N-CSR 1 d378123dncsr.htm NEW COVENANT FUNDS New Covenant Funds

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act File Number 811-09025

New Covenant Funds

(Exact name of registrant as specified in charter)

 

 

SEI Investments

One Freedom Valley Drive

Oaks, PA 19456

(Address of principal executive offices) (Zip code)

The Corporation Trust Company

Corporation Trust Center

1209 Orange Street

Wilmington, Delaware 19801

(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-877-835-4531

Date of fiscal year end: June 30, 2012

Date of reporting period: June 30, 2012

 

 

 

Item 1. Reports to Stockholders.

LOGO

 

TABLE OF CONTENTS

 

    

 

The Trust files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year on Form N-Q within sixty days after the end of the period. The Trust’s Forms N-Q are available on the Commission’s website at http://www.sec.gov, and may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to portfolio securities, as well as information relating to how a Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available (i) without charge, upon request, by calling 1-877-835-4531; and (ii) on the Commission’s website at http://www.sec.gov.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE

NEW COVENANT FUNDS — JUNE 30, 2012 (Unaudited)

New Covenant Growth Fund

 

I. Objective

The New Covenant Growth Fund (the “Fund”) seeks to provide long-term capital appreciation.

II. Multi-Manager Approach Statement

The Fund uses a multi-manager approach, relying on a number of sub-advisers with differing investment approaches to manage portions of the Fund’s portfolio under the general supervision of SEI Investments Management Corporation (“SIMC”), which was appointed as the Fund’s adviser on February 20, 2012. The Fund utilized the following sub-advisers as of June 30, 2012: Baillie Gifford Overseas Limited, Sustainable Growth Advisers LP, Parametric Portfolio Associates, Tocqueville Asset Management L.P., WestEnd Advisors LLC and Waddell & Reed Investment Management. For the year ended June 30, 2012, Parametric Portfolio Associates, Tocqueville Asset Management L.P., WestEnd Advisors LLC and Waddell & Reed Investment Management were added to the Fund. Sound Shore Management, TimesSquare Capital Management and Brockhouse Cooper Asset Management were removed from the Fund.

III. Return vs. Benchmark

For the year ended June 30, 2012, the Fund returned (0.15)% while its blended benchmark of 80% S&P 500 Index and 20% MSCI All Country World ex-U.S. Index advanced 1.30%. Defensive sectors, including Consumer Staples, Utilities, Health Care and Telecommunications, were the best performers, along with Information Technology. Cyclically sensitive sectors such as Energy and Materials fared the worst.

IV. Market Commentary

The overriding theme in the markets was the European sovereign debt crisis — how it would affect weaker nations in the periphery such as Greece and Portugal, and what it meant for the future of the euro and the global financial system. Within the U.S., a political stalemate in late summer 2011 regarding the raising of the government’s debt ceiling roiled the markets, as the potential for a default on U.S. government obligations nearly became a reality. Markets sold off sharply and correlations among stocks (the extent to which individual stocks move together) spiked to levels not seen since the Great Depression, an indication that company-specific fundamentals were no longer driving returns. Volatility plagued the market in the weeks following, and in the midst of these events, Standard & Poor’s downgraded the credit rating on U.S. debt for the first time in history. Within Europe, the financial strength of core nations such as Germany and France came into question, as it was feared they would ultimately have to step in and finance the debts of their weaker neighbors. The aversion of a crisis in the U.S. sent the market higher through October, but the rally lost momentum in November as Italy began to show signs of weakness with their borrowing costs rising to the highest level since the adoption of the single currency. Domestically, the Congressional “super committee” failed to come to an agreement on a deficit reduction plan and this also weighed on the market. The situation in Europe began to stabilize somewhat toward the end of 2011 as the European Central Bank began offering low interest rate loans to banks, providing badly needed liquidity. Though there were releases of improved economic data through the rest of 2011, fears persisted regarding the global economic outlook. Entering 2012, eurozone debt fears waned temporarily and economic data remained encouraging, with especially strong results in January and February, both domestically and abroad. Despite this, spreads on European sovereign debt remained elevated. On the international front, fears relating to possible development of nuclear weapons by Iran and the nationalization of a major oil company by the Argentine government shook the Energy sector early in 2012. The lack of a durable resolution to the debt crisis in Europe, exacerbated by fears of contagion to Portugal and possibly even Spain or Italy, dragged down equity markets near the end of the period. Economic data became

more of a mixed bag toward the middle of the year, reinforcing fears of a hard landing in China and other emerging market economies, recession in Europe and the potential for a double-dip recession in the U.S.

V. Fund Attribution

Underperformance during this period was the result of both sector allocation and stock selection decisions. Subpar stock picks within the Consumer Discretionary and Energy sectors were the primary drivers of underperformance, along with an underweight to Utilities. An overweight to Materials and an underweight to Telecommunications also detracted, as market participants shed risk in search of safety. Conversely, strong security selection within Financials and Materials, along with an underweight to the Financials sector, benefitted the Fund. From a regional perspective, underperformance was almost exclusively driven by North America while Europe ex-UK and Asia ex-Japan were positive contributors. From a market-cap perspective, mid and mega-cap names detracted from relative performance while large caps were supportive.

New Covenant Growth Fund

AVERAGE ANNUAL TOTAL RETURN1,2

 

     One Year
Return		     Annualized
3-Year
Return		     Annualized
5-Year
Return		     Annualized
10-Year
Return		     Annualized
Inception
to Date		  
New Covenant Growth Fund     (0.15)%        13.29%        (1.81)%        4.24%        4.78%   
S&P 500 Index     5.45%        16.40%        0.22%        5.33%        1.74%   
Blended 80%
S&P 500 Index/20% MSCI All Country World ex-U.S. Index		     1.30%        14.61%        (0.59)%        5.77%        2.22%   

Comparison of Change in the Value of a $10,000 Investment in the New Covenant Growth Fund, versus the S&P 500 Index and Blended S&P 500 Index/MSCI All Country World ex-U.S. Index.

 

LOGO

 

  1   

For the years ended June 30, 2012. Past performance is not an indication of future performance. Fund Shares were offered beginning 7/1/99. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that year; absent fee waivers and reimbursements, performance would have been lower.

 

  2   

This table compares the Fund’s average annual total returns to those of a broad-based index and the Fund’s 80/20 Blended Benchmark, which consists of the S&P 500 Index and the MSCI All Country World ex-U.S. Index. The Fund’s Blended Benchmark is designed to provide a useful comparison to the Fund’s overall performance and more accurately reflects the Fund’s investment strategy than the broad-based index.

 

 

New Covenant Funds / Annual Report / June 30, 2012      1   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE

NEW COVENANT FUNDS — JUNE 30, 2012 (Unaudited)

New Covenant Income Fund

 

I. Objective

The New Covenant Income Fund (the “Fund”) seeks to provide a high level of current income with preservation of capital.

II. Multi-Manager Approach Statement

The Fund uses a multi-manager approach, relying on a number of sub-advisers with differing investment approaches to manage portions of the Fund’s portfolio under the general supervision of SEI Investments Management Corporation (“SIMC”), which was appointed as the Fund’s adviser on February 20, 2012. The Fund utilized the following sub-advisers as of June 30, 2012: Western Asset Management and J.P. Morgan Asset Management. For the year ended June 30, 2012, Earnest Partners and Baird Advisors were removed from the Fund.

III. Return vs. Benchmark

For the year ended June 30, 2012, the Fund returned 5.45% while its benchmark of the Barclays Capital Intermediate U.S. Aggregate Bond Index advanced 5.28%.

IV. Market Commentary

For the fiscal year ended June 30, 2012, the non-Treasury sectors of U.S. fixed income experienced considerable volatility. With the dual sovereign debt challenges looming on both sides of the Atlantic, along with the fear of U.S. entering another economic recession, credit markets sold off and volatility picked up dramatically during the first half of the year. On August 2, 2011 the U.S. Congress raised the debt ceiling by $2.1 trillion, alleviating the imminent risk of a Treasury default. However, S&P subsequently downgraded U.S. Treasurys to AA+. In mid-September, the Federal Open Market Committee (FOMC) announced further accommodative measures with “Operation Twist” effectively extending the maturity of their Treasury portfolio and reinvesting the proceeds of maturing agency debt and mortgage-backed securities (MBS) back into MBS rather than Treasurys. Coming into 2012, the market turned the corner as encouraging U.S. economic data and positive developments in Europe increased investor risk appetite in the first quarter. Most importantly, the European Central Bank’s (ECB) 3-year Long-Term Refinancing Operation (LTRO) has significantly improved the market liquidity and alleviated the short-term funding pressure. The “risk on” environment helped all non-Treasury sectors outperform Treasurys in the first quarter and almost recoup all the losses from the earlier flight-to-quality. In the second quarter of 2012, renewed concerns in the eurozone and weaker global economic data triggered another flight to quality. The fear that Greece may exit the eurozone following the June 17 Greek election, the recapitalization of Spanish banks and Moody’s continuing downgrades on banks set a pessimistic tone in the fixed income market. Federal Reserve chairman Ben Bernanke indicated that he stands ready to act should conditions worsen. Once again, the “risk off” environment pushed all non-Treasury sectors to post negative excess returns. However, the fixed income investor community appeared to be more conservatively positioned versus the fall of 2011. As a result, the degree of underperformance in non-treasury assets in the second quarter was much more modest as compared to the 2011 experience.

Due to the global macro concerns and highly accommodative U.S. Federal Reserve monetary policy, 10-year Treasury yields fell to record lows at the end of the period moving from 3.16% to 1.65% year over year. Although non-Treasury sectors experienced high volatility during the period, fundamentals continued to improve. The investment grade corporate market continued to see active new issuance, and better than expected corporate earnings. After a few years of deleveraging, financial companies now have much stronger balance sheets. The more stringent regulations should enhance banks’ capital ratios and are perceived to be bondholder friendly. In the mean time, housing

prices have started to stabilize and delinquency rates are trending lower. The lack of supply, strong investor demand, and stabilizing fundamentals continue to support the securitized market.

V. Fund Attribution

The overweight to credit position (Baird, Western) was the main detractor during the flight-to-quality in second quarter 2012. The flattening yield curve position (Western) offset some of the underperformance for the period. Security selection within Agency MBS (JPM, Western), especially the CMO allocation, which is less prepayment sensitive, added to performance.

New Covenant Income Fund

AVERAGE ANNUAL TOTAL RETURN1

 

     One Year
Return		     Annualized
3-Year
Return		     Annualized
5-Year
Return		     Annualized
10-Year
Return		     Annualized
Inception
to Date		  
New Covenant Income Fund     5.45%        7.00%        2.94%        3.47%        2.90%   
Barclays Capital Intermediate U.S. Aggregate Bond Index     5.28%        5.98%        6.25%        5.19%        5.87%   

Comparison of Change in the Value of a $10,000 Investment in the New Covenant Income Fund, versus the Barclays Capital Intermediate U.S. Aggregate Bond Index

 

LOGO

 

  1   

For the years ended June 30, 2012. Past performance is not an indication of future performance. Fund Shares were offered beginning 7/1/99. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that year; absent fee waivers and reimbursements, performance would have been lower.

 

 

2    New Covenant Funds / Annual Report / June 30, 2012

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE

NEW COVENANT FUNDS — JUNE 30, 2012 (Unaudited)

New Covenant Balanced Growth Fund

 

I. Objective

The New Covenant Balanced Growth Fund (the “Fund”) seeks to provide capital appreciation with less risk than would be present in a portfolio of only common stocks.

II. Investment in Underlying New Covenant Funds

The Fund’s assets are managed under the direction of SEI Investments Management Corporation (“SIMC”), who manages the Fund’s assets in a way that it believes will help the Fund achieve its goal. In order to achieve its investment objective, SIMC allocates the Fund’s assets among Underlying New Covenant Funds. These Underlying New Covenant Funds are part of the New Covenant Funds Trust.

The assets of the Fund are allocated among the Underlying New Covenant Funds in accordance with its investment objective. These Underlying New Covenant Funds, in turn, invest directly in securities in accordance with their own varying investment objectives and policies. SIMC may change the allocations to the particular asset classes represented by the Underlying New Covenant Funds when it deems it appropriate.

III. Market Commentary

Equities

The overriding theme in the markets was the European sovereign debt crisis — how it would affect weaker nations in the periphery such as Greece and Portugal, and what it meant for the future of the euro and the global financial system. Within the U.S., a political stalemate in late summer 2011 regarding the raising of the government’s debt ceiling roiled the markets, as the potential for a default on U.S. government obligations nearly became a reality. Markets sold off sharply and correlations among stocks (the extent to which individual stocks move together) spiked to levels not seen since the Great Depression, an indication that company-specific fundamentals were no longer driving returns. Volatility plagued the market in the weeks following, and in the midst of these events, Standard & Poor’s downgraded the credit rating on U.S. debt for the first time in history. Within Europe, the financial strength of core nations such as Germany and France came into question, as it was feared they would ultimately have to step in and finance the debts of their weaker neighbors. The aversion of a crisis in the U.S. sent the market higher through October, but the rally lost momentum in November as Italy began to show signs of weakness with their borrowing costs rising to the highest level since the adoption of the single currency. Domestically, the Congressional “super committee” failed to come to an agreement on a deficit reduction plan and this also weighed on the market. The situation in Europe began to stabilize somewhat toward the end of 2011 as the European Central Bank began offering low interest rate loans to banks, providing badly needed liquidity. Though there were releases of improved economic data through the rest of 2011, fears persisted regarding the global economic outlook. Entering 2012, eurozone debt fears waned temporarily and economic data remained encouraging, with especially strong results in January and February, both domestically and abroad. Despite this, spreads on European sovereign debt remained elevated. On the international front, fears relating to possible development of nuclear weapons by Iran and the nationalization of a major oil company by the Argentine government shook the Energy sector early in 2012. The lack of a durable resolution to the debt crisis in Europe, exacerbated by fears of contagion to Portugal and possibly even Spain or Italy, dragged down equity markets near the end of the period. Economic data became more of a mixed bag toward the middle of the year, reinforcing fears of a hard landing in China and other emerging market economies, recession in Europe and the potential for a double-dip recession in the U.S.

Fixed Income

For the fiscal year ended June 30, 2012, the non-Treasury sectors of U.S. fixed income experienced considerable volatility. With the dual sovereign debt challenges looming on both sides of the Atlantic, along with the fear of U.S. entering another economic recession, credit markets sold off and volatility picked up dramatically during the first half of the period. On August 2, 2011 the U.S. Congress raised the debt ceiling by $2.1 trillion, alleviating the imminent risk of a Treasury default. However, S&P subsequently downgraded U.S. Treasurys to AA+. In mid-September, the Federal Open Market Committee (FOMC) announced further accommodative measures with “Operation Twist” effectively extending the maturity of their Treasury portfolio and reinvesting the proceeds of maturing agency debt and mortgage-backed securities (MBS) back into MBS rather than Treasurys. Coming into 2012, the market turned the corner as encouraging U.S. economic data and positive developments in Europe increased investor risk appetite in the first quarter. Most importantly, the European Central Bank’s (ECB) 3-year Long-Term Refinancing Operation (LTRO) has significantly improved the market liquidity and alleviated the short-term funding pressure. The “risk on” environment helped all non-Treasury sectors outperform Treasurys in the first quarter and almost recoup all the losses from the earlier flight-to-quality. In the second quarter of 2012, renewed concerns in the eurozone and weaker global economic data triggered another flight to quality. The fear that Greece may exit the eurozone following the June 17 Greek election, the recapitalization of Spanish banks and Moody’s continuing downgrades on banks set a pessimistic tone in the fixed income market. Federal Reserve chairman Ben Bernanke indicated that he stands ready to act should conditions worsen. Once again, the “risk off” environment pushed all non-Treasury sectors to post negative excess returns. However, the fixed income investor community appeared to be more conservatively positioned versus the fall of 2011. As a result, the degree of underperformance in non-treasury assets in the second quarter was much more modest as compared to the 2011 experience.

Due to the global macro concerns and highly accommodative U.S. Federal Reserve monetary policy, 10-year Treasury yields fell to record lows at the end of the period moving from 3.16% to 1.65% year over year. Although non-Treasury sectors experienced high volatility during the period, fundamentals continued to improve. The investment grade corporate market continued to see active new issuance, and better than expected corporate earnings. After a few years of deleveraging, financial companies now have much stronger balance sheets. The more stringent regulations should enhance banks’ capital ratios and are perceived to be bondholder friendly. In the mean time, housing prices have started to stabilize and delinquency rates are trending lower. The lack of supply, strong investor demand, and stabilizing fundamentals continue to support the securitized market.

IV. Return vs. Benchmark

For the year ended June 30, 2012, the Fund returned 2.07% while its blended benchmark of 60% S&P 500 Index/40% Barclays Capital Intermediate U.S. Aggregate Bond Index returned 5.78%.

V. Fund Attribution

Equities

Underperformance during this period was the result of both sector allocation and stock selection decisions. Subpar stock picks within the Consumer Discretionary and Energy sectors were the primary drivers of underperformance, along with an underweight to Utilities. An overweight to Materials and an underweight to Telecommunications also detracted, as market participants shed risk in search of safety. Conversely, strong security selection within Financials and Materials, along with an underweight to the Financials sector, benefitted the

 

 

New Covenant Funds / Annual Report / June 30, 2012      3   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE

NEW COVENANT FUNDS — JUNE 30, 2012 (Unaudited)

New Covenant Balanced Growth Fund (Concluded)

 

Fund. From a regional perspective, underperformance was almost exclusively driven by North America while Europe ex-UK and Asia ex-Japan were positive contributors. From a market-cap perspective, mid and mega-cap names detracted from relative performance while large caps were supportive.

Fixed Income

The overweight to credit position (Baird, Western) was the main detractor during the flight-to-quality in second quarter 2012. The flattening yield curve position (Western) offset some of the underperformance for the period. Security selection within Agency MBS (JPM, Western), especially the CMO allocation, which is less prepayment sensitive, added to performance.

New Covenant Balanced Growth Fund

AVERAGE ANNUAL TOTAL RETURN1,2

 

     One Year
Return		     Annualized
3-Year
Return		     Annualized
5-Year
Return		     Annualized
10-Year
Return		     Annualized
Inception
to Date		  
New Covenant Balanced Growth Fund     2.07%        10.92%        0.26%        4.19%        4.50%   
Blended 60% S&P 500 Index/40% Barclays Capital Intermediate U.S. Aggregate Bond Index     5.78%        12.48%        3.05%        5.61%        3.72%   

Comparison of Change in the Value of a $10,000 Investment in the New Covenant Balanced Growth Fund, versus the Blended 60% S&P 500 Index/40% Barclays Capital Intermediate U.S. Aggregate Bond Index

 

LOGO

 

  1   

For the years ended June 30, 2012. Past performance is not an indication of future performance. Fund Shares were offered beginning 7/1/99. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that year; absent fee waivers and reimbursements, performance would have been lower.

 

  2   

This table compares the Fund’s average annual total returns to those of a broad-based index and the Fund’s 60/40 Blended Benchmark, which consists of the S&P 500 Index and the Barlcays Capital Intermediate U.S. Aggregate Bond Index. The Fund’s Blended Benchmark is designed to provide a useful comparison to the Fund’s overall performance and more accurately reflects the Fund’s investment strategy than the broad-based index.

    

 

 

4    New Covenant Funds / Annual Report / June 30, 2012

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE

NEW COVENANT FUNDS — JUNE 30, 2012 (Unaudited)

New Covenant Balanced Income Fund

 

I. Objective

The New Covenant Balanced Income Fund (the “Fund”) seeks to provide current income and long-term growth of Capital.

II. Investment in Underlying New Covenant Funds

The Fund’s assets are managed under the direction of SEI Investments Management Corporation (“SIMC”), who manages the Fund’s assets in a way that it believes will help the Fund achieve its goal. In order to achieve its investment objective, SIMC allocates the Fund’s assets among Underlying New Covenant Funds. These Underlying New Covenant Funds are part of the New Covenant Funds Trust.

The assets of the Fund are allocated among the Underlying New Covenant Funds in accordance with its investment objective. These Underlying New Covenant Funds, in turn, invest directly in securities in accordance with their own varying investment objectives and policies. SIMC may change the allocations to the particular asset classes represented by the Underlying New Covenant Funds when it deems it appropriate.

III. Market Commentary

Equities

The overriding theme in the markets was the European sovereign debt crisis — how it would affect weaker nations in the periphery such as Greece and Portugal, and what it meant for the future of the euro and the global financial system. Within the U.S., a political stalemate in late summer 2011 regarding the raising of the government’s debt ceiling roiled the markets, as the potential for a default on U.S. government obligations nearly became a reality. Markets sold off sharply and correlations among stocks (the extent to which individual stocks move together) spiked to levels not seen since the Great Depression, an indication that company-specific fundamentals were no longer driving returns. Volatility plagued the market in the weeks following, and in the midst of these events, Standard & Poor’s downgraded the credit rating on U.S. debt for the first time in history. Within Europe, the financial strength of core nations such as Germany and France came into question, as it was feared they would ultimately have to step in and finance the debts of their weaker neighbors. The aversion of a crisis in the U.S. sent the market higher through October, but the rally lost momentum in November as Italy began to show signs of weakness with their borrowing costs rising to the highest level since the adoption of the single currency. Domestically, the Congressional “super committee” failed to come to an agreement on a deficit reduction plan and this also weighed on the market. The situation in Europe began to stabilize somewhat toward the end of 2011 as the European Central Bank began offering low interest rate loans to banks, providing badly needed liquidity. Though there were releases of improved economic data through the rest of 2011, fears persisted regarding the global economic outlook. Entering 2012, eurozone debt fears waned temporarily and economic data remained encouraging, with especially strong results in January and February, both domestically and abroad. Despite this, spreads on European sovereign debt remained elevated. On the international front, fears relating to possible development of nuclear weapons by Iran and the nationalization of a major oil company by the Argentine government shook the Energy sector early in 2012. The lack of a durable resolution to the debt crisis in Europe, exacerbated by fears of contagion to Portugal and possibly even Spain or Italy, dragged down equity markets near the end of the period. Economic data became more of a mixed bag toward the middle of the year, reinforcing fears of a hard landing in China and other emerging market economies, recession in Europe and the potential for a double-dip recession in the U.S.

Fixed Income

For the fiscal year ended June 30, 2012, the non-Treasury sectors of U.S. fixed income experienced considerable volatility. With the dual sovereign debt challenges looming on both sides of the Atlantic, along with the fear of U.S. entering another economic recession, credit markets sold off and volatility picked up dramatically during the first half of the period. On August 2, the U.S. Congress raised the debt ceiling by $2.1 trillion, alleviating the imminent risk of a Treasury default. However, S&P subsequently downgraded U.S. Treasurys to AA+. In mid-September, the Federal Open Market Committee (FOMC) announced further accommodative measures with “Operation Twist” effectively extending the maturity of their Treasury portfolio and reinvesting the proceeds of maturing agency debt and mortgage-backed securities (MBS) back into MBS rather than Treasurys. Coming into 2012, the market turned the corner as encouraging U.S. economic data and positive developments in Europe increased investor risk appetite in the first quarter. Most importantly, the European Central Bank’s (ECB) 3-year Long-Term Refinancing Operation (LTRO) has significantly improved the market liquidity and alleviated the short-term funding pressure. The “risk on” environment helped all non-Treasury sectors outperform Treasurys in the first quarter and almost recoup all the losses from the earlier flight-to-quality. In the second quarter of 2012, renewed concerns in the eurozone and weaker global economic data triggered another flight to quality. The fear that Greece may exit the eurozone following the June 17 Greek election, the recapitalization of Spanish banks and Moody’s continuing downgrades on banks set a pessimistic tone in the fixed income market. Federal Reserve chairman Ben Bernanke indicated that he stands ready to act should conditions worsen. Once again, the “risk off” environment pushed all non-Treasury sectors to post negative excess returns. However, the fixed income investor community appeared to be more conservatively positioned versus the fall of 2011. As a result, the degree of underperformance in non-treasury assets in the second quarter was much more modest as compared to the 2011 experience.

