiliated organizations''). MMA-CDI's 
initial support has been provided by MAA-affiliated organizations and 
additional support will be sought from other institutional sources both 
within and outside of the Mennonite community. MMA-CDI will seek to 
fund its community development investment program through the sale of 
variable rate notes (``CDI Notes'') issued by two investment pools that 
it has established (``Existing Pools'') and similar pools that MMA-CDI 
may establish in the future (``Future Pools'') (collectively, ``MMA 
Pools'').\2\ Applicants represent that the CDI Notes are exempt from 
registration under section 3(a)(4) of the Securities Act of 1933.
---------------------------------------------------------------------------

    \2\ Except for maturities and returns, any Future Pool would 
have the same characteristics as the Existing Pools and notes issued 
by such Future Pools would have the same characteristics as CDI 
Notes.
---------------------------------------------------------------------------

    4. Under the proposed arrangement, each Praxis Fund will receive 
CDI Notes evidencing its investment in a MMA

[[Page 58534]]

Pool. The ``below market MMA Pool'' will issue notes with anticipated 
maturities of between one and five years and anticipated average 
returns of 60% of the rate then available on U.S. Treasury instruments 
of similar maturities (``Benchmark Rate''). The ``near market MMA 
Pool'' will issue notes with maturities ranging between three to five 
years and expected average returns of 90% of the Benchmark Rate. 
Interest rates payable on the CDI Notes will be adjusted semi-annually 
to reflect change in the return of U.S. Treasury instruments with 
similar maturities. CDI Notes will be issued separately by the below 
market MMA Pool and the near market MMA Pool and investors will be able 
to purchase CDI Notes in either the below market or near market MMA 
Pools in any principal amount. Each prospective investor in MMA-CDI, 
including the Praxis Funds, will be provided with offering documents 
describing the MMA-CDI program and the risks associated with investing 
in CDI Notes. Such documents also will disclose the fact that one or 
more MMA-affiliated organizations may purchase CDI Notes, but will do 
so on terms that are no more advantageous than those available to other 
investors.
    5. The proceeds from the sale of the CDI Notes will be commingled 
to invest in community development organizations. The investments in 
the community development organizations will be evidenced by promissory 
notes issued by the community development organizations at below market 
rates. It is anticipated that the promissory notes will be for terms of 
one to five years, will be unsecured, general recourse obligations of 
the borrowing organization, and will call for loan payments to be made 
semi-annually. MMA-CDI's loan portfolio will be structured so that the 
aggregate payments on all such loans will be sufficient to meet MMA-
CDI's obligations to holders of CDI Notes (``CDI Noteholders'') and 
operating expenses.
    6. Applicants represent that CDI Noteholders will not be assessed 
any fee or sales charge in connection with their investment in MMA-CDI, 
nor will the value of CDI Notes, once issued, or interest paid on those 
notes to the CDI Noteholders, be affected by any of the ordinary 
operating expenses associated with the MMA-CDI program. It is 
anticipated that MMA-CDI will realize a basis point spread on each 
community development investment to cover administrative and overhead 
costs. Applicants represent that all CDI Noteholders, including the 
Praxis Funds, will be afforded the same opportunity to acquire or 
dispose of the CDI Notes on terms that are no less advantageous than 
those upon which any MMA-affiliated organization is permitted to 
purchase or liquidate their CDI Notes.
    7. The Praxis Board has authorized each of the Praxis Funds to 
commit up to three percent of its total assets to community development 
investing. All or any portion of such investments may consist of CDI 
Notes, provided that not more than one percent of such assets may be 
committed to investments the return on which is expected to be less 
than 90% of the rate available on U.S Treasury instruments of similar 
maturities. Each Praxis Fund will invest its assets in the CDI Notes 
only in accordance with its investment objectives, policies and 
restrictions. The Praxis Board will monitor this proposed arrangement 
to ensure that it is consistent with the Praxis Funds' investment 
objectives, policies and restrictions. The Paris Board will review the 
adequacy of each Praxis Fund's disclosure relating to community 
development investing and the acquisition of CDI Notes, including the 
possible risks of loss to the fund and its shareholders. The disclosure 
will identify MMA-CDI and its affiliation with the Praxis Funds' 
investment adviser, and summarize the manner in which the MMA-CDI 
program is managed.
    8. Neither MMA Capital or any other MMA-affiliated organization 
will receive any compensation for services provided to MMA-CDI or for 
the Praxis Funds' investment in CDI Notes, provided that the market 
value of CDI Notes in which the Praxis Funds may, from time to time, 
invest will be included in the calculation of any investment advisory 
fee payable by any Praxis Fund to any MMA-affiliated organization 
pursuant to the terms of an investment advisory contract that satisfies 
the requirements of section 15(a) of the Act and subject to section 36 
of the Act, where such fee is calculated based on a percentage of the 
average daily net assets of any such Praxis Fund.