Due to the global macro concerns and highly accommodative U.S. Federal Reserve monetary policy, 10-year Treasury yields fell to record lows at the end of the period moving from 3.16% to 1.65% year over year. Although non-Treasury sectors experienced high volatility during the period, fundamentals continued to improve. The investment grade corporate market continued to see active new issuance, and better than expected corporate earnings. After a few years of deleveraging, financial companies now have much stronger balance sheets. The more stringent regulations should enhance banks’ capital ratios and are perceived to be bondholder friendly. In the mean time, housing prices have started to stabilize and delinquency rates are trending lower. The lack of supply, strong investor demand, and stabilizing fundamentals continue to support the securitized market.

IV. Return vs. Benchmark

For the year ended June 30, 2012, the Fund returned 3.42% while its blended benchmark of 35% S&P 500 Index/65% Barclays Capital Intermediate U.S. Aggregate Bond Index returned 5.72%.

V. Fund Attribution

Equities

Underperformance during this period was the result of both sector allocation and stock selection decisions. Subpar stock picks within the Consumer Discretionary and Energy sectors were the primary drivers of underperformance, along with an underweight to Utilities. An overweight to Materials and an underweight to Telecommunications also detracted, as market participants shed risk in search of safety. Conversely, strong security selection within Financials and Materials,

 

 

New Covenant Funds / Annual Report / June 30, 2012      5   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE

NEW COVENANT FUNDS — JUNE 30, 2012 (Unaudited)

New Covenant Balanced Income Fund (Concluded)

 

along with an underweight to the Financials sector, benefitted the Fund. From a regional perspective, underperformance was almost exclusively driven by North America while Europe ex-UK and Asia ex-Japan were positive contributors. From a market-cap perspective, mid and mega-cap names detracted from relative performance while large caps were supportive.

Fixed Income

The overweight to credit position (Baird, Western) was the main detractor during the flight-to-quality in second quarter 2012. The flattening yield curve position (Western) offset some of the underperformance for the period. Security selection within Agency MBS (JPM, Western), especially the CMO allocation, which is less prepayment sensitive, added to performance.

New Covenant Balanced Income Fund

AVERAGE ANNUAL TOTAL RETURN1,2

 

     One Year
Return		     Annualized
3-Year
Return		     Annualized
5-Year
Return		     Annualized
10-Year
Return		     Annualized
Inception
to Date		  
New Covenant Balanced Income Fund     3.42%        9.19%        1.32%        3.94%        3.70%   
Blended 35% S&P 500 Index/65% Barclays Capital Intermediate U.S. Aggregate Bond Index     5.72%        9.86%        4.54%        5.56%        4.74%   

Comparison of Change in the Value of a $10,000 Investment in the New Covenant Balanced Income Fund, versus the Blended 35% S&P 500 Index/65% Barclays Capital Intermediate U.S. Aggregate Bond Index

 

LOGO

 

  1   

For the years ended June 30, 2012. Past performance is not an indication of future performance. Fund Shares were offered beginning 7/1/99. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that year; absent fee waivers and reimbursements, performance would have been lower.

 

  2   

This table compares the Fund’s average annual total returns to those of a broad-based index and the Fund’s 35/65 Blended Benchmark, which consists of the S&P 500 Index and the Barlcays Capital Intermediate U.S. Aggregate Bond Index. The Fund’s Blended Benchmark is designed to provide a useful comparison to the Fund’s overall performance and more accurately reflects the Fund’s investment strategy than the broad-based index.

    

 

 

6    New Covenant Funds / Annual Report / June 30, 2012

SCHEDULE OF INVESTMENTS

New Covenant Growth Fund

June 30, 2012

 

 

 

LOGO

 

Description   Shares        Market Value
($ Thousands)		  

COMMON STOCK — 97.8%

       

Argentina — 0.3%

       

MercadoLibre

     23,400         $ 1,774   
      

 

 

  

Australia — 0.6%

       

Brambles

     180,738           1,148   

Cochlear

     22,470           1,528   

Woolworths

     48,701           1,343   
      

 

 

  
         4,019   
      

 

 

  

Belgium — 0.1%

       

Groupe Bruxelles Lambert

     12,564           855   
      

 

 

  

Bermuda — 1.0%

       

Arch Capital Group*

     1,058           42   

Assured Guaranty

     453           7   

Axis Capital Holdings

     5,832           190   

Bunge

     3,907           245   

Credicorp

     14,828           1,867   

Everest Re Group

     428           44   

Freescale Semiconductor*

     2,890           29   

Genpact*

     2,542           42   

Kosmos Energy*

     3,281           36   

Lazard, CI A

     96,470           2,507   

Marvell Technology Group

     2,654           30   

PartnerRe

     598           45   

RenaissanceRe Holdings

     2,517           191   

Seadrill

     29,475           1,052   

Signet Jewelers

     860           38   

White Mountains Insurance Group

     78           41   
      

 

 

  
         6,406   
      

 

 

  

Brazil — 0.5%

       

BM&FBovespa

     247,300           1,241   

Itau Unibanco Holding

     61,043           850   

Petroleo Brasileiro

     60,740           1,140   
      

 

 

  
         3,231   
      

 

 

  

British Virgin Islands — 0.0%

       

Michael Kors Holdings*

     932           39   
      

 

 

  
Description   Shares        Market Value
($ Thousands)		  

Canada — 0.9%

       

Catamaran*

     1,708         $ 170   

Cenovus Energy

     27,711           880   

Eldorado Gold

     98,937           1,217   

Fairfax Financial Holdings

     5,979           2,364   

Ritchie Bros Auctioneers

     47,388           1,014   

Thomson Reuters

     1,418           40   
      

 

 

  
         5,685   
      

 

 

  

Cayman Islands — 0.0%

       

Herbalife

     293           14   
      

 

 

  

China — 0.8%

       

Baidu*

     14,868           1,710   

China Shenhua Energy

     515,000           1,822   

Want Want China Holdings

     1,297,000           1,604   
      

 

 

  
         5,136   
      

 

 

  

Denmark — 1.0%

       

DSV

     70,752           1,407   

Novo Nordisk ADR

     25,244           3,669   

Novozymes, B Shares

     54,740           1,423   
      

 

 

  
         6,499   
      

 

 

  

Finland — 0.5%

       

Kone, CI B

     38,098           2,307   

Sampo, A Shares

     41,655           1,084   
      

 

 

  
         3,391   
      

 

 

  

France — 1.3%

       

CFAO

     26,427           1,254   

Cie Generale d’Optique Essilor International

     22,634           2,109   

Danone ADR

     210,595           2,607   

Edenred

     44,735           1,272   

Lafarge

     24,933           1,117   
      

 

 

  
         8,359   
      

 

 

  

Germany — 0.9%

       

Aixtron

     43,171           620   

Continental

     8,330           696   

Deutsche Boerse

     26,813           1,451   

SAP ADR

     56,579           3,359   
      

 

 

  
         6,126   
      

 

 

  

Guernsey — 0.0%

       

Amdocs

     7,950           236   
      

 

 

  

Hong Kong — 1.0%

       

Cheung Kong Holdings

     90,000           1,111   

Hang Seng Bank

     99,700           1,371   

Hong Kong Exchanges and Clearing

     146,000           2,101   
 

 

New Covenant Funds / Annual Report / June 30, 2012      7   

SCHEDULE OF INVESTMENTS

New Covenant Growth Fund (Continued)

June 30, 2012

 

Description   Shares        Market Value
($ Thousands)		  

Kunlun Energy

     1,150,000         $ 1,853   
      

 

 

  
         6,436   
      

 

 

  

Ireland — 1.9%

       

Accenture, CI A

     4,742           285   

Covidien

     37,250           1,993   

CRH

     64,131           1,239   

CRH ADR

     113,741           2,188   

Experian

     127,403           1,800   

Ingersoll-Rand

     79,135           3,338   

Ryanair Holdings ADR*

     52,724           1,603   
      

 

 

  
         12,446   
      

 

 

  

Japan — 1.7%

       

Canon

     27,600           1,103   

Fast Retailing

     7,900           1,584   

Inpex

     225           1,266   

Mitsui

     82,800           1,233   

Olympus

     61,500           998   

Rakuten

     182,400           1,889   

Shimano

     13,400           880   

SMC

     9,800           1,702   

Trend Micro

     23,500           694   
      

 

 

  
         11,349   
      

 

 

  

Jersey — 0.2%

  

Delphi Automotive*

     28,478           726   

Petrofac

     36,000           787   
      

 

 

  
         1,513   
      

 

 

  

Netherlands — 0.8%

  

Chicago Bridge & Iron, NY Shares

     964           37   

CNH Global

     1,012           39   

James Hardie Industries

     162,373           1,341   

LyondellBasell Industries, CI A

     1,615           65   

QIAGEN*

     2,684           45   

Unilever

     59,303           1,987   

Unilever, NY Shares

     43,762           1,459   
      

 

 

  
         4,973   
      

 

 

  

Norway — 0.2%

  

Aker Solutions

     82,667           1,174   
      

 

 

  

Panama — 0.0%

  

Copa Holdings, CI A

     490           40   
      

 

 

  

Portugal — 0.1%

  

Galp Energia, B Shares

     48,565           618   
      

 

 

  

Russia — 0.4%

  

Magnit GDR

     53,021           1,602   

Sberbank of Russia ADR

     60,400           654   
      

 

 

  
         2,256   
      

 

 

  
Description   Shares        Market Value
($ Thousands)		  

Singapore — 0.6%

  

Avago Technologies

     1,067         $ 39   

DBS Group Holdings

     160,176           1,769   

United Overseas Bank

     147,552           2,191   
      

 

 

  
         3,999   
      

 

 

  

South Africa — 0.6%

  

Massmart Holdings

     49,490           1,025   

Naspers, N Shares

     51,549           2,752   
      

 

 

  
         3,777   
      

 

 

  

South Korea — 0.7%

  

Hyundai Mobis

     5,200           1,260   

Samsung Electronics GDR

     6,250           3,342   
      

 

 

  
         4,602   
      

 

 

  

Spain — 0.3%

  

Inditex

     19,590           2,031   
      

 

 

  

Sweden — 1.0%

  

Allied World Assurance Holdings

     1,590           127   

Atlas Copco, B Shares

     177,888           3,397   

Svenska Handelsbanken, A Shares

     97,186           3,202   
      

 

 

  
         6,726   
      

 

 

  

Switzerland — 0.6%

  

ACE

     554           41   

Garmin

     3,153           121   

Nestle

     62,468           3,738   

Tyco International

     741           39   
      

 

 

  
         3,939   
      

 

 

  

Taiwan — 0.9%

  

Hon Hai Precision Industry GDR

     208,842           1,266   

MediaTek

     127,000           1,173   

Taiwan Semiconductor Manufacturing

     241,293           3,369   
      

 

 

  
         5,808   
      

 

 

  

Turkey — 0.1%

  

Turkiye Garanti Bankasi ADR

     159,861           644   
      

 

 

  

United Kingdom — 2.8%

  

Amlin

     289,563           1,610   

Antofagasta

     90,650           1,553   

Aon

     834           39   

ARM Holdings

     212,000           1,682   

BG Group

     75,125           1,540   

BHP Billiton

     51,018           1,452   

Capita

     149,879           1,542   

Hargreaves Lansdown

     84,885           706   

Premier Farnell

     249,433           677   
 

 

8    New Covenant Funds / Annual Report / June 30, 2012

 

 

 

Description   Shares        Market Value
($ Thousands)		  

Prudential

     131,568         $ 1,528   

Rio Tinto

     44,521           2,119   

Tullow Oil

     100,642           2,330   

Wolseley

     41,992           1,567   
      

 

 

  
         18,345   
      

 

 

  

United States — 76.0%

  

Consumer Discretionary — 14.3%

  

Amazon.com*

     28,636           6,539   

Bed Bath & Beyond*

     78,013           4,821   

BorgWarner*

     270           18   

Cablevision Systems, CI A

     187,942           2,498   

Carnival

     1,051           36   

CBS, CI B

     154,817           5,075   

Coach

     74,319           4,346   

Comcast, CI A

     13,768           440   

DIRECTV, CI A*

     2,649           129   

Discovery Communications, CI A*

     50,404           2,722   

Expedia

     1,255           60   

Family Dollar Stores

     632           42   

Ford Motor

     9,132           87   

Gannett

     593           9   

Gap

     871           24   

General Motors*

     1,873           37   

Gentex

     85,511           1,784   

Harley-Davidson

     104,671           4,787   

Home Depot

     50,907           2,697   

Jarden

     6,360           267   

Johnson Controls

     176,609           4,894   

Kohl’s

     624           28   

Liberty Interactive, CI A*

     2,160           38   

Liberty Media - Liberty Capital, CI A*

     472           41   

Lowe’s

     180,013           5,120   

Ltd. Brands

     844           36   

Macy’s

     31,576           1,085   

Marriott International, CI A

     638           25   

Mattel

     856           28   

McDonald’s

     34,115           3,020   

McGraw-Hill

     31,333           1,410   

Newell Rubbermaid

     14,926           271   

News, CI A

     16,760           374   

NIKE, CI B

     51,254           4,499   

Nordstrom

     100,725           5,005   

O’Reilly Automotive*

     316           26   

priceline.com*

     302           201   

PulteGroup*

     840           9   

Ralph Lauren, CI A

     10,852           1,520   

Ross Stores

     688           43   

Sally Beauty Holdings*

     233           6   

Staples

     156,806           2,046   

Starbucks

     80,916           4,314   

Starwood Hotels & Resorts Worldwide

     58,481           3,102   

Target

     122,341           7,119   

Tempur-Pedic International*

     157           4   
Description   Shares        Market Value
($ Thousands)		  

Time Warner

     2,465         $ 95   

Time Warner Cable

     51,475           4,226   

TJX

     7,149           307   

Tractor Supply

     177           15   

Tupperware Brands

     4,080           223   

Under Armour, CI A*

     22,326           2,109   

VF

     275           37   

Viacom, CI B

     1,360           64   

Virgin Media

     687           17   

Walt Disney

     10,003           485   

Wyndham Worldwide

     874           46   

Yum! Brands

     81,834           5,272   
      

 

 

  
         93,578   
      

 

 

  

Consumer Staples — 9.4%

  

Archer-Daniels-Midland

     9,409           278   

Avon Products

     11,628           189   

Campbell Soup

     96,901           3,235   

Church & Dwight

     27,138           1,506   

Clorox

     3,783           274   

Coca-Cola

     118,207           9,243   

Coca-Cola Enterprises

     9,495           266   

Colgate-Palmolive

     79,921           8,320   

ConAgra Foods

     10,309           267   

Costco Wholesale

     89,379           8,491   

CVS Caremark

     7,985           373   

Dean Foods*

     21,248           362   

Dr. Pepper Snapple Group

     6,626           290   

Energizer Holdings

     3,521           265   

Estee Lauder, CI A

     50,763           2,747   

Flowers Foods

     11,892           276   

General Mills

     7,795           300   

Green Mountain Coffee Roasters*

     5,172           113   

Hershey

     4,319           311   

HJ Heinz

     5,346           291   

Hormel Foods

     8,798           268   

Ingredion

     4,496           223   

JM Smucker

     3,293           249   

Kellogg

     5,134           253   

Kimberly-Clark

     4,214           353   

Kraft Foods, CI A

     10,578           408   

Kroger

     11,637           270   

McCormick

     4,786           290   

Mead Johnson Nutrition, CI A

     38,843           3,127   

Monster Beverage*

     4,149           295   

PepsiCo

     33,049           2,335   

Pricesmart

     11,017           744   

Procter & Gamble

     10,487           642   

Ralcorp Holdings*

     3,367           225   

Safeway

     12,546           228   

Smithfield Foods*

     12,138           262   

Sysco

     9,633           287   

Tyson Foods, CI A

     14,015           264   

Walgreen

     2,254           67   
 

 

New Covenant Funds / Annual Report / June 30, 2012      9   

SCHEDULE OF INVESTMENTS

New Covenant Growth Fund (Continued)

June 30, 2012

 

Description   Shares        Market Value
($ Thousands)		  

Wal-Mart Stores

     64,505         $ 4,497   

Whole Foods Market

     90,291           8,606   
      

 

 

  
         61,290   
      

 

 

  

Energy — 5.7%

  

Anadarko Petroleum

     3,869           256   

Apache

     38,027           3,342   

Baker Hughes

     59,619           2,450   

Cabot Oil & Gas

     515           20   

Cameron International*

     446           19   

Chesapeake Energy

     134,405           2,500   

Chevron

     7,329           773   

Concho Resources*

     255           22   

ConocoPhillips

     52,878           2,955   

Continental Resources*

     498           33   

Denbury Resources*

     990           15   

Devon Energy

     1,043           60   

EOG Resources

     662           60   

Exxon Mobil

     53,857           4,609   

Halliburton

     2,255           64   

Hess

     748           32   

Kinder Morgan

     1,616           52   

Marathon Oil

     8,203           210   

Marathon Petroleum

     876           39   

Murphy Oil

     49,690           2,499   

National Oilwell Varco

     77,336           4,984   

Noble Energy

     25,040           2,124   

Occidental Petroleum

     4,220           362   

Oceaneering International

     4,973           238   

Oil States International*

     126           8   

Phillips 66*

     44,745           1,487   

Schlumberger

     124,000           8,049   

Spectra Energy

     1,600           46   

Ultra Petroleum*

     376           9   

Valero Energy

     1,318           32   

Whiting Petroleum*

     289           12   

Williams

     1,448           42   
      

 

 

  
         37,403   
      

 

 

  

Financials — 6.6%

  

Aflac

     54,685           2,329   

Allstate

     1,289           45   

American Express

     88,523           5,153   

American International Group*

     3,289           106   

American Tower, CI A‡

     87,850           6,141   

Ameriprise Financial

     558           29   

Annaly Capital Management‡

     2,548           43   

Apartment Investment & Management, CI A‡

     596           16   

Ares Capital

     2,500           40   

Bank of America

     26,435           216   

Bank of New York Mellon

     3,059           67   

BB&T

     1,716           53   

Berkshire Hathaway, CI B*

     7,348           612   

Boston Properties‡

     359           39   

Capital One Financial

     124,453           6,803   
Description   Shares        Market Value
($ Thousands)		  

CBRE Group, CI A*

     155,326         $ 2,541   

Citigroup

     7,158           196   

Discover Financial Services

     1,344           46   

Equity Residential‡

     4,618           288   

Fidelity National Financial, CI A

     191,761           3,693   

Fifth Third Bancorp

     2,263           30   

Forest City Enterprises, CI A*

     339           5   

Franklin Resources

     498           55   

General Growth Properties‡

     2,423           44   

Genworth Financial, CI A*

     1,209           7   

Goldman Sachs Group

     1,276           122   

Hartford Financial Services Group

     1,097           19   

HCP‡

     3,942           174   

Host Hotels & Resorts‡

     1,691           27   

IntercontinentalExchange*

     1           —   

Invesco

     1,138           26   

JPMorgan Chase

     92,620           3,310   

Leucadia National

     5,786           123   

Loews

     1,031           42   

Marsh & McLennan

     1,350           43   

MetLife

     5,074           157   

Morgan Stanley

     3,804           56   

Northern Trust

     534           25   

Plum Creek Timber‡

     2,289           91   

PNC Financial Services Group

     1,296           79   

ProLogis‡

     1,130           37   

Prudential Financial

     1,197           58   

Public Storage‡

     2,099           303   

Simon Property Group‡

     2,396           373   

SLM

     1,299           20   

State Street

     100,045           4,466   

T Rowe Price Group

     639           40   

Travelers

     968           62   

Unum Group

     720           14   

US Bancorp

     12,222           393   

Vornado Realty Trust‡

     2,108           177   

Wells Fargo

     18,267           611   

Weyerhaeuser‡

     158,586           3,546   

Zions Bancorporation

     277           6   
      

 

 

  
         42,997   
      

 

 

  

Health Care — 8.2%

  

Abbott Laboratories

     7,852           506   

Aetna

     864           33   

Alexion Pharmaceuticals*

     17,838           1,771   

Allergan

     22,762           2,107   

Amgen

     82,936           6,058   

Baxter International

     1,405           75   

Biogen Idec*

     596           86   

Bristol-Myers Squibb

     11,566           416   

Celgene*

     68,773           4,412   

Cerner*

     54,369           4,494   

Dentsply International

     346           13   

Eli Lilly

     6,479           278   
 

 

10    New Covenant Funds / Annual Report / June 30, 2012

 

 

 

Description   Shares        Market Value
($ Thousands)		  

Express Scripts Holding*

     2,001         $ 112   

Forest Laboratories*

     99,934           3,497   

Gilead Sciences*

     3,273           168   

Intuitive Surgical*

     5,248           2,906   

Johnson & Johnson

     46,023           3,109   

Life Technologies*

     440           20   

McKesson

     620           58   

Medtronic

     8,054           312   

Merck

     13,024           544   

Mettler-Toledo International*

     79           12   

Mylan*

     150,706           3,221   

Myriad Genetics*

     68,825           1,636   

Perrigo

     33,106           3,904   

Pfizer

     333,096           7,661   

Regeneron Pharmaceuticals*

     329           38   

St. Jude Medical

     59,967           2,393   

Stryker

     2,341           129   

Teleflex

     45,607           2,778   

Thermo Fisher Scientific

     1,924           100   

UnitedHealth Group

     5,458           319   

WellPoint

     856           55   
      

 

 

  
         53,221   
      

 

 

  

Industrials — 6.9%

  

3M

     4,562           409   

Ametek

     397           20   

Armstrong World Industries

     876           43   

BE Aerospace*

     5,763           252   

Caterpillar

     3,251           276   

CH Robinson Worldwide

     408           24   

Cintas

     1,043           40   

Crane

     5,294           193   

CSX

     2,717           61   

Danaher

     5,545           289   

Deere

     1,034           84   

Dover

     460           25   

Eaton

     6,040           239   

Emerson Electric

     47,965           2,234   

Exelis

     82,793           816   

Fastenal

     807           33   

FedEx

     780           72   

General Electric

     495,153           10,319   

Goodrich

     2,226           282   

GrafTech International*

     174,350           1,683   

Honeywell International

     38,766           2,165   

Huntington Ingalls Industries*

     6,271           252   

IHS, CI A*

     122           13   

Illinois Tool Works

     48,517           2,566   

JB Hunt Transport Services

     226           14   

Joy Global

     42,877           2,432   

Kansas City Southern

     28,913           2,011   

Manpower

     202           7   

Masco

     3,278           46   

Nielsen Holdings*

     6,629           174   
Description   Shares        Market Value
($ Thousands)		  

Norfolk Southern

     813         $ 58   

PACCAR

     942           37   

Pall

     52,391           2,872   

Parker Hannifin

     3,298           253   

Precision Castparts

     36,550           6,012   

Republic Services, CI A

     1,311           35   

RR Donnelley & Sons

     463           5   

Spirit Aerosystems Holdings, CI A*

     10,380           247   

Textron

     9,592           239   

Timken

     5,148           236   

Towers Watson, CI A

     141           9   

TransDigm Group*

     2,224           299   

Union Pacific

     39,998           4,772   

United Parcel Service, CI B

     4,855           382   

United Technologies

     5,268           398   

URS

     193           7   

Waste Management

     7,421           248   

Xylem

     79,361           1,997   
      

 

 

  
         45,180   
      

 

 

  

Information Technology — 18.5%

  

Activision Blizzard

     3,234           39   

Adobe Systems*

     326,115           10,556   

Alliance Data Systems*

     126           17   

Altera

     73,523           2,488   

Amphenol, CI A

     694           38   

Analog Devices

     739           28   

Ansys*

     227           14   

Apple

     26,237           15,322   

Applied Materials

     3,247           37   

Autodesk*

     133,568           4,674   

Automatic Data Processing

     133,836           7,449   

BMC Software*

     405           17   

Broadcom, CI A

     1,321           45   

CA

     1,513           41   

Cisco Systems

     150,594           2,586   

Citrix Systems*

     464           39   

Cognizant Technology Solutions, CI A*

     750           45   

Corning

     3,867           50   

Cree*

     30,697           788   

Dell*

     13,775           173   

eBay*

     111,557           4,686   

EMC*

     194,961           4,997   

F5 Networks*

     327           32   

Facebook, CI A*

     38,168           1,188   

Flir Systems

     394           8   

Gartner*

     240           10   

Google, CI A*

     13,953           8,094   

Hewlett-Packard

     5,691           115   

IAC

     829           38   

Informatica*

     261           11   

Intel

     300,510           8,008   

International Business Machines

     29,924           5,853   

Intuit

     39,578           2,349   
 

 

New Covenant Funds / Annual Report / June 30, 2012      11   

SCHEDULE OF INVESTMENTS

New Covenant Growth Fund (Concluded)

June 30, 2012

 

Description   Shares        Market Value
($ Thousands)		  

Juniper Networks*

     1,313         $ 21   

Lexmark International, CI A

     175           5   

LSI*

     223,644           1,425   

Mastercard, CI A

     8,161           3,510   

Maxim Integrated Products

     5,798           149   

Microchip Technology

     73,706           2,438   

Micros Systems*

     199           10   

Microsoft

     166,899           5,106   

Motorola Solutions

     3,861           186   

NetApp*

     41,966           1,335   

NeuStar, CI A*

     165           5   

Oracle

     198,565           5,898   

Paychex

     1,166           37   

Qualcomm

     119,499           6,654   

Red Hat*

     65,445           3,696   

Riverbed Technology*

     148,503           2,398   

Salesforce.com*

     329           46   

SanDisk*

     587           21   

Skyworks Solutions*

     466           13   

Solera Holdings

     174           7   

Symantec*

     1,860           27   

Teradata*

     415           30   

Texas Instruments

     10,366           297   

Total System Services

     143,964           3,445   

Trimble Navigation*

     302           14   

VeriFone Systems*

     251           8   

VeriSign*

     1,624           71   

Visa, CI A

     28,947           3,579   

Xerox

     11,402           90   

Xilinx

     654           22   

Yahoo!*

     2,989           47   
      

 

 

  
         120,425   
      

 

 

  

Materials — 4.5%

  

Air Products & Chemicals

     520           42   

Airgas

     194           16   

Allied Nevada Gold*

     1,308           37   

Ball

     6,001           246   

Cabot

     162           7   

CF Industries Holdings

     162           31   

Domtar

     427           32   

Dow Chemical

     49,839           1,570   

Ecolab

     73,915           5,066   

E.I. Du Pont de Nemours

     64,130           3,243   

Freeport-McMoRan Copper & Gold

     2,334           80   

International Paper

     5,114           148   

MeadWestvaco

     1,314           38   

Monsanto

     99,759           8,258   

Newmont Mining

     1,205           58   

Owens-Illinois*

     125,314           2,402   

Packaging Corp of America

     1,402           40   

PPG Industries

     423           45   

Praxair

     26,470           2,878   

Royal Gold

     643           50   
Description   Shares        Market Value
($ Thousands)		  

Sealed Air

     142,612         $ 2,202   

Sherwin-Williams

     6,499           860   

Sonoco Products

     1,255           38   

Southern Copper

     1,324           42   

Vulcan Materials

     318           13   

WR Grace*

     36,141           1,823   
      

 

 

  
         29,265   
      

 

 

  

Telecommunication Services — 1.6%

  

AT&T

     96,496           3,441   

CenturyLink

     1,050           42   

SBA Communications, CI A

     279           16   

Verizon Communications

     152,683           6,785   

Windstream

     3,527           34   
      

 

 

  
         10,318   
      

 

 

  

Utilities — 0.3%

  

AES*

     1,618           21   

Dominion Resources

     6,202           335   

Duke Energy

     15,073           348   

Entergy

     439           30   

Exelon

     8,344           314   

FirstEnergy

     889           44   

NextEra Energy

     1,025           70   

Northeast Utilities

     770           30   

PG&E

     3,113           141   

Progress Energy

     1,099           66   

Southern

     7,484           346   

Xcel Energy

     10,422           296   
      

 

 

  
         2,041   
      

 

 

  
         495,718   
      

 

 

  

Total Common Stock
(Cost $580,525) ($ Thousands)

          638,164   
      

 

 

  

EXCHANGE TRADED FUNDS — 1.0%

  

SPDR Gold Trust

     26           4,058   

Vanguard MSCI Emerging
Markets ETF

     65           2,613   
      

 

 

  

Total Exchange Traded Funds
(Cost $7,140) ($ Thousands)

          6,671   
      

 

 

  

PREFERRED STOCK — 0.3%

  

Brazil — 0.3%

  

Vale, CI B ADR

     81,039           1,581   
      

 

 

  

Total Preferred Stock
(Cost $1,697) ($ Thousands)

          1,581   
      

 

 

  
 

 

12    New Covenant Funds / Annual Report / June 30, 2012

 

 

 

Description  

Face Amount

($ Thousands)(1)/Shares

      Market Value
($ Thousands)		  

TIME DEPOSITS — 1.5%

  

Brown Brothers Harriman

       

2.818%, 07/01/12

     AUD        727       $ 727   

0.242%, 07/01/12

     CAD        5         5   

0.030%, 07/01/12

       9,307         9,307   

0.010%, 07/01/12

     JPY        8         8   

0.010%, 07/01/12

     SGD        35         36   
      

 

 

  

Total Time Deposits
(Cost $10,083) ($ Thousands)

          10,083   
      

 

 

  

CASH EQUIVALENT — 0.6%

  

SEI Daily Income Trust, Prime Obligation Fund, Cl A 0.080%†**

       3,651,900         3,652   
      

 

 

  

Total Cash Equivalent
(Cost $3,652) ($ Thousands)

          3,652   
      

 

 

  

Total Investments — 101.2%
(Cost $603,097) ($ Thousands)

        $ 660,151   
      

 

 

  

Percentages are based on a Net Assets of $652,311 ($ Thousands).

 

*   Non-income producing security.

 

**   The rate reported is the 7-day effective yield as of June 30, 2012.

 

†   Investment in Affiliated Security (see Note 3).

 

‡   Real Estate Investment Trust

 

(1)   In U.S. Dollars unless otherwise indicated.

ADR — American Depositary Receipt

AUD — Australian Dollar

CAD — Canadian Dollar

Cl — Class

ETF — Exchange Traded Fund

GDR — Global Depositary Receipt

JPY — Japanese Yen

MSCI — Morgan Stanley Capital International

NY — New York

SPDR — Standard & Poor’s Depositary Receipt

SGD — Singapore Dollar

The accompanying notes are an integral part of the financial statements.

 

 

New Covenant Funds / Annual Report / June 30, 2012      13   

SCHEDULE OF INVESTMENTS

New Covenant Income Fund

June 30, 2012

 

 

 

LOGO

 

Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

MORTGAGE-BACKED SECURITIES — 49.7%

  

Agency Mortgage-Backed Obligations — 47.0%

  

FHLMC

       

5.500%, 12/01/36

   $ 712         $ 776   

5.500%, 08/01/38

     549           597   

5.500%, 11/01/38

     535           582   

5.000%, 12/01/20

     968           1,040   

5.000%, 05/01/22

     508           544   

5.000%, 04/01/24

     438           468   

5.000%, 08/01/38

     155           167   

5.000%, 03/01/39

     462           497   

5.000%, 02/01/40

     1,266           1,372   

4.500%, 11/01/39

     1,553           1,659   

4.500%, 08/01/40

     4,436           4,745   

4.500%, 08/01/40

     5,189           5,551   

4.000%, 09/01/40

     316           336   

FHLMC IO, Ser 2012-4013

       

4.000%, 02/15/39

     892           188   

FHLMC IO, Ser 2012-4054

       

3.000%, 04/15/27

     1,593           219   

FHLMC IO, Ser 2012-4057

       

5.807%, 04/15/39 (B)

     1,800           384   

3.000%, 05/15/27

     900           97   

FHLMC REMIC, Ser 2003-2677, CI ME

       

5.000%, 03/15/32

     464           475   

FHLMC REMIC, Ser 2006-3122, CI VA

       

6.000%, 01/15/17

     621           624   

FHLMC REMIC, Ser 2007-R013, CI AB

       

6.000%, 12/15/21

     21           21   

FHLMC TBA

       

3.500%, 07/15/41

     2,000           2,098   

3.000%, 07/01/27

     4,000           4,182   

2.500%, 07/15/27

     1,000           1,028   

FNMA

       

7.000%, 10/01/37

     43           51   

7.000%, 11/01/37

     17           20   
Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

7.000%, 11/01/37

   $ 17         $ 20   

7.000%, 12/01/37

     18           21   

7.000%, 02/01/38

     19           22   

7.000%, 08/01/38

     54           63   

7.000%, 09/01/38

     13           15   

7.000%, 11/01/38

     26           30   

7.000%, 11/01/38

     19           23   

7.000%, 11/01/38

     32           37   

7.000%, 11/01/38

     191           222   

6.500%, 08/01/17

     293           318   

6.000%, 07/01/37

     580           639   

6.000%, 09/01/37

     728           803   

6.000%, 11/01/38

     791           870   

5.500%, 09/01/34

     2,100           2,307   

5.500%, 02/01/35

     1,290           1,418   

5.500%, 04/01/36

     2,195           2,408   

5.500%, 05/01/38

     466           508   

5.500%, 06/01/38

     1,141           1,245   

5.500%, 08/01/38

     419           457   

5.492%, 12/01/35

     280           300   

5.481%, 06/01/17

     3,006           3,452   

5.430%, 03/01/36 (B)

     276           296   

5.000%, 01/01/21

     796           862   

5.000%, 11/01/25

     596           652   

5.000%, 06/01/35

     663           723   

5.000%, 07/01/35

     3,317           3,617   

5.000%, 11/01/35

     913           990   

5.000%, 02/01/36

     1,223           1,330   

5.000%, 03/01/36

     1,751           1,905   

5.000%, 03/01/38

     603           653   

5.000%, 03/01/40

     731           791   

5.000%, 06/01/40

     121           131   

5.000%, 06/01/40

     1,029           1,119   

5.000%, 06/01/40

     1,344           1,462   

4.601%, 04/01/20

     1,732           1,943   

4.530%, 12/01/19

     1,751           1,992   

4.501%, 01/01/20

     959           1,091   

4.500%, 03/01/39

     622           667   

4.500%, 03/01/40

     1,189           1,280   

4.500%, 08/01/40

     712           766   

4.377%, 11/01/19

     660           746   

4.000%, 06/01/25

     1,141           1,214   

4.000%, 08/01/40

     2,002           2,134   

4.000%, 02/01/41

     3,460           3,689   

4.000%, 09/01/41

     1,586           1,692   

4.000%, 04/01/42

     7,897           8,490   

3.685%, 01/01/21

     1,847           2,023   

3.500%, 08/01/26

     1,569           1,660   

3.500%, 03/01/41

     1,681           1,768   

1.940%, 07/27/42

     500           500   

FNMA REMIC, Ser 2003-129, CI PW

       

4.500%, 07/25/33

     72           73   

FNMA REMIC, Ser 2004-90, CI LH

       

5.000%, 04/25/34

     3,476           3,702   
 

 

14    New Covenant Funds / Annual Report / June 30, 2012

 

 

 

Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

FNMA REMIC, Ser 2005-22, CI DA

       

5.500%, 12/25/34

   $ 1,490         $ 1,651   

FNMA REMIC, Ser 2009-86, CI CA

       

4.500%, 09/25/24

     343           352   

FNMA, Ser 2003-W2, CI 2A9

       

5.900%, 07/25/42

     1,448           1,674   

FNMA TBA

       

5.500%, 07/01/37

     5,500           5,999   

5.000%, 07/15/38

     4,500           4,870   

3.500%, 07/01/41

     700           736   

3.000%, 07/01/26

     5,500           5,762   

2.500%, 07/01/27

     1,500           1,545   

GNMA

       

5.500%, 02/20/37

     618           686   

5.500%, 07/20/38

     393           437   

5.500%, 01/15/39

     850           944   

5.000%, 12/20/38

     380           403   

5.000%, 03/15/39

     878           967   

5.000%, 03/20/39

     798           847   

5.000%, 07/20/40

     5,360           5,944   

4.863%, 06/20/61

     2,051           2,296   

4.826%, 06/20/61

     1,941           2,191   

4.697%, 09/20/61

     1,757           1,963   

4.650%, 12/20/60

     1,747           1,936   

4.626%, 07/20/61

     1,914           2,107   

4.500%, 07/20/38

     826           908   

4.500%, 05/20/40

     2,934           3,242   

4.500%, 07/20/40

     5,167           5,709   

4.500%, 01/20/41

     1,544           1,705   

4.295%, 07/20/61

     1,690           1,875   

2.500%, 02/20/27

     3,699           3,841   

GNMA IO, Ser 2010-26

       

6.006%, 02/20/40 (B)

     476           87   

GNMA, Ser 2004-10, CI C

       

4.666%, 07/16/31

     1,096           1,135   

GNMA, Ser 2004-25, CI BA

       

4.930%, 11/16/44

     183           184   

GNMA, Ser 2004-108, CI AB

       

4.397%, 12/16/32 (B)

     657           686   

GNMA, Ser 2009-51, CI A

       

3.853%, 02/16/40

     1,115           1,167   

GNMA, Ser 2009-86, CI A

       

3.536%, 09/16/35

     1,708           1,787   

GNMA, Ser 2009-108, CI WG

       

4.000%, 09/20/38

     1,470           1,573   

GNMA, Ser 2010-48, CI AC

       

4.229%, 02/16/40

     1,495           1,582   

GNMA, Ser 2010-71, CI AD

       

3.489%, 03/16/39

     1,588           1,698   

GNMA, Ser 2011-147, CI A

       

2.174%, 07/16/38

     1,832           1,885   

GNMA, Ser 2012-22, CI AB

       

1.661%, 03/16/33

     1,878           1,902   
Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

GNMA TBA

       

5.000%, 07/01/39

   $ 1,300         $ 1,430   

4.500%, 07/15/39

     1,200           1,319   

4.000%, 07/01/39

     1,500           1,636   

3.500%, 07/15/41

     3,000           3,206   

3.500%, 07/01/42

     1,300           1,390   
      

 

 

  
         176,117   
      

 

 

  

Non-Agency Mortgage-Backed Obligations — 2.7%

  

American Home Mortgage Investment Trust, Ser 2005-1, CI 7A1

       

2.737%, 06/25/45 (B)

     590           535   

Banc of America Merrill Lynch Commercial Mortgage, Ser 2004-3, CI AS

       

5.549%, 06/10/39 (B)

     519           556   

Bear Stearns Commercial Mortgage Securities, Ser 2005-PWR9, CI A4A

       

4.871%, 09/11/42

     410           452   

Bear Stearns Commercial Mortgage Securities, Ser 2007-PW16, CI A4

       

5.906%, 06/11/40 (B)

     700           800   

Commercial Mortgage Pass-Through Certificates, Ser 2005-C6, CI A5A

       

5.116%, 06/10/44 (B)

     450           497   

Countrywide Alternative Loan Trust, Ser 2003-20CB, CI 1A1

       

5.500%, 10/25/33

     862           906   

Deutsche ALT-A Securities Alternate Loan Trust, Ser 2005-3, CI 4A5

       

5.250%, 06/25/35

     51           47   

GE Capital Commercial Mortgage, Ser 2004-C1, CI A3

       

4.596%, 11/10/38

     591           610   

GE Capital Commercial Mortgage, Ser 2006-C1, CI A4

       

5.481%, 03/10/44 (B)

     150           167   

GMAC Commercial Mortgage Securities, Ser 2004-C2, CI A4

       

5.301%, 08/10/38 (B)

     520           548   

JPMorgan Chase Commercial Mortgage Securities, Ser 2006-LDP9, CI A3

       

5.336%, 05/15/47

     750           830   

JPMorgan Chase Commercial Mortgage Securities, Ser 2006-LDP7

       

6.064%, 04/15/45 (B)

     300           342   

LB-UBS Commercial Mortgage Trust, Ser 2006-C6, CI A4

       

5.372%, 09/15/39

     220           250   

LB-UBS Commercial Mortgage Trust, Ser 2007-C7, CI A3

       

5.866%, 09/15/45 (B)

     380           436   

MASTR Alternative Loans Trust, Ser 2004-2, CI 4A1

       

5.000%, 02/25/19

     293           304   
 

 

New Covenant Funds / Annual Report / June 30, 2012      15   

SCHEDULE OF INVESTMENTS

New Covenant Income Fund (Continued)

June 30, 2012

 

Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

Merrill Lynch/Countrywide Commercial Mortgage Trust, Ser 2007-8, CI A3

       

6.163%, 08/12/49 (B)

   $ 250         $ 275   

Merrill Lynch/Countrywide Commerical Mortgage Trust, Ser 2007-5, CI A4

       

5.378%, 08/12/48

     500           541   

Morgan Stanley Capital I, Ser 2007-IQ14, CI A4

       

5.692%, 04/15/49 (B)

     35           39   

RALI Trust, Ser 2004-QS5, CI A1

       

4.600%, 04/25/34

     387           387   

Residential Asset Securitization Trust, Ser 2004-IP2, CI 4A

       

2.750%, 12/25/34 (B)

     214           203   

Structured Adjustable Rate Mortgage Loan Trust, Ser 2004-3AC, CI A2

       

2.681%, 03/25/34 (B)

     678           623   

UBS-BAMLL Trust, Ser 2012-WRM, CI A

       

3.663%, 06/10/30 (A)

     116           118   

UBS-Barclays Commercial Mortgage Trust, Ser 2012-C2, CI A4

       

3.525%, 05/10/63

     91           93   

Wachovia Bank Commercial Mortgage Trust, Ser 2004-C12, CI A4

       

5.316%, 07/15/41 (B)

     395           422   

Wachovia Bank Commercial Mortgage Trust, Ser 2006-C29, CI A4

       

5.308%, 11/15/48

     25           28   

WF-RBS Commercial Mortgage Trust, Ser 2012-C7, CI XA

       

1.614%, 06/15/45 (A)(B)

     1,350           143   
      

 

 

  
         10,152   
      

 

 

  

Total Mortgage-Backed Securities
(Cost $180,365) ($ Thousands)

          186,269   
      

 

 

  

CORPORATE OBLIGATIONS — 19.2%

  

Consumer Discretionary — 1.2%

  

CBS

       

7.875%, 09/01/23

     100           126   

Daimler Finance North America

       

6.500%, 11/15/13

     530           568   

Ford Motor Credit

       

8.125%, 01/15/20

     120           146   

5.875%, 08/02/21

     230           256   

3.000%, 06/12/17

     200           199   

Macy’s Retail Holdings

       

5.750%, 07/15/14

     640           695   

News America

       

5.300%, 12/15/14

     640           701   

TCI Communications

       

8.750%, 08/01/15

     676           825   

Time Warner Cable

       

8.250%, 02/14/14

     470           523   

5.000%, 02/01/20

     620           696   
      

 

 

  
         4,735   
      

 

 

  
Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

Consumer Staples — 1.1%

  

CVS Caremark

       

4.125%, 05/15/21

   $ 380         $ 416   

Kimberly-Clark

       

6.125%, 08/01/17

     180           221   

Kraft Foods

       

5.375%, 02/10/20

     490           580   

Kraft Foods Group

       

3.500%, 06/06/22 (A)

     400           410   

Kroger

       

3.900%, 10/01/15

     830           895   

PepsiCo

       

3.000%, 08/25/21

     360           373   

2.750%, 03/05/22

     100           101   

2.500%, 05/10/16

     350           367   

Safeway

       

3.950%, 08/15/20

     370           357   

Wal-Mart Stores

       

4.250%, 04/15/21

     260           300   
      

 

 

  
         4,020   
      

 

 

  

Energy — 2.0%

  

Anadarko Petroleum

       

6.375%, 09/15/17

     700           813   

Apache

       

3.250%, 04/15/22

     450           470   

Baker Hughes

       

3.200%, 08/15/21

     140           146   

Cameron International

       

1.600%, 04/30/15

     28           28   

ConocoPhillips

       

6.000%, 01/15/20

     290           365   

4.750%, 02/01/14

     200           212   

Devon Energy

       

6.300%, 01/15/19

     400           491   

3.250%, 05/15/22

     47           48   

1.875%, 05/15/17

     100           100   

Energy Transfer Partners LP

       

9.700%, 03/15/19

     230           295   

Global Industries

       

7.710%, 02/15/25

     1,083           1,339   

Hess

       

8.125%, 02/15/19

     250           322   

Kinder Morgan Energy Partners LP

       

6.000%, 02/01/17

     290           335   

Noble Energy

       

4.150%, 12/15/21

     360           379   

Occidental Petroleum

       

3.125%, 02/15/22

     290           302   

2.700%, 02/15/23

     299           301   

Petrodrill Five

       

4.390%, 04/15/16 (D)

     481           508   

Petrodrill Four

       

4.240%, 01/15/16

     687           716   
 

 

16    New Covenant Funds / Annual Report / June 30, 2012

 

 

 

Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

Williams Partners LP

       

7.250%, 02/01/17

   $ 165         $ 198   
      

 

 

  
         7,368   
      

 

 

  

Financials — 7.1%

  

American Express

       

8.125%, 05/20/19

     505           673   

American International Group

       

6.400%, 12/15/20

     200           226   

Arden Realty LP ‡

       

5.250%, 03/01/15

     830           895   

ASIF Global Financing XIX

       

4.900%, 01/17/13 (A)

     830           838   

Bank of America

       

7.625%, 06/01/19

     455           535   

5.625%, 07/01/20

     310           332   

5.000%, 05/13/21

     300           310   

BB&T

       

6.850%, 04/30/19

     300           378   

Bear Stearns

       

7.250%, 02/01/18

     180           215   

Berkshire Hathaway Finance

       

3.000%, 05/15/22

     67           68   

BlackRock

       

3.375%, 06/01/22

     72           73   

2.250%, 12/10/12

     310           312   

Caterpillar Financial Services

       

6.200%, 09/30/13

     500           534   

2.850%, 06/01/22

     66           66   

Citigroup

       

6.125%, 11/21/17

     1,035           1,147   

6.010%, 01/15/15

     200           215   

6.000%, 12/13/13

     415           436   

5.375%, 08/09/20

     733           792   

CNA Financial

       

5.875%, 08/15/20

     415           456   

Credit Suisse NY

       

4.375%, 08/05/20

     250           268   

ERP Operating LP

       

5.375%, 08/01/16

     130           146   

4.625%, 12/15/21

     130           141   

General Electric Capital

       

6.000%, 08/07/19

     1,825           2,135   

1.625%, 07/02/15

     130           130   

Goldman Sachs Group

       

6.150%, 04/01/18

     400           434   

6.000%, 06/15/20

     600           640   

5.950%, 01/18/18

     830           888   

5.350%, 01/15/16

     537           564   

HSBC Finance

       