Applicants' Legal Analysis

    1. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, acting as principal, to sell 
or purchase any security to or from the company. Section 2(a)(3)(C) of 
the Act defines an affiliated person of an investment company as any 
person directly or indirectly controlling, controlled by, or under 
common control with such investment company. Section 2(a)(3)(E) 
provides that the investment adviser of an investment company is an 
affiliated person of the company. Because the board of directors of MMA 
could be deemed to have the power to exercise controlling influence 
over the management or policies of both MMA Capital and MMA-CDI, these 
entities could be deemed to be under ``common control'' within the 
meaning of section 2(a)(3) of the Act. Accordingly, MMA-CDI could be 
deemed an affiliated person of MMA Capital and thus an affiliated 
person of an affiliated person of the Praxis Funds. Section 2(a)(36) 
defines a security to include, among other things, any note, stock, 
treasury stock, or evidence of indebtedness. As a result, investment by 
the Praxis Funds in the CDI Notes may be prohibited by section 17(a).
    2. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the proposed transaction is consistent with the 
policy of each registered investment company concerned and the general 
purposes of the Act. Section 6(c) authorizes the Commission to exempt 
transactions from the provisions of the Act to the extent that such 
exemptions are 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.
    3. Applicants believe that the Praxis Funds' proposed investment in 
the MMA Pools meets the standards of sections 17(b) and 6(c). 
Applicants state that the Praxis Funds' investment in the MMA Pools 
will be consistent with each Fund's investment objectives, policies and 
restrictions. Applicants assert that the Praxis Board weighed the 
possible risks associated with investing through MMA-CDI against the 
benefits of obtaining certain cost efficiencies and sharing the risk of 
community development investing with other CDI Noteholders. The Praxis 
Board determined that it was appropriate for the Praxis Funds to 
purchase the CDI Notes to carry out their commitment to community 
development investing.
    4. Section 17(d) of the Act and rule 17d-1 prohibit an affiliated 
person of a registered investment company, acting as principal, from 
participating in any joint arrangement with the investment company 
unless the Commission has issued an order authorizing the arrangement. 
Applicants state that each Praxis Fund may be deemed to be

[[Page 58535]]

participating in a joint transaction with each other Praxis Fund 
through the pooling of assets in the MMA Pools, and that the Praxis 
Funds could be deemed to be participating in a joint transaction with 
MMA-CDI through their investment in CDI Notes.
    5. In determining whether to grant an exemption under rule 17d-1, 
the Commission considers whether the investment company's participation 
in the joint enterprise is consistent with the provisions, policies, 
and purposes of the Act, and the extent to which such participation is 
on a basis different from or less advantageous than that of other 
participants. Applicants assert that the Praxis Funds' purchases of CDI 
Notes will be on a basis that is no less advantageous than that of 
other participants.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-29022 Filed 11-20-01; 8:45 am]
BILLING CODE 8010-01-M