6.676%, 01/15/21

     400           433   

5.000%, 06/30/15

     330           352   

Invesco

       

5.375%, 12/15/14

     180           194   
Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

John Deere Capital

       

2.250%, 04/17/19

   $ 200         $ 204   

0.950%, 06/29/15

     58           58   

Marsh & McLennan

       

4.850%, 02/15/13

     250           255   

Merrill Lynch

       

6.875%, 04/25/18

     490           549   

6.050%, 08/15/12

     830           835   

MetLife

       

6.750%, 06/01/16

     360           422   

Metropolitan Life Global Funding I

       

1.700%, 06/29/15 (A)

     213           213   

Morgan Stanley

       

6.000%, 05/13/14

     830           860   

5.625%, 09/23/19

     200           198   

5.500%, 07/28/21

     350           345   

Nationsbank

       

10.200%, 07/15/15

     330           374   

Private Export Funding

       

4.550%, 05/15/15

     784           874   

Prudential Financial

       

5.100%, 09/20/14

     620           665   

Prudential Holdings

       

8.695%, 12/18/23 (A)

     705           870   

Rio Tinto Finance USA

       

4.125%, 05/20/21

     700           769   

SLM

       

0.766%, 01/27/14 (B)

     700           669   

US Bancorp

       

4.200%, 05/15/14

     360           383   

Virgin Media Secured Finance

       

6.500%, 01/15/18

     240           261   

Wachovia

       

5.750%, 02/01/18

     400           473   

Wachovia Bank

       

6.000%, 11/15/17

     250           291   

Wells Fargo

       

5.625%, 12/11/17

     745           870   

4.600%, 04/01/21

     600           670   

2.100%, 05/08/17

     500           501   

Westpac Banking

       

4.200%, 02/27/15

     255           271   
      

 

 

  
         26,706   
      

 

 

  

Health Care — 1.1%

       

Abbott Laboratories

       

4.125%, 05/27/20

     260           294   

Agilent Technologies

       

6.500%, 11/01/17

     380           457   

Baxter International

       

5.900%, 09/01/16

     380           451   

Express Scripts Holding

       

3.500%, 11/15/16 (A)

     600           632   
 

 

New Covenant Funds / Annual Report / June 30, 2012      17   

SCHEDULE OF INVESTMENTS

New Covenant Income Fund (Continued)

June 30, 2012

 

Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

Johnson & Johnson

       

1.200%, 05/15/14

   $ 640         $ 649   

Medtronic

       

3.125%, 03/15/22

     240           249   

UnitedHealth Group

       

1.875%, 11/15/16

     400           409   

WellPoint

       

3.125%, 05/15/22

     500           504   

Wyeth

       

5.450%, 04/01/17

     290           342   
      

 

 

  
         3,987   
      

 

 

  

Industrials — 3.3%

  

3M

       

1.000%, 06/26/17

     75           75   

ADT

       

3.500%, 07/15/22 (A)

     37           37   

American Airlines 2011-1, Cl A
Pass-Through Trust

       

5.250%, 01/31/21

     160           166   

Burlington Northern and Santa Fe Railway 2002-2 Pass-Through Trust

       

5.140%, 01/15/21

     1,250           1,353   

Canal Barge

       

4.500%, 11/12/34 (D)

     1,289           1,575   

Caterpillar

       

1.500%, 06/26/17

     58           58   

Continental Airlines 1999-1, Cl A
Pass-Through Trust

       

6.545%, 02/02/19

     209           223   

CSX Transportation

       

6.251%, 01/15/23

     1,032           1,207   

Deere

       

2.600%, 06/08/22

     60           60   

Delta Air Lines 2012-1, Cl A
Pass-Through Trust

       

4.750%, 05/07/20

     57           57   

Enterprise Products Operating

       

5.250%, 01/31/20

     910           1,042   

4.050%, 02/15/22

     50           53   

Matson Navigation

       

5.337%, 09/04/28 (D)

     964           1,139   

Republic Services

       

3.550%, 06/01/22

     50           51   

Totem Ocean Trailer Express

       

6.365%, 04/15/28

     1,889           2,524   

Tyco Electronics Group

       

3.500%, 02/03/22

     90           90   

Union Pacific

       

5.404%, 07/02/25

     1,509           1,746   

United Technologies

       

3.100%, 06/01/22

     803           841   
      

 

 

  
         12,297   
      

 

 

  
Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

Information Technology — 0.5%

  

Computer Sciences

       

5.500%, 03/15/13

   $ 830         $ 851   

International Business Machines

       

1.875%, 05/15/19

     110           111   

Xerox

       

1.868%, 09/13/13 (B)

     995           1,002   
      

 

 

  
         1,964   
      

 

 

  

Materials — 0.5%

  

Freeport-McMoRan Copper & Gold

       

3.550%, 03/01/22

     400           393   

2.150%, 03/01/17

     81           80   

Plum Creek Timberlands LP

       

5.875%, 11/15/15

     415           460   

Potash Corp of Saskatchewan

       

4.875%, 03/30/20

     80           92   

Vale Overseas

       

4.375%, 01/11/22

     915           932   
      

 

 

  
         1,957   
      

 

 

  

Telecommunication Services — 0.7%

  

America Movil

       

5.500%, 03/01/14

     500           535   

AT&T

       

5.600%, 05/15/18

     300           359   

5.500%, 02/01/18

     330           392   

BellSouth Telecommunications

       

6.375%, 06/01/28

     160           188   

Discovery Communications

       

3.300%, 05/15/22

     120           121   

GTE

       

6.940%, 04/15/28

     150           189   

Reed Elsevier Capital

       

8.625%, 01/15/19

     140           178   

TCI Communications

       

7.875%, 02/15/26

     300           404   

Verizon Communications

       

3.500%, 11/01/21

     130           139   
      

 

 

  
         2,505   
      

 

 

  

Utilities — 1.7%

  

American Water Capital

       

6.085%, 10/15/17

     955           1,118   

Carolina Power & Light

       

2.800%, 05/15/22

     73           74   

Detroit Edison

       

2.650%, 06/15/22

     26           26   

Duke Energy

       

3.550%, 09/15/21

     210           223   

Duke Energy Indiana

       

3.750%, 07/15/20

     110           120   
 

 

18    New Covenant Funds / Annual Report / June 30, 2012

 

 

 

Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

Entergy Louisiana

       

6.500%, 09/01/18

   $ 1,464         $ 1,758   

Exelon

       

4.900%, 06/15/15

     500           544   

Nevada Power

       

6.500%, 08/01/18

     115           142   

New Valley Generation I

       

7.299%, 03/15/19

     1,335           1,614   

Nisource Finance

       

3.850%, 02/15/23

     125           125   

PG&E

       

5.750%, 04/01/14

     370           398   

PPL Capital Funding

       

4.200%, 06/15/22

     50           50   

San Diego Gas & Electric

       

6.000%, 06/01/26

     70           93   

Sempra Energy

       

6.150%, 06/15/18

     150           181   
      

 

 

  
         6,466   
      

 

 

  

Total Corporate Obligations
(Cost $69,023) ($ Thousands)

   

        72,005   
      

 

 

  

ASSET-BACKED SECURITIES — 2.5%

  

Automotive — 0.1%

  

AmeriCredit Automobile Receivables Trust, Ser 2012-3, CI A2

       

0.710%, 12/08/15

     150           150   

AmeriCredit Automobile Receivables Trust, Ser 2012-3, CI A3

       

0.960%, 01/09/17

     100           100   

Volkswagen Auto Lease Trust, Ser 2012-A, CI A3

       

0.870%, 07/20/15

     138           138   
      

 

 

  
         388   
      

 

 

  

Credit Card — 0.5%

  

Discover Card Master Trust, Ser 2010-A1

       

0.892%, 09/15/15 (B)

     1,875           1,882   
      

 

 

  

Home — 0.4%

  

Argent Securities, Ser 2004-W5, CI AV2

       

0.765%, 04/25/34 (B)

     405           336   

Bayview Financial Acquisition Trust, Ser 2007-A, CI 1A2

       

6.205%, 05/28/37

     428           433   

Centex Home Equity, Ser 2005-C, CI AF5

       

5.048%, 06/25/35

     775           786   
      

 

 

  
         1,555   
      

 

 

  

Other Asset-Backed Securities — 1.5%

  

Academic Loan Funding Trust, Ser 2012-1A, CI A1

       

0.800%, 12/27/22 (A)(B)

     200           200   
Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

CenterPoint Energy Transition Bond, Ser 2005-A

       

5.090%, 08/01/15

   $ 1,682         $ 1,753   

Consumers Funding, Ser 2001-1, CI A6

       

5.760%, 10/20/16

     1,856           2,078   

Countrywide Asset-Backed Certificates, Ser 2005-1, CI AF6

       

5.030%, 07/25/35 (B)

     429           426   

Nelnet Student Loan Trust, Ser 2004-4,
CI A5

       

0.626%, 01/25/37 (B)

     100           95   

SLM Student Loan Trust, Ser 2005-4,
CI A3

       

0.586%, 01/25/27 (B)

     200           189   

SLM Student Loan Trust, Ser 2005-7,
CI A4

       

0.616%, 10/25/29 (B)

     600           552   

VOLT, Ser 2012-RP2A, CI A1

       

4.704%, 06/25/17 (A)(D)

     142           142   
      

 

 

  
         5,435   
      

 

 

  

Total Asset-Backed Securities
(Cost $9,093) ($ Thousands)

   

        9,260   
      

 

 

  

FOREIGN BONDS — 1.9%

  

BHP Billiton Finance USA

       

6.500%, 04/01/19

     260           331   

3.250%, 11/21/21

     180           188   

BP Capital Markets

       

3.245%, 05/06/22

     690           715   

Celulosa Arauco y Constitucion

       

4.750%, 01/11/22

     270           276   

Cooperatieve Centrale Raiffeisen- Boerenleenbank

       

3.375%, 01/19/17

     900           926   

Deutsche Telekom International Finance

       

5.750%, 03/23/16

     290           325   

HSBC Holdings

       

4.000%, 03/30/22

     100           104   

Lloyds TSB Bank

       

6.375%, 01/21/21

     280           317   

Pemex Finance

       

10.610%, 08/15/17

     500           603   

Petrobras International Finance - Pifco

       

5.375%, 01/27/21

     1,160           1,250   

Petroleos Mexicanos

       

4.875%, 01/24/22

     570           616   

Santander US Debt

       

2.991%, 10/07/13

     995           957   

Shell International Finance

       

4.375%, 03/25/20

     250           291   

Teva Pharmaceutical Finance IV

       

3.650%, 11/10/21

     280           295   
 

 

New Covenant Funds / Annual Report / June 30, 2012      19   

SCHEDULE OF INVESTMENTS

New Covenant Income Fund (Concluded)

June 30, 2012

 

Description   Face Amount
($ Thousands)		        Market Value
($ Thousands)		  

Total Capital

       

4.250%, 12/15/21

   $ 70         $ 78   

Total Capital International

       

1.550%, 06/28/17

     41           41   
      

 

 

  

Total Foreign Bonds
(Cost $7,292) ($ Thousands)

   

        7,313   
      

 

 

  

U.S. GOVERNMENT AGENCY OBLIGATIONS — 1.4%

  

FHLB

       

0.875%, 08/22/12

     825           826   

FHLMC

       

1.125%, 07/27/12

     1,196           1,197   

FNMA

       

1.250%, 08/20/13

     1,058           1,069   

1.125%, 04/27/17

     2,075           2,094   
      

 

 

  

Total U.S. Government Agency Obligations
(Cost $5,158) ($ Thousands)

   

        5,186   
      

 

 

  

MUNICIPAL BONDS — 0.1%

  

California State, GO

       

6.200%, 10/01/19

     250           295   

Illinois State, GO

       

5.877%, 03/01/19

     100           111   
      

 

 

  

Total Municipal Bonds
(Cost $411) ($ Thousands)

   

        406   
      

 

 

  

SOVEREIGN DEBT — 0.1%

  

African Development Bank

       

8.800%, 09/01/19

     100           136   

Province of Ontario Canada

       

0.950%, 05/26/15

     200           201   
      

 

 

  

Total Sovereign Debt
(Cost $337) ($ Thousands)

   

        337   
      

 

 

  

U.S. TREASURY OBLIGATIONS — 18.7%

  

U.S. Treasury Bills

       

0.055%, 07/05/12 (C)

     20,000           20,000   

U.S. Treasury Bonds

       

8.750%, 05/15/20

     1,500           2,347   

U.S. Treasury Inflation-Protected Security

  

     

1.250%, 04/15/14

     1,848           1,908   

U.S. Treasury Notes

       

4.500%, 02/15/16

     2,500           2,856   

2.000%, 11/15/21

     3,230           3,349   

1.875%, 04/30/14

     200           205   

1.875%, 08/31/17

     1,250           1,319   

1.375%, 01/15/13

     200           201   

1.250%, 04/30/19

     30,075           30,409   

1.125%, 05/31/19

     140           140   

0.375%, 10/31/12

     1,200           1,201   

U.S. Treasury STRIPS (C)

       

1.882%, 05/15/21

     600           520   

1.517%, 02/15/20

     2,000           1,806   
Description  

Face Amount

($ Thousands)/

Contracts/

Shares

        Market Value
($ Thousands)		  

1.368%, 05/15/20

   $ 600         $ 538   

1.358%, 08/15/20

     1,000           890   

1.315%, 11/15/19

     1,000           910   

0.628%, 05/15/16

     1,500           1,463   
      

 

 

  

Total U.S. Treasury Obligations
(Cost $69,640) ($ Thousands)

   

        70,062   
      

 

 

  

PURCHASED OPTION — 0.0%

  

U.S. 10 Year Treasury Note, Expires 08/24/12, Strike Price $129.5

     10           1   
      

 

 

  

Total Purchased Option
(Cost $5) ($ Thousands)

   

        1   
      

 

 

  

CASH EQUIVALENT — 6.2%

  

SEI Daily Income Trust, Prime Obligation Fund, Cl A 0.080%†*

     23,382,378           23,382   
      

 

 

  

Total Cash Equivalent
(Cost $23,382) ($ Thousands)

          23,382   
      

 

 

  

Total Investments — 99.8%
(Cost $364,706) ($ Thousands)

        $ 374,221   
      

 

 

  

A list of the open futures contracts held by the Fund at June 30, 2012, is as follows:

 

Type of Contract      Number of
Contracts		        Expiration
Date		        Unrealized
Appreciation
(Depreciation)
($ Thousands)		  

90-Day Euro$

        43           Mar-2013         $ 4   

90-Day Euro$

        (43 )         Mar-2014           (8 ) 

U.S. 10-Year Treasury Note

        (238 )         Sep-2012           (161 ) 

U.S. 5-Year Treasury Note

        26           Sep-2012           1   

U.S. Long Treasury Bond

        10           Sep-2012           5   
              

 

 

  
               $ (159 ) 
              

 

 

  

For the year ended June 30, 2012, the total amount of options contracts, as presented in the schedule of investments above, are representative of the volume of activity for this derivative type during the year.

For the year ended June 30, 2012, the total amount of all open futures contracts, as presented in the table above, are representative of the volume of activity for this derivative type during the year.

The options contracts and futures contracts are both considered to have interest rate risk associated with them.

Percentages are based on a Net Assets of $374,870 ($ Thousands).

 

*   The rate reported is the 7-day effective yield as of June 30, 2012.

 

†   Investment in Affiliated Security (see Note 3).

 

‡   Real Estate Investment Trust

 

(A)   Securities sold within terms of a private placement memorandum, exempt from registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other “accredited investors.” These securities have been determined to be liquid under guidelines established by the Board of Trustees.

 

(B)   Variable Rate Security — The rate reported on the Schedule of Investments is the rate in effect as of June 30, 2012. The date reported on the Schedule of Investments is the final maturity date.

 

(C)   The rate reported is the effective yield at time of purchase.

 

(D)   Security considered illiquid. The total value of such securities as of June 30, 2012 was $3,364 ($ Thousands) and represented 0.9% of Net Assets.
 

 

20    New Covenant Funds / Annual Report / June 30, 2012

 

 

 

Cl — Class

FHLB — Federal Home Loan Bank

FHLMC — Federal Home Loan Mortgage Corporation

FNMA — Federal National Mortgage Association

GNMA — Government National Mortgage Association

GO — General Obligation

IO — Interest Only—face amount represents notional amount

LP — Limited Partnership

NY — New York

REMIC — Real Estate Mortgage Investment Conduit

Ser — Series

STRIPS — Separately Traded Registered Interest and Principal Securities

TBA — To Be Announced

The accompanying notes are an integral part of the financial statements.

 

 

New Covenant Funds / Annual Report / June 30, 2012      21   

SCHEDULE OF INVESTMENTS

New Covenant Balanced Growth Fund

June 30, 2012

 

 

 

LOGO

 

Description   Shares        Market Value
($ Thousands)		  

INVESTMENT COMPANIES — 99.0%

  

New Covenant Growth Fund†

     4,871,827         $ 157,019   

New Covenant Income Fund†

     4,247,668           98,886   
      

 

 

  

Total Investment Companies
(Cost $221,772) ($ Thousands)

          255,905   
      

 

 

  

CASH EQUIVALENT — 0.8%

  

SEI Daily Income Trust, Prime Obligation Fund, Cl A 0.080%†*

     1,997,063           1,997   
      

 

 

  

Total Cash Equivalent
(Cost $1,997) ($ Thousands)

          1,997   
      

 

 

  

Total Investments — 99.8%
(Cost $223,769) ($ Thousands)

        $ 257,902   
      

 

 

  

Percentages are based on a Net Assets of $258,499 ($ Thousands).

 

*   The rate reported is the 7-day effective yield as of June 30, 2012.

 

†   Investment in Affiliated Security (see Note 3).

Cl — Class

The accompanying notes are an integral part of the financial statements.

 

 

22    New Covenant Funds / Annual Report / June 30, 2012

SCHEDULE OF INVESTMENTS

New Covenant Balanced Income Fund

June 30, 2012

 

 

 

LOGO

 

Description   Shares        Market Value
($ Thousands)		  

INVESTMENT COMPANIES — 99.0%

  

New Covenant Growth Fund†

     949,216         $ 30,593   

New Covenant Income Fund†

     2,324,713           54,119   
      

 

 

  

Total Investment Companies
(Cost $76,517) ($ Thousands)

   

        84,712   
      

 

 

  

CASH EQUIVALENT — 0.3%

  

SEI Daily Income Trust, Prime Obligation Fund, Cl A 0.080%†*

     294,823           295   
      

 

 

  

Total Cash Equivalent
(Cost $295) ($ Thousands)

   

        295   
      

 

 

  

Total Investments — 99.3%
(Cost $76,812) ($ Thousands)

        $ 85,007   
      

 

 

  

Percentages are based on a Net Assets of $85,602 ($ Thousands).

 

*   The rate reported is the 7-day effective yield as of June 30, 2012.

 

†   Investment in Affiliated Security (see Note 3).

Cl — Class

The accompanying notes are an integral part of the financial statements.

 

 

New Covenant Funds / Annual Report / June 30, 2012      23   

Statements of Assets and Liabilities ($ Thousands)

June 30, 2012

 

     Growth Fund        Income Fund        Balanced
Growth Fund		        Balanced
Income Fund		  

ASSETS:

                 

Investments, at value†

   $ 656,499         $ 350,839         $ —         $ —   

Affiliated investments, at value††

     3,652           23,382           257,902           85,007   

Cash

     —           29,580           —           —   

Foreign currency, at value†††

     3           —           —           —   

Receivable for investment securities sold

     3,263           1,469           6,327           2,746   

Dividends and interest receivable

     852           1,815           136           76   

Foreign tax reclaim receivable

     177           —           —           —   

Initial margin for futures contracts

     —           300           —           —   

Receivable for fund shares sold

     —           8,047           3           —   

Receivable for variation margin

     —           132           —           —   

Prepaid expenses

     33           18           14           6   

Total Assets

     664,479           415,582           264,382           87,835   

LIABILITIES:

                 

Payable for fund shares redeemed

     9,074           4           4           —   

Payable for investment securities purchased

     2,462           39,926           5,786           2,194   

Investment advisory fees payable

     192           42           —           —   

Administration fees payable

     105           61           30           14   

Social witness and licensing fees payable

     78           45           —           —   

Shareholder servicing fees payable

     52           30           —           —   

Payable to Custodian

     38           —           —           —   

Transfer agent fees payable

     26           16           15           9   

Trustee fees payable

     14           9           6           2   

Chief Compliance Officer fees payable

     1           1           —           —   

Income distribution payable

     —           481           —           —   

Payable for variation margin

     —           25           —           —   

Accrued expense payable

     126           72           42           14   

Total Liabilities

     12,168           40,712           5,883           2,233   

Net Assets

   $ 652,311         $ 374,870         $ 258,499         $ 85,602   

† Cost of investments

   $ 599,445         $ 341,324         $ —         $ —   

†† Cost of affiliated investments

     3,652           23,382           223,769           76,812   

††† Cost of foreign currency

     3           —           —           —   

NET ASSETS:

                 

Paid-in capital — (unlimited authorization — no par value)

   $ 616,600         $ 423,517         $ 252,669         $ 81,595   

Undistributed net investment income

     2,053           529           439           265   

Accumulated net realized loss on investments, affiliated investments and foreign currency

     (23,406 )         (58,532 )         (28,742 )         (4,453 ) 

Net unrealized appreciation on investments and affiliated investments

     57,054           9,515           34,133           8,195   

Net unrealized depreciation on futures contracts

     —           (159 )         —           —   

Net unrealized appreciation on foreign currencies and translation of other assets and liabilities denominated in foreign currencies

     10           —           —           —   

Net Assets

   $ 652,311         $ 374,870         $ 258,499         $ 85,602   

Net Asset Value, Offering and Redemption Price Per Share

   $ 32.23         $ 23.28         $ 82.87         $ 19.25   
     
 		 ($652,311,338/
20,237,418 shares		   
) 		       
 		 ($374,870,049/
16,100,192 shares		   
) 		       
 		 ($258,498,750/
3,119,445 shares		   
) 		       
 		 ($85,601,833/
4,445,935 shares		   
) 

Amounts designated as “—” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

 

24    New Covenant Funds / Annual Report / June 30, 2012

Statements of Operations ($ Thousands)

For the year ended June 30, 2012

 

      Growth Fund        Income Fund        Balanced
Growth Fund		        Balanced
Income Fund		  

Investment Income:

                  

Dividend Income

    $ 13,824         $ 1         $ —         $ —   

Dividend Income from Affiliated Registered Investment Company

      —           3           4,377           2,051   

Interest Income

      —           14,625           —           —   

Security Lending Income — Net

      37           4           —           —   

Less: Foreign Taxes Withheld

      (487 )         (2 )         —           —   
       13,374           14,631           4,377           2,051   

Expenses:

                  

Investment Advisory Fees

      5,241           2,492           —           —   

Administration Fees

      544           338           190           64   

Social Witness and Licensing Fees

      368           219           —           —   

Shareholder Servicing Fees

      245           145           —           —   

Chief Compliance Officer Fees

      19           13           7           2   

Professional Fees

      163           110           65           22   

Transfer Agent Fees

      93           65           78           35   

Custodian Fees

      76           14           7           3   

Printing Fees

      73           42           17           5   

Trustee Fees

      33           21           13           4   

Registration Fees

      29           31           30           28   

Other Expenses

      61           43           28           10   

Total Expenses

      6,945           3,533           435           173   

Less:

                  

Waiver of Investment Advisory Fees

      (399 )         (256 )         —           —   

Waiver of Administration Fees

      —           —           (79 )         (13 ) 

Net Expenses

      6,546           3,277           356           160   

Net Investment Income

      6,828           11,354           4,021           1,891   

Net Realized and Change in Unrealized Gain (Loss) on Investments:

                  

Net Realized Gain (Loss) on:

                  

Investments

      74,483           14,764 (1)         —           —   

Affiliated Investments

      —           —           311           260   

Futures Contracts

      —           (283 )         —           —   

Foreign Currency Transactions

      (97 )         —           —           —   

Net Change in Unrealized Appreciation (Depreciation) on:

                  

Investments

      (79,477 )         (2,186 )         —           —   

Affiliated Investments

      —           —           915           563   

Futures Contracts

      —           (159 )         —           —   

Foreign Currency Transactions and Translation of Other Assets and Liabilities Denominated in Foreign Currencies

      (44 )         —           —           —   

Net Increase in Net Assets Resulting from Operations

    $ 1,693         $ 23,490         $ 5,247         $ 2,714   

 

(1)   Includes realized gains of $2,602 ($ Thousands) from an in-kind transfer of securities (see Note 7).

Amounts designated as “—” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

 

New Covenant Funds / Annual Report / June 30, 2012      25   

Statements of Changes in Net Assets ($ Thousands)

For the years ended June 30,

 

      Growth Fund        Income Fund  
      2012        2011        2012        2011  

Operations:

                  

Net Investment Income

    $ 6,828         $ 5,501         $ 11,354         $ 12,188   

Net Realized Gain from Investments, Affiliated Investments and Futures Contracts

      74,483           62,204           14,481           3,918   

Net Realized Gain (Loss) on Foreign Currency Transactions

      (97 )         162           —           —   

Net Change in Unrealized Appreciation (Depreciation) on Investments, Affiliated Investments and Futures Contracts

      (79,477 )         115,172           (2,345 )         861   

Net Change in Unrealized Depreciation on Foreign Currency Transactions and Translation of Other Assets and Liabilities Denominated in Foreign Currencies

      (44 )         —           —           —   

Net Increase in Net Assets Resulting from Operations

      1,693           183,039           23,490           16,967   

Dividends and Distributions From:

                  

Net Investment Income

      (5,067 )         (5,337 )         (15,213 )         (11,860 ) 

Total Dividends and Distributions

      (5,067 )         (5,337 )         (15,213 )         (11,860 ) 

Capital Share Transactions:

                  

Proceeds from Shares Issued

      44,541           16,985           43,115           81,373   

Reinvestment of Dividends & Distributions

      413           427           1,156           796   

Cost of Shares Redeemed

      (110,902 )         (98,404 )         (132,814 )(1)         (33,876 ) 

Increase (Decrease) in Net Assets Derived from Capital Share Transactions

      (65,948 )         (80,992 )         (88,543 )         48,293   

Net Increase (Decrease) in Net Assets

      (69,322 )         96,710           (80,266 )         53,400   

Net Assets:

                  

Beginning of Year

      721,633           624,923           455,136           401,736   

End of Year

    $ 652,311         $ 721,633         $ 374,870         $ 455,136   

Undistributed Net Investment Income Included in Net Assets at Year End

    $ 2,053         $ 315         $ 529         $ 3,226   

Capital Share Transactions:

                  

Shares Issued

      1,482           580           1,865           3,575   

Shares Issued in Lieu of Dividends and Distributions

      14           14           50           35   

Shares Redeemed

      (3,442 )         (3,300 )         (5,735 )         (1,490 ) 

Increase (Decrease) in Net Assets Derived from Share Transactions

      (1,946 )         (2,706 )         (3,820 )         2,120   

 

(1)   Includes redemptions as a result of an in-kind transfer of securities (see Note 7).

Amounts designated as “—” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

 

26    New Covenant Funds / Annual Report / June 30, 2012

Statements of Changes in Net Assets ($ Thousands)

For the years ended June 30,

 

      Balanced Growth Fund        Balanced Income Fund  
      2012        2011        2012        2011  

Operations:

                  

Net Investment Income

    $ 4,021         $ 3,264         $ 1,891         $ 1,498   

Net Realized Gain (Loss) from Affiliated Investments

      311           (935 )         260           342   

Net Change in Unrealized Appreciation on Affiliated Investments

      915           44,185           563           9,162   

Net Increase in Net Assets Resulting from Operations

      5,247           46,514           2,714           11,002   

Dividends and Distributions From:

                  

Net Investment Income

      (3,583 )         (3,264 )         (1,626 )         (1,498 ) 

Return of Capital

      —           (2 )         —           (11 ) 

Total Dividends and Distributions

      (3,583 )         (3,266 )         (1,626 )         (1,509 ) 

Capital Share Transactions:

                  

Proceeds from Shares Issued

      14,122           18,651           4,504           5,500   

Reinvestment of Dividends & Distributions

      2,837           2,591           1,050           985   

Cost of Shares Redeemed

      (31,438 )         (30,680 )         (13,171 )         (8,884 ) 

Decrease in Net Assets Derived from Capital Share Transactions

      (14,479 )         (9,438 )         (7,617 )         (2,399 ) 

Net Increase (Decrease) in Net Assets

      (12,815 )         33,810           (6,529 )         7,094   

Net Assets:

                  

Beginning of Year

      271,314           237,504           92,131           85,037   

End of Year

    $ 258,499         $ 271,314         $ 85,602         $ 92,131   

Undistributed Net Investment Income Included in Net Assets at Year End

    $ 439         $ 145         $ 265         $ 29   

Capital Share Transactions:

                  

Shares Issued

      177           236           238           301   

Shares Issued in Lieu of Dividends and Distributions

      36           33           57           54   

Shares Redeemed

      (389 )         (392 )         (706 )         (484 ) 

Decrease in Net Assets Derived from Share Transactions

      (176 )         (123 )         (411 )         (129 ) 

Amounts designated as “—” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

 

New Covenant Funds / Annual Report / June 30, 2012      27   

Financial Highlights

For the years ended June 30,

For a share outstanding throughout each year

 

      Growth Fund  
      2012      2011      2010      2009      2008  

Net Asset Value, Beginning of Year

    $ 32.53       $ 25.11       $ 22.68       $ 31.95       $ 38.90   

INVESTMENT ACTIVITIES:

               

Net investment income

      0.31 (1)       0.24         0.21         0.29         0.26   

Net realized and unrealized gains (losses) on securities and foreign currency transactions

      (0.38 )(1)       7.41         2.43         (9.29 )       (4.98 ) 

Total from operations

      (0.07 )       7.65         2.64         (9.00 )       (4.72 ) 

DIVIDENDS AND DISTRIBUTIONS FROM:

               

Net investment income

      (0.23 )       (0.23 )       (0.18 )       (0.25 )       (0.24 ) 

Net realized capital gains

      —         —         —         —         (1.97 ) 

Tax return of capital

      —         —         (0.03 )       (0.02 )       (0.02 ) 

Total dividends and distributions

      (0.23 )       (0.23 )       (0.21 )       (0.27 )       (2.23 ) 
Net Asset Value, End of Year    $ 32.23       $ 32.53       $ 25.11       $ 22.68       $ 31.95   

Total Return†

      (0.15 )%       30.54 %       11.54 %       (28.16 )%       (12.61 )% 

SUPPLEMENTAL DATA AND RATIOS:

               

Net assets, end of year ($ Thousands)

    $ 652,311       $ 721,633       $ 624,923       $ 598,209       $ 836,086   

Ratio of net expenses to average net assets

      0.97 %       1.08 %       1.19 %       1.12 %       1.10 % 

Ratio of expenses to average net assets, excluding waivers

      1.03 %       1.12 %       1.29 %       1.30 %       1.29 % 

Ratio of net investment income to average net assets

      1.01 %       0.78 %       0.68 %       1.15 %       0.73 % 

Portfolio turnover rate

      83 %       44 %       81 %       94 %       65 % 

 

†   Returns do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares.
(1)   Per share net investment income and net realized and unrealized gains (losses) calculated using average shares.

Amounts designated as “—” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

 

28    New Covenant Funds / Annual Report / June 30, 2012

Financial Highlights

For the years ended June 30,

For a share outstanding throughout each year

 

      Income Fund  
      2012      2011      2010      2009      2008  

Net Asset Value, Beginning of Year

    $ 22.85       $ 22.57       $ 20.93       $ 23.73       $ 24.52   

INVESTMENT ACTIVITIES:

               

Net investment income

      0.60 (1)       0.62         0.81         1.11         1.16   

Net realized and unrealized gains (losses) on securities

      0.62 (1)       0.27         1.62         (2.79 )       (0.81 ) 

Total from operations

      1.22         0.89         2.43         (1.68 )       0.35   

DIVIDENDS AND DISTRIBUTIONS FROM:

               

Net investment income

      (0.79 )       (0.61 )       (0.79 )       (1.12 )       (1.14 ) 

Total dividends and distributions

      (0.79 )       (0.61 )       (0.79 )       (1.12 )       (1.14 ) 
Net Asset Value, End of Year    $ 23.28       $ 22.85       $ 22.57       $ 20.93       $ 23.73   

Total Return†

      5.45 %       4.00 %       11.72 %       (6.90 )%       1.36 % 

SUPPLEMENTAL DATA AND RATIOS:

               

Net assets, end of year ($ Thousands)

    $ 374,870       $ 455,136       $ 401,736       $ 373,446       $ 496,325   

Ratio of net expenses to average net assets

      0.75 %       0.83 %       0.87 %       0.86 %       0.85 % 

Ratio of expenses to average net assets, excluding waivers

      0.81 %       0.89 %       1.03 %       1.02 %       1.01 % 

Ratio of net investment income to average net assets

      2.60 %       2.76 %       3.68 %       5.15 %       4.70 % 

Portfolio turnover rate

      95 %       38 %       76 %       230 %       170 % 

 

†   Returns do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares.
(1)   Per share net investment income and net realized and unrealized gains (losses) calculated using average shares.

Amounts designated as “—” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

 

New Covenant Funds / Annual Report / June 30, 2012      29   

Financial Highlights

For the years ended June 30,

For a share outstanding throughout each year

 

      Balanced Growth Fund  
      2012      2011      2010      2009      2008  

Net Asset Value, Beginning of Year

    $ 82.33       $ 69.47       $ 63.31       $ 82.49       $ 90.86   

INVESTMENT ACTIVITIES:

               

Net investment income

      1.25 (1)       0.99         1.11         1.70         1.83   

Net realized and unrealized gains (losses) on securities

      0.41 (1)       12.86         6.16         (18.25 )       (8.37 ) 

Total from operations

      1.66         13.85         7.27         (16.55 )       (6.54 ) 

DIVIDENDS AND DISTRIBUTIONS FROM:

               

Net investment income

      (1.12 )       (0.99 )       (1.06 )       (1.69 )       (1.83 ) 

Net realized capital gains

      —         —         —         (0.93 )       —   

Tax return of capital

      —         — (2)       (0.05 )       (0.01 )       —   

Total dividends and distributions

      (1.12 )       (0.99 )       (1.11 )       (2.63 )       (1.83 ) 
Net Asset Value, End of Year    $ 82.87       $ 82.33       $ 69.47       $ 63.31       $ 82.49   

Total Return†

      2.07 %       19.99 %       11.43 %       (19.96 )%       (7.26 )% 

SUPPLEMENTAL DATA AND RATIOS:

               

Net assets, end of year ($ Thousands)

    $ 258,499       $ 271,314       $ 237,504       $ 221,070       $ 305,294   

Ratio of net expenses to average net assets

      0.14 %       0.18 %       0.23 %       0.13 %       0.15 % 

Ratio of expenses to average net assets, excluding waivers

      0.17 %       0.26 %       0.40 %       0.37 %       0.39 % 

Ratio of net investment income to average net assets

      1.55 %       1.25 %       1.56 %       2.56 %       2.07 % 

Portfolio turnover rate

      9 %       8 %       7 %       7 %       17 % 

 

†   Returns do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares.
(1)   Per share net investment income and net realized and unrealized gains (losses) calculated using average shares.
(2)   Less than $0.005.

Amounts designated as “—” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

 

30    New Covenant Funds / Annual Report / June 30, 2012

Financial Highlights

For the years ended June 30,

For a share outstanding throughout each year

 

      Balanced Income Fund  
      2012      2011      2010      2009      2008  

Net Asset Value, Beginning of Year

    $ 18.97       $ 17.06       $ 15.66       $ 19.01       $ 20.40   

INVESTMENT ACTIVITIES:

               

Net investment income

      0.41 (1)       0.31         0.38         0.56         0.60   

Net realized and unrealized gains (losses) on securities

      0.22 (1)       1.91         1.39         (3.35 )       (1.39 ) 

Total from operations

      0.63         2.22         1.77         (2.79 )       (0.79 ) 

DIVIDENDS AND DISTRIBUTIONS:

               

Net investment income

      (0.35 )       (0.31 )       (0.36 )       (0.55 )       (0.60 ) 

Tax return of capital

      —         — (2)       (0.01 )       (0.01 )       —   

Total dividends and distributions

      (0.35 )       (0.31 )       (0.37 )       (0.56 )       (0.60 ) 
Net Asset Value, End of Year    $ 19.25       $ 18.97       $ 17.06       $ 15.66       $ 19.01   

Total Return†

      3.42 %       13.07 %       11.31 %       (14.60 )%       (3.95 )% 

SUPPLEMENTAL DATA AND RATIOS:

               

Net assets, end of year ($ Thousands)

    $ 85,602       $ 92,131       $ 85,037       $ 78,665       $ 102,657   

Ratio of net expenses to average net assets

      0.18 %       0.22 %       0.24 %       0.16 %       0.20 % 

Ratio of expenses to average net assets, excluding waivers

      0.20 %       0.30 %       0.40 %       0.40 %       0.44 % 

Ratio of net investment income to average net assets

      2.18 %       1.65 %       2.17 %       3.47 %       2.97 % 

Portfolio turnover rate

      9 %       8 %       7 %       10 %       10 % 

 

†   Returns do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares.
(1)   Per share net investment income and net realized and unrealized gains (losses) calculated using average shares.
(2)   Less than $0.005.

Amounts designated as “—” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

 

New Covenant Funds / Annual Report / June 30, 2012      31   

Notes to Financial Statements

June 30, 2012

 

1. ORGANIZATION

New Covenant Funds (the “Trust”), an open-end, diversified management investment company, was organized as a Delaware statutory trust on September 30, 1998. It currently consists of four investment funds: New Covenant Growth Fund (“Growth Fund”), New Covenant Income Fund (“Income Fund”), New Covenant Balanced Growth Fund (“Balanced Growth Fund”), and New Covenant Balanced Income Fund (“Balanced Income Fund”), (individually, a “Fund,” and collectively, the “Funds”). The Funds commenced operations on July 1, 1999. The Trust’s authorized capital consists of an unlimited number of shares of beneficial interest of $0.001 par value. Effective February 20, 2012, the Funds’ investment adviser is SEI Investments Management Corporation (the “Adviser”). Prior to February 20, 2012, the Funds’ investment adviser was One Compass Advisors, a wholly-owned subsidiary of the Presbyterian Church (U.S.A.) Foundation.

The objectives of the Funds are as follows:

 

Growth Fund    Long-term capital appreciation
Income Fund    High level of current income with preservation of capital
Balanced Growth Fund    Capital appreciation with less risk than would be present in a portfolio of only common stocks
Balanced Income Fund    Current income and long-term growth of capital

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the significant accounting policies followed by the Funds.

Use of Estimates — The preparation of financial statements, in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

Security Valuation — Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ) are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded, or, if there is no such reported sale, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. Debt securities are priced based upon valuations provided by independent, third-party pricing agents, if available. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Debt obligations acquired with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. The prices for foreign securities are reported in local currency and converted to U.S. dollars using currency exchange rates. Prices for most securities held in the Funds are provided daily by recognized independent pricing agents. If a security price cannot be obtained from an independent, third-party pricing agent, the Funds seek to obtain a bid price from at least one independent broker.

Securities for which market prices are not “readily available” are valued in accordance with Fair Value Procedures established by the Trust’s Board of Trustees. The Trust’s Fair Value Procedures are implemented through a Fair Value Committee (the “Committee”) designated by the Trust’s Board of Trustees. Some of the more common reasons that may necessitate that a security be valued using Fair Value Procedures include: the security’s trading has been halted or suspended; the security has been de-listed from a national exchange; the security’s primary trading market is temporarily closed at a time when under normal conditions it would be open; or the security’s primary pricing source is not able or willing to provide a price. When a security is valued in accordance with the Fair Value Procedures, the Committee will determine the value after taking into consideration relevant information reasonably available to the Committee.

For securities that principally trade on a foreign market or exchange, a significant gap in time can exist between the time of a particular security’s last trade and the time at which a Fund calculates its net asset value. The closing prices of such securities may no longer reflect their market value at the time a Fund calculates net asset value if an event that could materially affect the value of those securities (a “Significant Event”) has occurred between the time of the security’s last close and the time that a Fund calculates net asset value. A Significant Event may relate to a single issuer or to an entire market sector. If the adviser or sub-adviser of a Fund becomes aware of a Significant Event that has occurred with respect to a security or group of securities after the closing of the exchange or market on which the security or securities principally trade, but before the time at which a Fund calculates net asset value, the adviser or sub-adviser may request that a Fair Value Committee Meeting be called. In addition, the Trust’s administrator monitors price movements among certain selected indices, securities and/or baskets of securities that may be an indicator that the closing prices received earlier from foreign exchanges or markets may not reflect market value at the time a

 

32    New Covenant Funds / Annual Report / June 30, 2012

 

 

Fund calculates net asset value. If price movements in a monitored index or security exceed levels established by the administrator, the administrator notifies the adviser or sub-adviser for any Fund holding the relevant securities that such limits have been exceeded. In such event, the adviser or sub-adviser makes the determination whether a Fair Value Committee Meeting should be called based on the information provided.

The Growth Fund holds international securities that also use a third-party fair valuation vendor. The vendor provides a fair value for foreign securities held by this fund based on certain factors and methodologies (involving, generally, tracking valuation correlations between the U.S. market and each non-U.S. security). Values from the fair value vendor are applied in the event that there is a movement in the U.S. market that exceeds a specific threshold that has been established by the Committee. The Committee has also established a “confidence interval” which is used to determine the level of historical correlation between the value of a specific foreign security and movements in the U.S. market before a particular security will be fair valued when the threshold is exceeded. In the event that the threshold established by the Committee is exceeded on a specific day, the Growth Fund will value the non-U.S. securities that exceed the applicable “confidence interval” based upon the adjusted prices provided by the fair valuation vendor.

Options for which the primary market is a national securities exchange are valued at the last sale price on the exchange on which they are traded, or, in the absence of any sale, at the closing bid price. Options not traded on a national securities exchange are valued at the last quoted bid price.

The assets of the Balanced Growth Fund and the Balanced Income Fund (the “Balanced Funds”) consist primarily of the investments in underlying affiliated investment companies, which are valued at their respective daily net asset values in accordance with Board-approved pricing procedures.

In accordance with U.S. GAAP, fair value is defined as the price that a Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. A three tier hierarchy has been established to maximize the use of observable and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing an asset. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:

 

Level 1 —   quoted prices in active markets for identical investments
Level 2 —   other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.)
Level 3 —   significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).

The valuation techniques used by the Funds to measure fair value during the year ended June 30, 2012 maximized the use of observable inputs and minimized the use of unobservable inputs.

For the year ended June 30, 2012, there have been no significant changes to the Trust’s fair valuation methodologies.

The following is a list of the inputs used as of June 30, 2012, in valuing each Fund’s investments and other financial instruments carried at value ($ Thousands):

Growth Fund

 

Investments in Securities   Level 1     Level 2     Level 3     Total  

Common Stock

   $ 539,632      $ 98,532      $ —      $ 638,164   

Exchange Traded Funds

     6,671        —        —        6,671   

Preferred Stock

     1,581        —        —        1,581   

Time Deposits

     10,083        —        —        10,083   

Cash Equivalent

     3,652        —        —        3,652   
Total Investments in Securities   $ 561,619      $ 98,532      $ —      $ 660,151   

For the year ended June 30, 2012, there were transfers between Level 1 and Level 2 assets and liabilities. The primary reason for changes in the classifications between Levels 1 and 2 occurs when the foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded.

 

New Covenant Funds / Annual Report / June 30, 2012      33   

Notes to Financial Statements (Continued)

June 30, 2012

 

Income Fund

 

Investments in Securities    Level 1      Level 2      Level 3      Total  
Mortgage-Backed Securities    $ —       $ 186,269       $ —       $ 186,269   
Corporate Obligations      —         72,005         —         72,005   
Asset-Backed Securities      —         9,260         —         9,260   
Foreign Bonds      —         7,313         —         7,313   
U.S. Government Agency Obligations      —         5,186         —         5,186   
Municipal Bonds      —         406         —         406   
Sovereign Debt      —         337         —         337   
U.S. Treasury Obligations      —         70,062         —         70,062   
Purchased Option      1         —         —         1   
Cash Equivalent      23,382         —         —         23,382   
Total Investments in Securities    $ 23,383       $ 350,838       $ —       $ 374,221   
           
Other Financial Instruments    Level 1      Level 2      Level 3      Total  

Futures Contracts*

    $ (159 )     $ —       $ —       $ (159 ) 

Total Other Financial Instruments

    $ (159 )     $ —       $ —       $ (159 ) 

* Futures contracts are valued at the unrealized appreciation (depreciation) on the instrument.

As of June 30, 2012, all of the Balanced Growth and Balanced Income Funds’ investments are Level 1.

There were no transfers between Levels for the Income Fund, Balanced Growth Fund and Balanced Income Fund.

Transfers between Levels are recognized at the end of the reporting period.

Securities Transactions and Investment Income — Security transactions are recorded on the trade date. Cost used in determining net realized capital gains and losses on the sale of securities is determined on the basis of specific identification. Dividend income and expense is recognized on the ex-dividend date, and interest income or expense is recognized using the accrual basis of accounting.

Distributions received on securities that represent a return of capital or capital gains are recorded as a reduction of cost of investments and/or as a realized gain. The Trust estimates the components of distributions received that may be considered nontaxable distributions or capital gain distributions.

Amortization and accretion is calculated using the scientific interest method, which approximates the effective interest method over the holding period of the security. Amortization of premiums and discounts is included in interest income.

Expenses — Expenses that are directly related to a Fund are charged directly to that Fund. Other operating expenses of the Funds are prorated to the Funds on the basis of relative net assets.

Foreign Currency Translation — The books and records of the Funds investing in international securities are maintained in U.S. dollars on the following basis:

(I) market value of investment securities, assets and liabilities at the current rate of exchange; and

(II) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions.

The Funds do not isolate that portion of gains and losses on investments in equity securities that is due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities.

The Funds report certain foreign-currency-related transactions as components of realized gains for financial reporting purposes, whereas such components are treated as ordinary income for Federal income tax purposes.

Futures Contracts — To the extent consistent with its investment objective and strategies, a Fund may use futures contracts for tactical hedging purposes as well as to enhance the Fund’s returns. These Funds’ investments in futures contracts are designed to enable the Funds to more closely approximate the performance of their benchmark indices. Initial margin deposits of cash or securities are made upon entering into futures contracts. The contracts are marked-to-market daily and the resulting changes in value are accounted for as unrealized gains and losses. Variation margin payments are paid or received, depending upon whether unrealized gains or losses are incurred. When contracts are closed, the Funds record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the amount invested in the contract.

 

34    New Covenant Funds / Annual Report / June 30, 2012

 

 

Risks of entering into futures contracts include the possibility that there will be an imperfect price correlation between the futures and the underlying securities. Second, it is possible that a lack of liquidity for futures contracts could exist in the secondary market, resulting in an inability to close a position prior to its maturity date. Third, futures contracts involve the risk that a Fund could lose more than the original margin deposit required to initiate a futures transaction.

Finally, the risk exists that losses could exceed amounts disclosed on the Statements of Assets and Liabilities. Refer to each Fund’s Schedule of Investments for details regarding open futures contracts as of June 30, 2012, if applicable.

Options Writing/Purchasing — To the extent consistent with its investment objective and strategies, a Fund may invest in financial options contracts for the purpose of hedging its existing portfolio securities, or securities that a Fund intends to purchase, against fluctuations in fair market value caused by changes in prevailing market interest rates. A Fund may also invest in financial option contracts to enhance its returns. When the Fund writes or purchases an option, an amount equal to the premium received or paid by the Fund is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Fund on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the cost of the purchase or proceeds from the sale in determining whether the Fund has realized a gain or a loss.

The risk in writing a call option is a Fund may give up the opportunity for profit if the market price of the security increases. The risk in writing a put option is a Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in purchasing an option is a Fund may pay a premium whether or not the option is exercised. The Funds also have the additional risk of being unable to enter into a closing transaction at an acceptable price if a liquid secondary market does not exist. Option contracts also involve the risk that they may not work as intended due to unanticipated developments in market conditions or other causes.

Refer to each Fund’s Schedule of Investments for details regarding open option contracts as of June 30, 2012, if applicable.

Forward Treasury Commitments — To the extent consistent with its investment objective and strategies, the Growth Fund and Income Fund may invest in commitments to purchase U.S. Treasury securities on an extended settlement basis. Such transactions involve the commitment to purchase a security with payment and delivery taking place in the future, sometimes a month or more after the transaction date. The Funds account for such transactions as purchases and sales and record an unrealized gain or loss each day equal to the difference between the cost of the purchase commitment and the current market value. Realized gains or losses are recorded upon closure or settlement of such commitments. No interest is earned prior to settlement of the transaction. These instruments are subject to market fluctuation due to changes in interest rates and the market value at the time of settlement could be higher or lower than the purchase price. A Fund may incur losses due to changes in the value of the underlying treasury securities from interest rate fluctuations or as a result of counterparty nonperformance.

Delayed Delivery Transactions — To the extent consistent with its investment objective and strategies, the Growth Fund and Income Fund may purchase or sell securities on a when-issued or delayed delivery basis. These transactions involve a commitment by those Funds to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. When purchasing a security on a delayed delivery basis, that Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations, and takes such fluctuations into account when determining its net asset value. Those Funds may dispose of or renegotiate a delayed delivery transaction after it is entered into, and may sell when-issued securities before they are delivered, which may result in a capital gain or loss. When those Funds have sold a security on a delayed delivery basis, that Fund does not participate in future gains and losses with respect to the security.

Dividends and Distributions to Shareholders — Dividends from net investment income are declared and paid to shareholders quarterly for the Growth Fund, Balanced Growth Fund and Balanced Income Fund; declared and paid monthly for the Income Fund. Dividends and distributions are recorded on the ex-dividend date. Any net realized capital gains will be distributed at least annually by the Funds.

Illiquid Securities — A security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business within seven days or less for its approximate carrying value on the books of a Fund. Valuations of illiquid securities may differ significantly from the values that would have been used had an active market value for these securities existed.

Investments in Real Estate Investment Trusts (“REITs”) — Dividend income is recorded based on the income included in distributions received from the REIT investments using published REIT reclassifications including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.

 

New Covenant Funds / Annual Report / June 30, 2012      35   

Notes to Financial Statements (Continued)

June 30, 2012

 

3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

Administration Agreement — Effective February 22, 2012, the Trust entered into an Administration Agreement with SEI Investments Global Funds Services (the “Administrator”). Under the Administration Agreement, the Administrator provides administrative and accounting services to the Funds. Under the terms of the Administration Agreement, the Administrator is entitled to a fee of 0.20% of each Fund’s average daily net assets. The Administrator has voluntarily agreed to waive a portion of its fee so that the total annual expenses of the Balanced Growth Fund and the Balanced Income Fund, exclusive of acquired fund fees and expenses, will not exceed certain voluntary expense limitations adopted by the Adviser. Accordingly, the voluntary expense limitations are 0.14% and 0.20% for the Balanced Growth Fund and the Balanced Income Fund, respectively. These voluntary waivers may be terminated at any time.

Prior to February 22, 2012, the Trust had entered into servicing agreements with U.S. Bancorp Fund Services, LLC (“USBFS”), an indirect, wholly-owned subsidiary of U.S. Bancorp. Under the servicing agreements, USBFS provided administrative and fund accounting services to the Funds. Under the Fund Accounting Agreement, USBFS was entitled to a fee computed at an annual rate of 0.02% of the Trust’s average daily net assets for the first $500,000,000, 0.01% for $500,000,001 to $1,000,000,000, and 0.0075% over $1,000,000,000. Under the Administration Agreement, USBFS was entitled to a fee computed at an annual rate of 0.03% of the Trust’s average daily net assets for the first $500,000,000, 0.02% for $500,000,001 to $1,000,000,000, and 0.01% over $1,000,000,000.

Transfer Agent Servicing Agreement — In 2008, the Trust entered into a transfer agent servicing agreement (“Agreement”) with U.S. Bancorp Fund Services, LLC (“USBFS”), an indirect, wholly-owned subsidiary of U.S. Bancorp. Under the terms of the Agreement, USBFS is entitled to account based fees and annual fund level fees, as well as reimbursement of out-of-pocket expenses incurred in providing transfer agency services.

Investment Advisory Agreement — Effective February 22, 2012, the Trust, on behalf of each Fund, entered into an Investment Advisory Agreement (“Agreement”) with the Adviser. Under the Agreement, the Adviser is responsible for the investment management of the Funds and receives an annual advisory fee of 0.62% for the Growth Fund and 0.42% for the Income Fund. The Adviser does not receive an advisory fee for the Balanced Growth Fund and Balanced Income Fund. The Adviser has voluntarily agreed to waive a portion of its fee so that the total annual expenses of the Growth and Income Funds, exclusive of acquired fund fees and expenses, will not exceed certain voluntary expense limitations adopted by the Adviser. The voluntary expense limitations are 0.92% and 0.70% for the Growth Fund and Income Fund, respectively. These voluntary waivers may be terminated by the Adviser at any time.

The Adviser has entered into sub-advisory agreements to assist in the selection and management of investment securities in the Growth Fund and the Income Fund. It is the responsibility of the sub-advisers, under the direction of the Adviser, to make day-to-day investment decisions for these Funds. The Adviser, not the Funds, pays each sub-adviser a quarterly fee, in arrears, for their services. The Adviser pays sub-advisory fees directly from its own advisory fee. The sub-advisory fees are based on the assets of the Fund allocated to the sub-adviser for which the sub-adviser is responsible for making investment decisions.

The following are the sub-advisers for the Growth Fund: Baillie Gifford Overseas Limited, Parametric Portfolio Associates, Sustainable Growth Advisers, LP, Tocqueville Asset Management L.P., Waddell & Reed Investment Management Company, and WestEnd Advisors LLC.

The following are the sub-advisers for the Income Fund: J.P. Morgan Investment Management Inc., Western Asset Management Company and Western Asset Management Company Limited.

Prior to February 22, 2012, One Compass Advisors, a wholly-owned subsidiary of the Presbyterian Church (U.S.A.) Foundation was the adviser to the Funds. One Compass Advisors was paid a monthly fee at the annual rate of 0.87% of the Growth Fund’s average daily net assets and a monthly fee at the annual rate of 0.65% of the Income Fund’s average daily net assets.

Shareholder Service Plan and Agreement — Effective March 15, 2012, the Trust entered into a Shareholder Service Plan and Agreement (the “Agreement”) with the Distributor. Per the Agreement, a Fund is authorized to make payments to certain entities which may include investment advisors, banks, trust companies and other types of organizations (“Authorized Service Providers”) for providing administrative services with respect to shares of the Funds attributable to or held in the name of the Authorized Service Providers for its clients or other parties with whom they have a servicing relationship. Under the terms of the Agreement, the Growth Fund and the Income Fund are authorized to pay an Authorized Service Provider a shareholder servicing fee at an annual rate of up to 0.10% of the average daily net asset value of the Growth Fund and Income Fund, respectively, which fee will be computed daily and paid monthly, for providing certain administrative services to Fund shareholders with whom the Authorized Service Provider has a servicing relationship.

Distribution Agreement — Effective March 23, 2012, the Trust issues shares of the Funds pursuant to a Distribution Agreement with SEI Investments Distribution Co. (the “Distributor”), a wholly-owned subsidiary of SEI Investments Company (“SEI”). The Funds do not compensate the Distributor in its capacity as principal distributor.

 

36    New Covenant Funds / Annual Report / June 30, 2012

 

 

Prior to March 23, 2012, the Trust issued shares of the Funds pursuant to a distribution agreement with Quasar Distributors, LLC, an affiliate of USBFS. The Funds did not compensate Quasar Distributors, LLC in its capacity as principal distributor.

Social Witness Services and License Agreement — Effective February 22, 2012, the Trust retained New Covenant Trust Company (“NCTC”) to ensure that each Fund continues to invest consistent with social witness principles adopted by the General Assembly of the Presbyterian Church (U.S.A.). No less than annually, NCTC will provide the Trust with an updated list of issuers in which the Funds will be prohibited from investing.

NCTC will distribute to the Trust proxy voting guidelines and shareholder advocacy services for the Funds that NCTC deems to be consistent with social witness principles adopted by the General Assembly of the Presbyterian Church (U.S.A.). The Trust also engages NCTC to vote Fund proxies consistent with such proxy voting guidelines. NCTC shall monitor, review and, as necessary, amend the Proxy Voting Guidelines periodically to ensure that they remain consistent with the social witness principles.

NCTC also grants to the Trust a non-exclusive right and license to use and refer to the trade name, trademark and/or service mark rights to the name “New Covenant Funds” and the phrase “Funds with a Mission”, in the name of the Trust and each Fund, and in connection with the offering, marketing, promotion, management and operation of the Trust and the Funds.

In consideration of the services provided by NCTC, the Growth Fund and the Income Fund will each pay to NCTC a fee at an annual rate of 0.15% of the average daily net asset value of the shares of such Fund, which fee will be computed daily and paid monthly.

Payment to Affiliates — Certain officers and/or affiliated trustees of the Trust are also officers of the Distributor, the Adviser, the Administrator or NCTC. Effective February 20, 2012, the Trust pays each unaffiliated Trustee an annual fee for attendance at quarterly and interim board meetings. Compensation of officers and affiliated Trustees of the Trust is paid by the Adviser, the Administrator or NCTC.

A portion of the services provided by the Chief Compliance Officer (“CCO”) and his staff, whom are employees of the Administrator, are paid for by the Trust as incurred. The services include regulatory oversight of the Trust’s Adviser, sub-advisers and service providers as required by SEC regulations. The CCO’s services have been approved by and are reviewed annually by the Board.

Prior to February 20, 2012, no officer, trustee or employee of the Trust, USBFS, or any affiliate thereof, except the CCO, received any compensation from the Funds for serving as a Trustee or officer of the Trust. The Funds, however, reimbursed expenses incurred by the Trustees and officers of the Trust associated with attending board and committee meetings.

Investment in Affiliated Security — The Funds may invest excess cash in the SEI Daily Income Trust Prime Obligation Fund, an affiliated money market fund. The Balanced Funds invest in the Growth Fund and Income Fund.

4. INVESTMENT TRANSACTIONS

The cost of security purchases and the proceeds from the sale and maturities of securities, excluding U.S. government and other short-term investments, for the year ended June 30, 2012, were as follows:

 

Fund    Purchases
(excluding
Short-Term
Investments &
U.S.  Government
Securities)
($ Thousands)		      Sales (excluding
Short-Term
Investments &
U.S.  Government
Securities)
($ Thousands)		      Purchases of
U.S. Government
Securities
($  Thousands)		      Sales of
U.S. Government
Securities
($ Thousands)		  
Growth Fund    $ 551,668       $ 604,108       $ —       $ —   
Income Fund      87,165         214,621         303,102         245,923   
Balanced Growth Fund      23,505         36,888         —         —   
Balanced Income Fund      7,426         14,378         —         —   

5. FEDERAL TAX INFORMATION

It is each Fund’s intention to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute all of its taxable income (including net capital gains). Accordingly, no provision for federal income tax is required.

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. Federal income tax regulations, which may differ from those amounts determined under U.S. GAAP. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in capital, undistributed net investment income or accumulated net realized gain, as appropriate, in the period that the differences arise.

 

New Covenant Funds / Annual Report / June 30, 2012      37   

Notes to Financial Statements (Continued)

June 30, 2012

 

Accordingly, the following permanent differences, primarily attributable to different treatment for gains and losses on paydowns of mortgage and asset-backed securities for tax purposes, reclassification of long term capital gain distributions on Real Estate Investment Trust securities, basis adjustments for investments in partnerships, gains and losses on passive foreign investment companies, certain foreign currency related transactions, the expiration of capital loss carryforwards and non taxable in-kind redemptions, have been reclassified to/ (from) the following accounts as of June 30, 2012:

 

      Accumulated
Net Realized
Gain (Loss)
($ Thousands)		      Undistributed
Net Investment
Income (Loss)
($ Thousands)		      Paid-in
Capital
($ Thousands)		  

Growth Fund

    $ 23       $ (23 )     $ —   

Income Fund

      (3,766 )       1,164         2,602   

Balanced Growth Fund

      145         (145 )       —   

Balanced Income Fund

      718         (29 )       (689 ) 

These reclassifications have no impact on net assets or net asset value per share.

The tax character of dividends and distributions paid during the last two years ended June 30 were as follows:

 

              Ordinary
Income
($ Thousands)		      Long Term
Capital Gain
($ Thousands)		      Total Taxable
Deductions
($ Thousands)		      Return of
Capital
($ Thousands)		      Total
($ Thousands)		  
Growth Fund      2012       $ 5,067       $ —       $ 5,067       $ —       $ 5,067   
     2011         5,337         —         5,337         —         5,337   
Income Fund      2012         15,213         —         15,213         —         15,213   
     2011         11,860         —         11,860         —         11,860   
Balanced Growth Fund      2012         3,583         —         3,583         —         3,583   
     2011         3,264         —         3,264         2         3,266   
Balanced Income Fund      2012         1,626         —         1,626         —         1,626   
     2011         1,498         —         1,498         11         1,509   

As of June 30, 2012, the components of distributable earnings (accumulated losses) were as follows:

 

      Undistributed
Ordinary
Income
($ Thousands)		      Post-October
Losses
($ Thousands)		      Capital Loss
Carryforwards
($ Thousands)		      Unrealized
Appreciation
($ Thousands)		      Other
Temporary
Differences
($ Thousands)		     

Total

Distributable
Earnings/
(Accumulated
Losses)
($ Thousands)

  
Growth Fund    $ 2,053       $ —       $ (19,929 )     $ 53,587       $ —       $ 35,711   
Income Fund      1,066         —         (58,250 )       9,515         (978 )       (48,647 ) 
Balanced Growth Fund      439         (363 )       (18,100 )       23,854         —         5,830   
Balanced Income Fund      265         —         (3,089 )       6,831         —         4,007   

Post-October losses represent losses realized on investment transactions from November 1, 2011 through June 30, 2012 that, in accordance with Federal income tax regulations, the Funds may elect to defer and treat as having arisen in the following fiscal year. For Federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains as follows:

 

      Expires 2013
($ Thousands)		      Expires 2017
($ Thousands)		      Expires 2018
($ Thousands)		      Expires 2019
($ Thousands)		      Total Capital
Loss
Carryforwards
June 30, 2012		  
Growth Fund    $ —       $ —       $ (19,929 )     $ —       $ (19,929 ) 
Income Fund      —         (1,579 )       (56,671 )       —         (58,250 ) 
Balanced Growth Fund      —         (764 )       (8,630 )       (3,098 )       (12,492 ) 
Balanced Income Fund      (792 )       (335 )       (1,962 )       —         (3,089 ) 

 

38    New Covenant Funds / Annual Report / June 30, 2012

 

 

Under the recently enacted Regulated Investment Company Modernization Act of 2010, Funds will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. Losses carried forward under these new provisions are as follows:

 

      Short-Term Loss      Long-Term Loss      Total*  
Balanced Growth Fund    $ —       $ (5,608 )     $ (5,608 ) 

* This table should be used in conjunction with the capital loss carryforwards table.

During the fiscal year ended June 30, 2012, the following Funds utilized capital loss carryforwards to offset capital gains:

 

      Amount Utilized
($ Thousands)		  
Growth Fund    $ 69,001   
Income Fund      9,791   
Balanced Income Fund      272   

For Federal income tax purposes, the cost of securities owned at June 30, 2012, and the net realized gains or losses on securities sold for the period were not materially different from amounts reported for financial reporting purposes. These differences are primarily due to wash sales which cannot be used for Federal income tax purposes in the current year and have been deferred for use in future years. The aggregate gross unrealized appreciation and depreciation on total investments, excluding unrealized appreciation (depreciation) on futures contracts, held by the Funds at June 30, 2012, was as follows:

 

     Federal Tax Cost
($ Thousands)		     Appreciated
Securities
($ Thousands)		     Depreciated
Securities
($ Thousands)		     Net Unrealized
Appreciation
($ Thousands)		  
Growth Fund   $ 606,574      $ 83,219      $ (29,642 )    $ 53,577   
Income Fund     364,710        9,919        (408 )      9,511   
Balanced Growth Fund     234,048        35,902        (12,048 )      23,854   
Balanced Income Fund     78,176        9,939        (3,108 )      6,831   

Management has analyzed the Funds’ tax positions taken on Federal income tax returns for all open tax years and has concluded that as of June 30, 2012, no provision for income tax would be required in the Funds’ financial statements. The Funds’ Federal and state income and Federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

6. CONCENTRATION/RISKS

In the normal course of business, the Trust enters into contracts that provide general indemnifications by the Trust to the counterparty to the contract. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Trust and, therefore, cannot be estimated; however, management believes that, based on experience, the risk of loss from such claims is considered remote.

The market values of the Income Fund’s investments may change in response to interest rate changes and other factors. During periods of falling interest rates, the values of fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Changes by recognized rating agencies in the ratings of any fixed income security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments.

The Growth Fund concentrates its investments in securities of foreign issuers in various countries. These investments may involve certain considerations and risks not typically associated with investments in the United States, as a result of, among other factors, the possibility of future political and economic developments and the level of governmental supervision and regulation of securities markets in the respective countries.

The Funds will not invest more than 15% of the value of their net assets in securities that are illiquid because of restrictions on transferability or other reasons. Repurchase agreements with deemed maturities in excess of seven days are subject to this 15% limit. The Funds may purchase securities which are not registered under the Securities Act of 1933 (the “Securities Act”) but which can be sold to “qualified institutional buyers” in accordance with Rule 144A under the Securities Act. In some cases, such securities are classified as “illiquid securities;” however, any such security will not be considered illiquid so long as it is determined by the Adviser, under guidelines approved by the Board of Trustees, that an adequate trading market exists for that security. This investment practice could have the effect of increasing the level of illiquidity in a Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities.

 

New Covenant Funds / Annual Report / June 30, 2012      39   

Notes to Financial Statements (Concluded)

June 30, 2012

 

The Income Fund may invest a limited amount of assets in debt securities which are rated below investment grade (hereinafter referred to as “lower-rated securities”) or which are unrated but deemed equivalent to those rated below investment grade by the portfolio managers. The lower the ratings of such debt securities, the greater their risks. These debt instruments generally offer a higher current yield than that available from higher-grade issues, and typically involve greater risks. The yields on lower-rated securities will fluctuate over time. In general, prices of all bonds rise when interest rates fall and fall when interest rates rise. Lower-rated securities are subject to adverse changes in general economic conditions and to changes in the financial condition of their issuers. During periods of economic downturn or rising interest rates, issuers of these instruments may experience financial stress that could adversely affect their ability to make payments of principal and interest, and increase the possibility of default.

The Balanced Growth Fund and Balanced Income Fund (the “Balanced Funds”) invest their assets primarily in the Growth Fund and the Income Fund. By investing primarily in shares of these Funds, shareholders of the Balanced Funds indirectly pay a portion of the operating expenses, management fees and brokerage costs of the underlying Funds as well as their own operating expenses. Thus, shareholders of the Balanced Funds may indirectly pay slightly higher total operating expenses and other costs than they would pay by directly owning shares of the Growth Fund and Income Fund. Total fees and expenses to be borne by investors in either Balanced Fund will depend on the portion of the Funds’ assets invested in the Growth Fund and in the Income Fund. A change in the asset allocation of either Balanced Fund could increase or reduce the fees and expenses actually borne by investors in that Fund. The Balanced Funds are also subject to rebalancing risk. Rebalancing activities, while undertaken to maintain a Fund’s investment risk-to-reward ratio, may cause the Fund to under-perform other funds with similar investment objectives. For the Balanced Growth Fund, it is possible after rebalancing from equities into a greater percentage of fixed-income securities, that equities will outperform fixed income investments. For the Balanced Income Fund, it is possible that after rebalancing from fixed-income securities into a greater percentage of equity securities, that fixed-income securities will outperform equity investments. The performance of the Balanced Growth Fund and the Balanced Income Fund depends on the performance of the underlying Funds in which they invest.

As of June 30, 2012, the Presbyterian Church (U.S.A.) Foundation, an affiliate of the Funds, owned 57.94% and 42.47% of the outstanding shares of the Growth and Income Funds, respectively.

7. IN-KIND TRANSFER OF SECURITIES

During the year ended June 30, 2012, the Income Fund redeemed shares of beneficial interest in the form of securities and cash totaling $80,000 ($ Thousands). These assets were transferred at their current value on the date of such transactions.

 

Date of Transfer    Shares Redeemed
(Thousands)		      Value of
Investment
Securities
($ Thousands)		      Gains
($ Thousands)		      Cash
($ Thousands)		  
04/18/12      3,450       $ 75,544       $ 2,602       $ 4,456   

8. SECURITIES LENDING

The Growth Fund and the Income Fund may lend their securities pursuant to a securities lending agreement (“Lending Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”). Security loans made pursuant to the Lending Agreement are required at all times to be secured by collateral valued at least equal to 102% of the market value of the securities loaned. Cash collateral received is invested by JPMorgan pursuant to the terms of the Lending Agreement. All such investments are made at the risk of the Funds and, as such, the Funds are liable for investment losses. To the extent a loan is secured by non-cash collateral, the borrower is required to pay a loan premium. Non-cash collateral received cannot be sold or repledged. Net income earned on the investment of cash collateral and loan premiums received on non-cash collateral are allocated between JPMorgan and the Funds in accordance with the Lending Agreement. As of June 30, 2012, the Growth Fund and Income Fund did not participate in securities lending.

9. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee and the Board of Trustees selected a new independent auditor for the Trust in connection with various changes that were then being considered for the Trust. On March 27, 2012, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, KPMG, LLP as the independent registered public accounting firm of the Trust for the fiscal year ending June 30, 2012. Prior to the Trust’s fiscal year ended June 30, 2012, the Trust’s financial statements were audited by a different independent registered public accounting firm, Ernst & Young LLP (the “Prior Auditor”).

The Audit Committee approved and the Board of Trustees ratified and approved the resignation of the Prior Auditor as the independent registered public accounting firm of the Trust on and effective as of March 27, 2012. During the Trust’s two most recent fiscal years ended through March 27, 2012, there were no: (1) disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement

 

40    New Covenant Funds / Annual Report / June 30, 2012

 

 

disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused them to make reference in connection with their opinion to the subject matter of the disagreement, or (2) reportable events.

The Prior Auditor’s report on the financial statements of the Trust as of and for the two most recent fiscal periods ended June 30, 2011, did not contain an adverse or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

10. RECENT ACCOUNTING PRONOUNCEMENT

In December 2011, the FASB issued a further update to the guidance “Balance Sheet — Disclosures about Offsetting Assets and Liabilities”. The amendments to this standard require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The amended guidance is effective for interim and annual reporting periods beginning after January 1, 2013. At this time, management is evaluating the implications of this update and its impact on the financial statements has not been determined.

11. SUBSEQUENT EVENTS

Management has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. Based on this evaluation, no adjustments were required to the financial statements as of June 30, 2012.

 

New Covenant Funds / Annual Report / June 30, 2012      41   

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42    New Covenant Funds / Annual Report / June 30, 2012

Report of Independent Registered Public Accounting Firm

 

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS NEW COVENANT FUNDS:

We have audited the accompanying statements of assets and liabilities of the New Covenant Funds, comprising the New Covenant Growth Fund, New Covenant Income Fund, New Covenant Balanced Growth Fund and New Covenant Balanced Income Fund (collectively, the “Funds”), as of June 30, 2012, including the schedules of investments, and the related statements of operations and the statements of changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The statements of changes in net assets for the year ended June 30, 2011, and the financial highlights for each of the years in the four-year period ended June 30, 2011, were audited by other auditors. Those auditors expressed an unqualified opinion on the statements of changes in net assets and the financial highlights in their report dated August 29, 2011.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2012, by correspondence with custodians, brokers and the transfer agent or other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the funds comprising the New Covenant Funds, as of June 30, 2012, and the results of their operations, the changes in their net assets, and the financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Philadelphia, Pennsylvania

September 19, 2012

 

New Covenant Funds / Annual Report / June 30, 2012      43   

TRUSTEES AND OFFICERS OF THE TRUST (Unaudited)

The following chart lists Trustees and Officers as of June 30, 2012.

Set forth below are the names, addresses, ages, position with the Trust, Term of Office and Length of Time Served, the principal occupations for the last five years, number of portfolios in fund complex overseen by trustee, and other directorships outside the fund complex of each of the persons currently serving as Trustees and Officers of the Trust. The Trust’s Statement of Additional Information (“SAI”) includes additional information about the Trustees and Officers. The SAI may be obtained without charge by calling 1-877-835-4531.

 

Name
Address,
and Age		   Position(s)
Held with
Trusts		   Term of
Office And
Length of
Time
Served1		   Principal
Occupation(s)
During Past
Five Years		   Number of
Portfolios in
Fund
Complex
Overseen by
Trustee2		   Other Directorships
Held by
Trustee
INTERESTED TRUSTEES        
Robert A. Nesher
One Freedom
Valley Drive
Oaks, PA 19456
65 yrs. old		   Chairman of the Board of Trustees and President*   since 1982   Currently performs various services on behalf of SEI for which Mr. Nesher is compensated.   90   Trustee of The Advisors’ Inner Circle Fund, The Advisors’ Inner Circle Fund II, Bishop Street Funds, Director of SEI Global Master Fund, plc, SEI Global Assets Fund, plc, SEI Global Investments Fund, plc, SEI Investments Global, Limited, SEI Investments — Global Fund Services, Limited, SEI Investments (Europe), Limited, SEI Investments — Unit Trust Management (UK), Limited, SEI Global Nominee Ltd., SEI Structured Credit Fund, L.P.
William M. Doran
One Freedom
Valley Drive
Oaks, PA 19456
71 yrs. old		   Trustee*   since 1982   Self-employed consultant since 2003. Partner, Morgan, Lewis & Bockius LLP (law firm) from 1976 to 2003, counsel to the Trust, SEI, SIMC, the Administrator and the Distributor. Secretary of SEI since 1978.   90   Trustee of The Advisors’ Inner Circle Fund, The Advisors’ Inner Circle Fund II, Bishop Street Funds, Director of SEI since 1974. Director of the Distributor since 2003. Director of SEI Investments — Global Fund Services, Limited, SEI Investments Global, Limited, SEI Investments (Europe), Limited, SEI Investments (Asia), SEI Global Nominee Ltd., Limited and SEI Asset Korea Co., Ltd.
Timothy P. Clark
200 East Twelfth
Street, Suite C
Jeffersonville,
Indiana 47130
56 yrs. old		   Trustee**   since 2011   Chief Operating Officer, New Covenant Trust Company (2010 to present); Chief Operating Officer, Tri-Star Trust Bank (2000 to 2010); Vice President and Senior Trust Officer, Bank of Alma (1991 to 2000); Citizens Banking Corporation (1978 to 1991)   4   None

 

* Messrs. Nesher and Doran are Trustees who may be deemed as “interested” persons of the Trust as that term is defined in the 1940 Act by virtue of their affiliation with SIMC and the Trust’s Distributor.

 

** Mr. Clark is a Trustee who may be deemed as “interested” person of the Trust as that term is defined in the 1940 Act by virtue of his affiliation with New Covenant Trust Company, a subsidiary of the Presbyterian Church (U.S.A.) Foundation.

 

1

Each trustee shall hold office during the lifetime of this Trust until the election and qualification of his or her successor, or until he or she sooner dies, resigns or is removed in accordance with the Trust’s Declaration of Trust.

 

2

The Fund Complex includes the following Trusts: SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Institutional Investments Trust, Adviser Managed Trust, SEI Institutional International Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust and SEI Alpha Strategy Portfolios, L.P.

 

44    New Covenant Funds / Annual Report / June 30, 2012

Name
Address,
and Age		   Position(s)
Held with
Trusts		   Term of
Office And
Length of
Time
Served1		   Principal
Occupation(s)
During Past
Five Years		   Number of
Portfolios in
Fund
Complex
Overseen
by Trustee2		   Other Directorships
Held by
Trustee
TRUSTEES        
George J. Sullivan, Jr.
One Freedom
Valley Drive
Oaks, PA 19456
69 yrs. old		   Trustee   since 1996   Retired since January 2012. Self- Employed Consultant, Newfound Consultants Inc. since April 1997- December 2011.   90   Trustee of The Advisors’ Inner Circle Fund, The Advisors’ Inner Circle Fund II, Bishop Street Funds, State Street Navigator Securities Lending Trust, and SEI Structured Credit Fund, L.P., member of the independent review committee for SEI’s Canadian-registered mutual funds.
Rosemarie B. Greco
One Freedom
Valley Drive
Oaks, PA 19456
65 yrs. old		   Trustee   since 1999   Director, Governor’s Office of Health Care Reform, Commonwealth of Pennsylvania since 2003.   90   Director, Sunoco, Inc.; Director, Excelon Corporation; Trustee, Pennsylvania Real Estate Investment Trust.
Nina Lesavoy
One Freedom
Valley Drive
Oaks, PA 19456
54 yrs. old		   Trustee   since 2003   Founder and Managing Director, Avec Capital since 2008. Managing Director, Cue Capital from March 2002-March 2008.   90   Director of SEI Structured Credit Fund, L.P.
James M. Williams
One Freedom
Valley Drive
Oaks, PA 19456
64 yrs. old		   Trustee   since 2004   Vice President and Chief Investment Officer, J. Paul Getty Trust, Non-Profit Foundation for Visual Arts, since December 2002.   90   Trustee/Director of Ariel Mutual Funds, and SEI Structured Credit Fund, L.P.
Mitchell A. Johnson
One Freedom
Valley Drive
Oaks, PA 19456
70 yrs. old		   Trustee   Since 2007   Private Investor since 1994.   90   Trustee of the Advisors’ Inner Circle Fund, The Advisors’ Inner Circle Fund II, and Bishop Street Funds
Hubert L. Harris, Jr.
One Freedom
Valley Drive
Oaks, PA 19456
68 yrs. old		   Trustee   since 2008   Retired since December 2005. Chief Executive Officer and Chair of the Board of Directors, AMVESCAP Retirement, Inc., 1997-December 2005. Chief Executive Officer, INVESCO North America, September 2003-December 2005.   90   Director of Colonial BancGroup, Inc. and St. Joseph’s Translational Research Institute; Chair of the Board of Trustees, Georgia Tech Foundation, Inc. (nonprofit corporation); Board of Councilors of the Carter Center.
OFFICERS        
Robert A. Nesher
One Freedom
Valley Drive
Oaks, PA 19456
65 yrs. old		   President & CEO   since 2005   Currently performs various services on behalf of SEI for which Mr. Nesher is compensated.   N/A   N/A
Peter A. Rodriguez
One Freedom
Valley Drive
Oaks, PA 19456
50 yrs. old		   Controller and Chief Financial Officer   since 2011   Director, Fund Accounting, SEI Investments Global Funds Services (March 2011, September 2002 to March 2005 and 1997- 2002); Director, Mutual Fund Trading, SEI Private Trust Company (May 2009 to February 2011); Director, Asset Data Services, Global Wealth Services (June 2006 to April 2009); Director, Portfolio Accounting, SEI Investments Global Funds Services (March 2005 to June 2006)   N/A   N/A

 

New Covenant Funds / Annual Report / June 30, 2012      45   

TRUSTEES AND OFFICERS OF THE TRUST (Unaudited)

 

 

Name
Address,
and Age		   Position(s)
Held with
Trusts		   Term of
Office And
Length of
Time
Served1		   Principal
Occupation(s)
During Past
Five Years		   Number of
Portfolios in
Fund
Complex
Overseen by
Trustee2		   Other Directorships
Held by
Trustee
OFFICERS (Continued)        
Russell Emery
One Freedom
Valley Drive
Oaks, PA 19456
49 yrs. old		   Chief Compliance Officer   since 2006   Chief Compliance Officer of SEI Institutional Managed Trust, SEI Asset Allocation Trust, SEI Institutional International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Institutional Investments Trust, The Advisors’ Inner Circle Fund, The Advisors’ Inner Circle Fund II, and Bishop Street Funds, since March 2006. Chief Compliance Officer of SEI Structured Credit Fund, LP and SEI Alpha Strategy Portfolios, LP since June 2007. Chief Compliance Officer of Adviser Managed Trust since December 2010. Chief Compliance Officer of New Covenant Funds since February 2012.   N/A   N/A
Timothy D. Barto
One Freedom
Valley Drive
Oaks, PA 19456
44 yrs. old		   Vice President and Secretary   since 2002   General Counsel, Vice President and Secretary of SIMC and the Administrator since 2004. Vice President and Assistant Secretary of SEI since 2001. Vice President of SIMC and the Administrator since 1999.   N/A   N/A
Aaron Buser
One Freedom
Valley Drive
Oaks, PA 19456
42 yrs. old		   Vice President and Assistant Secretary   since 2008   Vice President and Assistant Secretary of SIMC since 2007. Associate at Stark & Stark (2004-2007).   N/A   N/A
David F. McCann
One Freedom
Valley Drive
Oaks, PA 19456
37 yrs. old		   Vice President and Assistant Secretary   since 2009   Vice President and Assistant Secretary of SIMC since 2008. Attorney, Drinker Biddle & Reath, LLP (law firm), May 2005-October 2008.   N/A   N/A
John J. McCue
One Freedom
Valley Drive
Oaks, PA 19456
48 yrs. old		   Vice President   since 2004   Director of Portfolio Implementation for SIMC since 1995. Managing Director of Money Market Investments for SIMC since 2003.   N/A   N/A
Keri E. Rohn
One Freedom
Valley Drive
Oaks, PA 19456
32 yrs. old		   Privacy Officer and Anti-Money Laundering Compliance Officer   since 2009   Compliance Officer of SEI Investments Company since June 2003.   N/A   N/A

 

  1

Each trustee shall hold office during the lifetime of this Trust until the election and qualification of his or her successor, or until he or she sooner dies, resigns or is removed in accordance with the Trust’s Declaration of Trust.

  2

The Fund Complex includes the following Trusts: SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Institutional Investments Trust, Adviser Managed Trust, SEI Institutional International Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust and SEI Alpha Strategy Portfolios, L.P.

 

 

46    New Covenant Funds / Annual Report / June 30, 2012

Disclosure of Fund Expenses (Unaudited)

June 30, 2012

 

All mutual funds have operating expenses. As a shareholder of a mutual fund, your investment is affected by these ongoing costs, which include (among others) costs for portfolio management, administrative services, and shareholder reports like this one. It is important for you to understand the impact of these costs on your investment returns.

Operating expenses such as these are deducted from the mutual fund’s gross income and directly reduce your final investment return. These expenses are expressed as a percentage of the mutual fund’s average net assets; this percentage is known as the mutual fund’s expense ratio.

The following examples use the expense ratio and are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

The table below illustrates your Fund’s costs in two ways:

Actual Fund Return. This section helps you to estimate the actual expenses after fee waivers that your Fund incurred over the period. The “Expenses Paid During Period” column shows the actual dollar expense cost incurred by a $1,000 investment in the Fund, and the “Ending Account Value” number is derived from deducting that expense cost from the Fund’s gross investment return.

You can use this information, together with the actual amount you invested in your Fund, to estimate the expenses you paid over that period. Simply divide your actual starting account value by $1,000 to arrive at a ratio (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply that ratio by the number shown for your Fund under “Expenses Paid During Period.”

Hypothetical 5% Return. This section helps you compare your Fund’s costs with those of other mutual funds. It assumes that your Fund had an annual 5% return before expenses during the year, but that the expense ratio (Column 3) is unchanged. This example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to make this 5% calculation. You can assess your Fund’s comparative cost by comparing the hypothetical result for your Fund in the “Expense Paid During Period” column with those that appear in the same charts in the shareholder reports for other mutual funds.

NOTE: Because the return is set at 5% for comparison purposes — NOT your Fund’s actual return — the account values shown do not apply to your specific investment.

 

    Beginning
Account
Value
1/1/12		     Ending
Account
Value
6/30/12		     Annualized
Expense
Ratios		     Expenses
Paid
During
Period*		  

Growth Fund

                                

Actual Fund Return

   $ 1,000.00      $ 1,084.50        0.95 %    $ 4.92   

Hypothetical 5% Return

   $ 1,000.00      $ 1,020.14        0.95 %    $ 4.77   

Income Fund

                                

Actual Fund Return

   $ 1,000.00      $ 1,024.30        0.74 %    $ 3.72   

Hypothetical 5% Return

   $ 1,000.00      $ 1,021.18        0.74 %    $ 3.72   

Balanced Growth Fund

                                

Actual Fund Return

   $ 1,000.00      $ 1,060.30        0.13 %    $ 0.67   

Hypothetical 5% Return

   $ 1,000.00      $ 1,024.22        0.13 %    $ 0.65   

Balanced Income Fund

                                

Actual Fund Return

   $ 1,000.00      $ 1,047.30        0.17 %    $ 0.87   

Hypothetical 5% Return

   $ 1,000.00      $ 1,024.02        0.17 %    $ 0.86   

 

* Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period shown).

 

New Covenant Funds / Annual Report / June 30, 2012      47   

Board of Trustees Considerations in Approving the Advisory Agreement (Unaudited)

 

New Covenant Funds (the “Trust”) and SEI Investments Management Corporation (“SIMC”) have entered into an investment advisory agreement (the “Advisory Agreement”). Pursuant to the Advisory Agreement, SIMC oversees the investment advisory services provided to the series of the Trust (the “Funds”) and may manage the cash portion of the Funds’ assets. Pursuant to separate sub-advisory agreements (the “Sub-Advisory Agreements” and, together with the Advisory Agreement, the “Investment Advisory Agreements”) with SIMC, and under the supervision of SIMC and the Trust’s Board of Trustees (the “Board”), the sub-advisers (each, a “Sub-Adviser” and collectively, the “Sub-Advisers”) are responsible for the day-to-day investment management of all or a discrete portion of the assets of the Funds. The Sub-Advisers are also responsible for managing their employees who provide services to the Funds. The Sub-Advisers are selected based primarily upon the research and recommendations of SIMC, which evaluates quantitatively and qualitatively the Sub-Advisers’ skills and investment results in managing assets for specific asset classes, investment styles and strategies.

The Investment Company Act of 1940, as amended (the “1940 Act”) requires that the initial approval of, as well as the continuation of, the Funds’ Investment Advisory Agreements must be specifically approved: (i) by the vote of the Board or by a vote of the shareholders of the Funds; and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory or Sub-Advisory Agreements or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval(s). In connection with their consideration of such approval(s), the Funds’ Trustees must request and evaluate, and SIMC and the Sub-Advisers are required to furnish, such information as may be reasonably necessary to evaluate the terms of the Investment Advisory Agreements. In addition, the Securities and Exchange Commission (“SEC”) takes the position that, as part of their fiduciary duties with respect to a mutual fund’s fees, mutual fund boards are required to evaluate the material factors applicable to a decision to approve an Advisory or Sub-Advisory Agreement.

At the November 19, 2011 Board meeting at which the Advisory Agreement was considered, representatives from SIMC made a presentation to the Board, provided supplemental materials and responded to questions from the Board regarding the history, reputation, qualification and background of SIMC, and its parent company, SEI Investments Company. In their presentation, the SIMC representatives reviewed their experience and their investment process, particularly their capabilities with respect to serving as a “manager-of-managers” pursuant to authority from the SEC, which allows SIMC to retain unaffiliated sub-advisers to mutual funds it advises without the necessity of obtaining shareholder approval of the sub-advisory agreements. The Board also had the opportunity to ask questions of the Lead Independent Trustee of the funds in the SEI Funds Complex, who joined for a portion of the meeting by conference call. The SIMC representatives informed the Board that SIMC had the ability to continue to manage and advise the Funds in a manner consistent with the social-witness principles approved by the General Assembly of the Presbyterian Church (U.S.A.), and stated that, as requested by the Board, SIMC would manage the Funds accordingly were it to be approved as the investment adviser to the Funds. The Board noted that having Mr. Timothy Clark, the Trust’s then-current President, continue to serve on the Trust’s Board would provide continuity that would benefit the Funds’ shareholders. The Board discussed the presentation and the materials provided, and the Independent Trustees again met separately with their independent legal counsel to discuss the information provided. Based on their consideration of all the information received, the Board unanimously approved the Advisory Agreement and determined to recommend it to shareholders of the Funds for their approval.

To reach its determinations as to the approval of the Advisory Agreement, the Board considered its duties under the 1940 Act, as well as under the general principles of state law in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisers with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. In its evaluation of the Advisory Agreement, the Board considered a report that was responsive to the request for information from independent legal counsel to the Independent Trustees. The report, among other things, outlined the services to be provided by SIMC to the Funds and the experience of personnel responsible for these services; the proposed advisory fee for the Growth Fund and the Income Fund; the potential for economies of scale, if any; financial data on SIMC and anticipated profitability of the Advisory Agreement to SIMC; and fall-out benefits to SIMC, including anticipated contractual arrangements to be approved by the proposed Board in which affiliates of SIMC would provide fund accounting and

 

48    New Covenant Funds / Annual Report / June 30, 2012

administrative services to the Trust, and would serve as its distributor. The Board applied its business judgment to determine whether the proposed arrangements between the Trust and SIMC are reasonable business arrangements from the Funds’ perspective as well as from the perspective of shareholders.

In reviewing the Advisory Agreement, the Board considered the nature, quality and extent of services to be provided by SIMC under the Advisory Agreement. The Board considered SIMC’s experience in managing mutual fund assets in a manager-of-managers format, and its capabilities with respect to manager selection and oversight. The Board considered SIMC’s risk management and monitoring process for sub-advisers. The Board also reviewed performance information provided by SIMC for its multi-manager funds having similar investment objectives as the Growth Fund and the Income Fund. In light of the information presented and the considerations made, the Board concluded that the nature, quality and extent of services to be provided to the Funds by SIMC under the Advisory Agreement are expected to be satisfactory and that, while the sub-advisers that would be retained pursuant to authority granted in the Advisory Agreement had not been determined, SIMC had a process in place to ensure that the sub-advisers would be identified, subject to approval by the proposed new Board.

The Board considered the advisory fees to be paid under the Advisory Agreement. The Board noted that the advisory fees under the Advisory Agreement would be lower than the fees paid by the Growth Fund and the Income Fund under the previous advisory agreement with One Compass Advisors (and that the Balanced Funds would continue to pay no advisory fee). The Board considered that the advisory fees were negotiated at arm’s length with an unaffiliated third party. The Board also considered SIMC’s voluntary agreement to cap the Funds’ expenses for at least two years as long as Fund balances remain stable at approximately $1.054 billion (apart from any market volatility), and also noted that it was anticipated that the Funds would pay shareholding services fees of .25% per annum to the Presbyterian Church (U.S.A.) Foundation for shareholder administrative services that it provides to Fund shareholders. On the basis of all the information provided, the Board concluded that the advisory fees to be paid under the Advisory Agreement were reasonable and appropriate in light of the nature, quality and extent of services expected to be provided by SIMC under the Advisory Agreement.

The Board considered SIMC’s statement regarding its expected costs in providing services to the Funds and the expected profitability of the Advisory Agreement to SIMC. The Board noted that the fee structure reflects an appropriate level of sharing of any economies of scale at current asset levels, and that by having the Trust become part of the SEI Funds Complex, shareholders would be expected to benefit from economies of scale. The Board then considered potential fall-out benefits from SIMC’s relationship with the Funds, including the expectation that, if elected, the new Board would approve contracts with affiliates of SIMC to provide fund accounting, transfer agency, distribution and administration services to the Funds.

Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, determined that the terms of the Advisory Agreement are fair and reasonable and that the approval of the Advisory Agreement is in the best interests of each respective Fund and its shareholders. In making their determination, no single factor was determinative in the Board’s analysis: rather, the Trustees took note of a combination of factors that influenced their decision-making process with respect to their decision to approve the Advisory Agreement and submit it to shareholders for approval.

At a meeting held on February 15, 2012, the shareholders of the Funds approved the Advisory Agreement and elected a new Board of Trustees of the Trust.

At the March 27-28, 2012 meetings of the new Board, the Trustees, including a majority of the Independent Trustees, approved the Sub-Advisory Agreements and approved the selection of the Sub-Advisers. In preparation for these meetings, the Board requested and reviewed a wide variety of materials provided by the Sub-Advisers, including information about the Sub-Advisers’ affiliates, personnel and operations. The Board also received extensive data from third parties. This information was provided in addition to the detailed information about the Funds that the Board reviews during the course of each year, including information that relates to Fund operations and Fund performance. The Trustees also received a memorandum from Fund counsel and independent counsel to the Independent Trustees regarding the responsibilities of Trustees in connection with their consideration of whether to approve the Trust’s Sub-Advisory Agreements. Finally, the Independent Trustees received advice from independent

 

New Covenant Funds / Annual Report / June 30, 2012      49   

Board of Trustees Considerations in Approving the Advisory Agreement (Unaudited) (Concluded)

 

counsel to the Independent Trustees, met in executive sessions outside the presence of Fund management and participated in question and answer sessions with representatives of the Sub-Advisers.

Specifically, during the course of the Trust’s fiscal year, the Board requested and received written materials from the Sub-Advisers regarding: (i) the quality of the Sub-Advisers’ investment management and other services; (ii) the Sub-Advisers’ investment management personnel; (iii) the Sub-Advisers’ operations and financial condition; (iv) the Sub-Advisers’ brokerage practices (including any soft dollar arrangements) and investment strategies; (v) the level of the advisory fees that the Sub-Advisers charge the Funds compared with the fees each charge to comparable mutual funds; (vi) the Funds’ overall fees and operating expenses compared with similar mutual funds; (vii) the level of the Sub-Advisers’ profitability from their Fund-related operations; (viii) the Sub-Advisers’ compliance systems; (ix) the Sub-Advisers’ policies on and compliance procedures for personal securities transactions; (x) the Sub-Advisers’ reputation, expertise and resources in domestic and/or international financial markets; and (xi) the Funds’ performance compared with similar mutual funds.

The Board’s approval was based on its consideration and evaluation of a variety of specific factors discussed at the meetings and at prior meetings, including:

 

•  

the nature, extent and quality of the services provided to the Funds under the Sub-Advisory Agreements, including the resources of the Sub-Advisers and their affiliates dedicated to the Funds;

 

•  

the Funds’ investment performance and how it compared to that of other comparable mutual funds;

 

•  

the Funds’ expenses under each Sub-Advisory Agreement and how those expenses compared to those of other comparable mutual funds;

 

•  

the profitability of the Sub-Advisers and their affiliates with respect to the Funds, including both direct and indirect benefits accruing to the Sub-Advisers and their affiliates; and

 

•  

the extent to which economies of scale would be realized as the Funds grow and whether fee levels in the Sub-Advisory Agreements reflect those economies of scale for the benefit of Fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by the Sub-Advisers to the Funds and the resources of the Sub-Advisers and their affiliates dedicated to the Funds. In this regard, the Trustees evaluated, among other things, the Sub-Advisers’ personnel, experience, track record and compliance program. The Trustees found the level of the Sub-Advisers’ professional staff and culture of compliance satisfactory. Following evaluation, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of services provided by the Sub-Advisers to the Funds and the resources of the Sub-Advisers and their affiliates dedicated to the Funds supported approval of the Sub-Advisory Agreements.

Fund Performance. The Board of Trustees considered Fund performance in determining whether to approve the Sub-Advisory Agreements. Specifically, the Trustees considered the Funds’ performance relative to their peer groups and appropriate indices/benchmarks in light of total return, yield and market trends. As part of this review, the Trustees considered the composition of each peer group and selection criteria. In evaluating performance, the Trustees considered both market risk and shareholder risk expectations for the Funds. The Trustees found Fund performance satisfactory, and, where performance was below the benchmark, the Trustees were satisfied that appropriate steps were being taken. Following evaluation, the Board concluded that, within the context of its full deliberations, the performance of the Funds supported approval of the Sub-Advisory Agreements.

Fund Expenses. With respect to the Funds’ expenses under the Sub-Advisory Agreements, the Trustees considered the rate of compensation called for by the Sub-Advisory Agreements and the Funds’ net operating expense ratio in comparison to those of other comparable mutual funds. The Trustees also considered information about average expense ratios of comparable mutual funds in the Funds’ respective peer groups. The Trustees further considered the fact that the comparative fee analysis either

 

50    New Covenant Funds / Annual Report / June 30, 2012

showed that the various fees were below average or that there was a reasonable basis for the fee level. Finally, the Trustees considered the effects of SIMC’s voluntary waiver of management and other fees and the Sub-Advisers’ fees to prevent total Fund expenses from exceeding a specified cap and concluded that SIMC and the Sub-Advisers, through waivers, have maintained the Funds’ net operating expenses at competitive levels for their respective distribution channels. Following evaluation, the Board concluded that, within the context of its full deliberations, the expenses of the Funds are reasonable and supported approval of the Sub-Advisory Agreements.

Profitability. With regard to profitability, the Trustees considered all compensation flowing to the Sub-Advisers and their affiliates, directly or indirectly. The Trustees considered whether the varied levels of compensation and profitability under the Sub-Advisory Agreements and other service agreements were reasonable and justified in light of the quality of all services rendered to the Funds by the Sub-Advisers and their affiliates. When considering the profitability of the Sub-Advisers, the Board took into account the fact that the Sub-Advisers are compensated by SIMC and not by the Funds directly, and such compensation with respect to each Sub-Adviser reflects an arms-length negotiation between the Sub-Adviser and SIMC. Based on this evaluation, the Board concluded that, within the context of its full deliberations, the profitability of the Sub-Advisers is reasonable and supported approval of the Sub-Advisory Agreements.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those were passed along to the Funds’ shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by SIMC and its affiliates. Based on this evaluation, the Board concluded that, within the context of its full deliberations, the Funds obtain reasonable benefit from economies of scale.

Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, unanimously approved the Sub-Advisory Agreements and concluded that the compensation under the Sub-Advisory Agreements is fair and reasonable in light of such services and expenses and such other matters as the Trustees considered to be relevant in the exercise of their reasonable judgment. In the course of their deliberations, the Trustees did not identify any particular information that was all-important or controlling.

 

New Covenant Funds / Annual Report / June 30, 2012      51   

Notice to Shareholders (Unaudited)

 

For shareholders who do not have a June 30, 2012 taxable year end, this notice is for information purposes only. For shareholders with a June 30, 2012 taxable year end, please consult your tax adviser as to the pertinence of this notice.

For the fiscal year ended June 30, 2012, the Funds are designating long term and qualifying dividend income with regard to distributions paid during the year as follows:

 

     (A)
Long-Term
Capital Gains
Distributions
(Tax Basis)		     (B)
Ordinary
Income
Distributions
(Tax Basis)		     Total
Distributions
(Tax Basis)		     (C)
Dividends
Qualifying  for
Corporate
Dividends
Rec.
Deduction (1)		     (D)
Qualifying
Dividend
Income (15%
Tax Rate for
QDI) (2)		     (E)
U.S.
Government
Interest (3)		     Interest
Related
Dividends (4)		     Short-Term
Capital Gain
Dividends (5)		  
New Covenant Growth Fund     0.00 %      100.00 %      100.00 %      100.00 %      100.00 %      0.00 %      0.00 %      0.00 % 
New Covenant Income Fund     0.00 %      100.00 %      100.00 %      0.00 %      0.00 %      5.86 %      99.55 %      0.00 % 
New Covenant Balanced
Growth Fund		     0.00 %      100.00 %      100.00 %      20.66 %      20.66 %      3.92 %      64.54 %      0.00 % 
New Covenant Balanced
Income Fund		     0.00 %      100.00 %      100.00 %      13.01 %      13.01 %      5.99 %      94.93 %      0.00 % 

 

(1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction.

 

(2) The percentage in this column represents the amount of “Qualifying Dividend Income” and is reflected as a percentage of “Ordinary Income Distributions.” It is the intention of each of the aforementioned Funds to designate the maximum amount permitted by law. The information reported herein may differ from the information and distributions taxable to the shareholders for the calendar year ending December 31, 2012. Complete information will be computed and reported in conjunction with your 2012 Form 1099-DIV.

 

(3) “U.S. Government Interest” represents the amount of interest that was derived from direct U.S. Government obligations and distributed during the fiscal year. This amount is reflected as a percentage of total ordinary income distributions (the total of short-term capital gain and net investment income distributions). Generally, interest from direct U.S. Government obligations is exempt from state income tax. However, for shareholders who are residents of California, Connecticut and New York, the statutory threshold requirements were not satisfied to permit exemption of these amounts from state income.

 

(4) The percentage in this column represents the amount of “Interest Related Dividends” and is reflected as a percentage of net investment income distributions that is exempt from U.S. withholding tax when paid to foreign investors.

 

(5) The percentage in this column represents the amount of “Short-Term Capital Gain Dividends” and is reflected as a percentage of short-term capital gain distributions that is exempt from U.S. withholding tax when paid to foreign investors.

Items (A) and (B) are based on the percentage of each Fund’s total distribution.

Items (C) and (D) are based on the percentage of ordinary income distributions of each Fund. Item (E) is based on the percentage of gross income of each Fund.

Please consult your tax adviser for proper treatment of this information. This notification should be kept with your permanent tax records.

 

52    New Covenant Funds / Annual Report / June 30, 2012

Shareholder Voting Results (Unaudited)

 

At a special meeting held on February 15, 2012, shareholders of the New Covenant Funds voted for the election of Trustees/Directors of the New Covenant Funds. The results of the vote are provided below:

New Covenant Growth Fund

 

     Votes in Favor     Votes
Withheld		     % of
Shares
Voted in
Favor		     % of
Votes
Withheld		     % of
Outstanding
Shares
Voting in
Favor		     % of
Outstanding
Shares
Voting
Withheld		  
Timothy P. Clark     20,662,906.123        8,377.125        99.960 %      0.040 %      93.310 %      0.037 % 
William M. Doran     20,662,906.123        8,377.125        99.960 %      0.040 %      93.310 %      0.037 % 
Rosemarie B. Greco     20,662,906.123        8,377.125        99.960 %      0.040 %      93.310 %      0.037 % 
Hubert L. Harris, Jr.     20,662,906.123        8,377.125        99.960 %      0.040 %      93.310 %      0.037 % 
Mitchell A. Johnson     20,662,906.123        8,377.125        99.960 %      0.040 %      93.310 %      0.037 % 
Nina Lesavoy     20,662,906.123        8,377.125        99.960 %      0.040 %      93.310 %      0.037 % 
Robert A. Nesher     20,662,906.123        8,377.125        99.960 %      0.040 %      93.310 %      0.037 % 
George J. Sullivan, Jr.     20,662,906.123        8,377.125        99.960 %      0.040 %      93.310 %      0.037 % 
James M. Williams     20,662,906.123        8,377.125        99.960 %      0.040 %      93.310 %      0.037 % 
New Covenant Income Fund            
     Votes in Favor     Votes
Withheld		     % of
Shares
Voted in
Favor		     % of
Votes
Withheld		     % of
Outstanding
Shares
Voting in
Favor		     % of
Outstanding
Shares
Voting
Withheld		  
Timothy P. Clark     18,093,084.289        27,514.514        99.849 %      0.151 %      92.129 %      0.140 % 
William M. Doran     18,093,084.289        27,514.514        99.849 %      0.151 %      92.129 %      0.140 % 
Rosemarie B. Greco     18,093,084.289        27,514.514        99.849 %      0.151 %      92.129 %      0.140 % 
Hubert L. Harris, Jr.     18,093,084.289        27,514.514        99.849 %      0.151 %      92.129 %      0.140 % 
Mitchell A. Johnson     18,093,084.289        27,514.514        99.849 %      0.151 %      92.129 %      0.140 % 
Nina Lesavoy     18,093,084.289        27,514.514        99.849 %      0.151 %      92.129 %      0.140 % 
Robert A. Nesher     18,093,084.289        27,514.514        99.849 %      0.151 %      92.129 %      0.140 % 
George J. Sullivan, Jr.     18,093,084.289        27,514.514        99.849 %      0.151 %      92.129 %      0.140 % 
James M. Williams     18,093,084.289        27,514.514        99.849 %      0.151 %      92.129 %      0.140 % 
New Covenant Balanced Growth Fund            
     Votes in Favor     Votes
Withheld		     % of
Shares
Voted in
Favor		     % of
Votes
Withheld		     % of
Outstanding
Shares
Voting in
Favor		     % of
Outstanding
Shares
Voting
Withheld		  
Timothy P. Clark     1,718,364.688        40,840.444        97.679 %      2.321 %      53.255 %      1.265 % 
William M. Doran     1,718,364.688        40,840.444        97.679 %      2.321 %      53.255 %      1.265 % 
Rosemarie B. Greco     1,718,227.303        40,977.829        97.671 %      2.329 %      53.251 %      1.269 % 
Hubert L. Harris, Jr.     1,718,364.688        40,840.444        97.679 %      2.321 %      53.255 %      1.265 % 
Mitchell A. Johnson     1,718,364.688        40,840.444        97.679 %      2.321 %      53.255 %      1.265 % 
Nina Lesavoy     1,718,364.688        40,840.444        97.679 %      2.321 %      53.255 %      1.265 % 
Robert A. Nesher     1,718,540.872        40,664.260        97.689 %      2.311 %      53.260 %      1.260 % 
George J. Sullivan, Jr.     1,718,364.688        40,840.444        97.679 %      2.321 %      53.255 %      1.265 % 
James M. Williams     1,718,364.688        40,840.444        97.679 %      2.321 %      53.255 %      1.265 % 
New Covenant Balanced Income Fund            
     Votes in Favor     Votes
Withheld		     % of
Shares
Voted in
Favor		     % of
Votes
Withheld		     % of
Outstanding
Shares
Voting in
Favor		     % of
Outstanding
Shares
Voting
Withheld		  
Timothy P. Clark     2,592,503.859        43,545.268        98.349 %      1.651 %      56.407 %      0.947 % 
William M. Doran     2,592,503.859        43,545.268        98.349 %      1.651 %      56.407 %      0.947 % 
Rosemarie B. Greco     2,594,175.481        41,873.646        98.412 %      1.588 %      56.443 %      0.911 % 
Hubert L. Harris, Jr.     2,592,503.859        43,545.268        98.349 %      1.651 %      56.407 %      0.947 % 
Mitchell A. Johnson     2,592,503.859        43,545.268        98.349 %      1.651 %      56.407 %      0.947 % 
Nina Lesavoy     2,594,175.481        41,873.646        98.412 %      1.588 %      56.443 %      0.911 % 
Robert A. Nesher     2,596,058.863        39,990.264        98.483 %      1.517 %      56.484 %      0.870 % 
George J. Sullivan, Jr.     2,592,503.859        43,545.268        98.349 %      1.651 %      56.407 %      0.947 % 
James M. Williams     2,592,503.859        43,545.268        98.349 %      1.651 %      56.407 %      0.947 % 

 

New Covenant Funds / Annual Report / June 30, 2012      53   

Shareholder Voting Results (Unaudited) (Concluded)

 

At a special meeting held on February 15, 2012, shareholders of the New Covenant Funds voted to approve an Investment Advisory Agreement between New Covenant Funds, on behalf of each Fund, and SEI Investments Management Corporation.

New Covenant Growth Fund

 

    

Number of

Shares

Voted

    

% of

Shares

Voted

    

% of

Outstanding

Shares

                 
Affirmative     20,621,466.165        99.760 %      93.122 %       
Against     11,044.957        0.053 %      0.050 %       
Abstain     3,184.555        0.015 %      0.014 %       
Broker Non-Vote     35,587.571        0.172 %      0.161 %             
TOTAL     20,671,283.248        100.000 %      93.347 %             
New Covenant Income Fund            
    

Number of

Shares

Voted

    

% of

Shares

Voted

    

% of

Outstanding

Shares

                 
Affirmative     18,102,697.994        99.902 %      92.178 %       
Against     6,315.921        0.035 %      0.032 %       
Abstain     9,650.888        0.053 %      0.049 %       
Broker Non-Vote     1,934.000        0.010 %      0.010 %             
TOTAL     18,120,598.803        100.000 %      92.269 %             
New Covenant Balanced Growth Fund            
    

Number of

Shares

Voted

    

% of

Shares

Voted

    

% of

Outstanding

Shares

                 
Affirmative     1,706,556.234        97.008 %      52.889 %       
Against     39,413.301        2.241 %      1.221 %       
Abstain     4,618.241        0.262 %      0.143 %       
Broker Non-Vote     8,617.356        0.489 %      0.267 %             
TOTAL     1,759,205.132        100.000 %      54.520 %             
New Covenant Balanced Income Fund            
    

Number of

Shares

Voted

    

% of

Shares

Voted

    

% of

Outstanding

Shares

                 
Affirmative     2,596,913.116        98.516 %      56.503 %       
Against     21,729.255        0.825 %      0.473 %       
Abstain     16,065.580        0.609 %      0.349 %       
Broker Non-Vote     1,341.176        0.050 %      0.029 %             
TOTAL     2,636,049.127        100.000 %      57.354 %             

 

54    New Covenant Funds / Annual Report / June 30, 2012

NEW COVENANT FUNDS ANNUAL REPORT JUNE 30, 2012

 

Robert A. Nesher, Chairman

Trustees

William M. Doran

George J. Sullivan, Jr.

Rosemarie B. Greco

Nina Lesavoy

James M. Williams

Mitchell A. Johnson

Hubert L. Harris, Jr.

Timothy P. Clark

Officers

Robert A. Nesher

President and Chief Executive Officer

Peter A. Rodriguez

Controller and Chief Financial Officer

Russell Emery

Chief Compliance Officer

Timothy D. Barto

Vice President, Secretary

David McCann

Vice President, Assistant Secretary

Aaron Buser

Vice President, Assistant Secretary

John J. McCue

Vice President

Keri E. Rohn

Anti-Money Laundering Compliance Officer Privacy Officer

Investment Adviser

SEI Investments Management Corporation

Administrator

SEI Investments Global Funds Services

Distributor

SEI Investments Distribution Co.

Legal Counsel

Morgan, Lewis & Bockius LLP

Independent Registered Public Accounting Firm

KPMG LLP

This report and the financial statements contained herein are submitted for the general information of the shareholders of the Trust and must be preceded or accompanied by a current prospectus. Shares of the Funds are not deposits or obligations of, or guaranteed or endorsed by, any bank. The shares are not federally insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other government agency. Investment in the shares involves risk, including the possible loss of principal.

For more information call

1-877-835-4531

 

LOGO

SEI Investments Distribution Co.

Oaks, PA 19456 1-877-835-4531

 

NCF-F-001 (6/12)

Item 2. Code of Ethics.

The Registrant has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, comptroller or principal accounting officer, and any person who performs a similar function.

 

Item 3. Audit Committee Financial Expert.

(a)(1) The Registrant’s Board of Trustees has determined that the Registrant has at least two audit committee financial experts serving on the audit committee.

(a) (2) The audit committee financial experts are George J. Sullivan, Jr. and Hubert L. Harris, Jr. Messrs. Sullivan and Harris are independent as defined in Form N-CSR Item 3 (a) (2).

 

Item 4. Principal Accountant Fees and Services.

Fees billed by KPMG LLP (“KPMG”) and Ernst & Young LLP (“E&Y”) related to the Registrant.

KPMG billed the Registrant aggregate fees for services rendered to the Registrant for the fiscal year 2012 and E&Y billed the Registrant aggregate fees for services rendered to the Registrant for the fiscal year 2011 as follows:

 

     Fiscal 2012*      Fiscal 2011†  
          All fees and
services to the
Registrant that
were pre-
approved		      All fees and
services to
service
affiliates that
were pre-
approved		     All other fees
and services to
service
affiliates that
did not require
pre-approval		      All fees and
services to the
Registrant that
were pre-
approved		      All fees and
services to
service
affiliates that
were pre-
approved		      All other fees
and services to
service
affiliates that
did not require
pre-approval		  
(a)    Audit Fees(1)    $ 69,500         N/A      $ 0       $ 87,700         N/A       $ 0   
(b)    Audit-Related Fees    $ 0       $ 20,000 (3)    $ 0       $ 0       $ 0       $ 0   
(c)    Tax Fees (Tax return review services)    $ 0       $ 5,000      $ 0       $ 22,140       $ 0       $ 0   
(d)    All Other Fees(2)    $ 0       $ 236,000      $ 0       $ 0       $ 0       $ 0   

 

* KPMG
† E&Y

Notes:

 

(1) Audit fees include amounts related to the audit of the Registrant’s annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings.
(2) See Item 4(g) for a description of the services comprising the fees disclosed under this category.
(3) Audit-related fees include amounts related to attestation reporting over compliance with an exemptive order under the federal securities laws.

(e)(1) The Registrant’s Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy (the “Policy”), which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent auditor of the Registrant may be pre-approved.

The Policy provides that all requests or applications for proposed services to be provided by the independent auditor must be submitted to the Registrant’s Chief Financial Officer (“CFO”) and must include a detailed description of the services proposed to be rendered. The CFO will determine whether such services: (1) require specific pre-approval; (2) are included within the list of services that have received the general pre-approval of the Audit Committee pursuant to the Policy; or (3) have been previously pre-approved in connection with the independent auditor’s annual engagement letter for the applicable year or otherwise. In any instance where services require pre-approval, the Audit Committee will consider whether such services are consistent with SEC’s rules and whether the provision of such services would impair the auditor’s independence.

Requests or applications to provide services that require specific pre-approval by the Audit Committee will be submitted to the Audit Committee by the CFO. The Audit Committee will be informed by the CFO on a quarterly basis of all services rendered by the independent auditor. The Audit Committee has delegated specific pre-approval authority to either the Audit Committee Chair or financial experts, provided that the estimated fee for any such proposed pre-approved service does not exceed $100,000 and any pre-approval decisions are reported to the Audit Committee at its next regularly scheduled meeting.

Services that have received the general pre-approval of the Audit Committee are identified and described in the Policy. In addition, the Policy sets forth a maximum fee per engagement with respect to each identified service that has received general pre-approval.

All services to be provided by the independent auditor shall be provided pursuant to a signed written engagement letter with the Registrant, the investment advisor or applicable control affiliate (except that matters as to which an engagement letter would be impractical because of timing issues or because the matter is small may not be the subject of an engagement letter) that sets forth both the services to be provided by the independent auditor and the total fees to be paid to the independent auditor for those services.

In addition, the Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the independent auditor and to assure the auditor’s independence from the Registrant, such as reviewing a formal written statement from the independent auditor delineating all relationships between the independent auditor and the Registrant, and discussing with the independent auditor its methods and procedures for ensuring independence.

(e)(2) Percentage of fees billed by KPMG and E&Y applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:

 

     Fiscal
2012*		     Fiscal
2011†		  

Audit-Related Fees

      0 %      0 % 

Tax Fees

      0 %      0 % 

All Other Fees

      0 %      0 % 

 

* KPMG
† E&Y

(f) Not Applicable.

(g)(1) The aggregate non-audit fees and services billed by KPMG for the fiscal year 2012 were $236,000. Non-audit fees consist of SSAE No. 16 review of fund accounting and administration operations, attestation report in accordance with Rule 17Ad-13, and agreed upon procedures report over certain internal controls related to compliance with federal securities laws and regulations.

(g)(2) The aggregate non-audit fees and services billed by E&Y for the fiscal year 2011 were $0.

(h) During the past fiscal year, Registrant’s principal accountant provided certain non-audit services to Registrant’s investment adviser or to entities controlling, controlled by, or under common control with Registrant’s investment adviser that provide ongoing services to Registrant that were not subject to pre-approval pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The Audit Committee of Registrant’s Board of Trustees reviewed and considered these non-audit services provided by Registrant’s principal accountant to Registrant’s affiliates, including whether the provision of these non-audit services is compatible with maintaining the principal accountant’s independence.

 

Item 5. Audit Committee of Listed Registrants.

Not applicable.

 

Item 6. Schedule of Investments

(a) The Schedules of Investments are included as part of the report to shareholders filed under Item 1 of this form.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Not applicable.

 

Item 9. Purchases of Equity Securities by Closed-End Management Company and Affiliated Purchasers.

Not applicable.

 

Item 10. Submission of Matters to a Vote of Security Holders.

The Registrant has a standing Governance Committee (the “Committee”) currently consisting of the Independent Trustees. The Committee is responsible for evaluating and recommending nominees for election to the Registrant’s Board of Trustees (the “Board”). Pursuant to the Committee’s Charter, adopted on February 22, 2012, the Committee will review all shareholder recommendations for nominations to fill vacancies on the Board if such recommendations are submitted in writing and addressed to the Committee at the Registrant’s office.

 

Item 11. Controls and Procedures.

(a) The Registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “1940 Act”)) are effective, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 as of a date within 90 days of the filing date of this report.

(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Items 12. Exhibits.

(a)(1) Code of Ethics attached hereto.

(a)(2) A separate certification for the principal executive officer and the principal financial officer of the Registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed herewith.

(b) Officer certifications as required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing as an exhibit.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    New Covenant Funds
By  

/s/ Robert A. Nesher

  Robert A. Nesher
  President & CEO

Date: September 19, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

By  

/s/ Robert A. Nesher

  Robert A. Nesher
  President & CEO

Date: September 19, 2012

 

By  

/s/ Peter A. Rodriguez

  Peter A. Rodriguez
  Controller & CFO

Date: September 19, 2012