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, 2015
Date of reporting period: June 30, 2015
| Item 1. | Reports to Stockholders. |
June 30, 2015
ANNUAL REPORT
New Covenant Funds
➤ New Covenant Growth Fund
➤ New Covenant Income Fund
➤ New Covenant Balanced Growth Fund
➤ New Covenant Balanced Income Fund
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| 5 | ||||
| 12 | ||||
| 39 | ||||
| 40 | ||||
| 41 | ||||
| 43 | ||||
| 47 | ||||
| 56 | ||||
| 57 | ||||
| 60 | ||||
| Board of Trustees Considerations in Approving the Advisory and Sub-Advisory Agreements |
61 | |||
| 64 | ||||
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.
NEW COVENANT FUNDS — JUNE 30, 2015 (Unaudited)
At the beginning of the Funds’ fiscal year — July 1, 2014 through June 30, 2015 — SEI’s view was that global economic recovery was a work in progress. We anticipated continued strength in equity markets and their outperformance over bonds. We also expected a cautious approach by the U.S. Federal Open Market Committee in raising interest rates. While the market had its ups, downs and inbetweens during the fiscal year, our view was largely accurate.
In the first half of 2014, there was an easing of the geopolitical standoff between Russia, Ukraine and Europe; certain high-risk areas of the market (such as high-yield and emerging-market debt and equities) continuing the recoveries they had begun in late 2013 and early 2014. By the end of the second quarter of 2014, U.S. economic growth was recovering from its surprisingly weak start and key measures of volatility and investor risk aversion was reaching extreme lows by the end of June.
These dynamics changed considerably during the Funds’ fiscal year — July 1, 2014 to June 30, 2015. Shocks in commodities and currency markets, accompanied by divergent central bank policies, fostered rising uncertainty and volatility as well as divergent behavior within and across asset classes. Despite the intrigue, most equity and fixed-income asset classes in the U.S. produced positive returns for the one-year period ending June 30, 2015. Results were more of a mixed bag in other asset classes and outside the U.S., as a significantly stronger dollar weighed on commodity and international-asset returns.
Geopolitical events
In contrast to the Funds’ previous fiscal year, the conflict between Russia and Ukraine (and, by extension, between Russia and western powers such as Europe and the U.S.) simmered but did not boil over. There was continued (and in some cases intensifying) strife in several Middle Eastern and African nations, including Syria, Iraq, Libya and Nigeria. However, disruptions within the latter three countries, which are net oil producers, were not sufficient to stop the price of crude oil from falling sharply during the period. In fact, some of the most interesting geopolitical wrangling occurred within the oil markets. Faced with a dramatic increase in North American oil production in recent years, the Organization of Petroleum Exporting Countries (OPEC) decided to maintain, rather than cut, existing production targets, despite “an extremely well-supplied market.”1 This decision reflected an intense battle for market share that began during 2014 between Saudi Arabia, the oil market’s key producer, and North America, where significant investments have been made in unconventional (but costlier) forms of oil-and-gas production. Although not necessarily related, the Obama administration invested a great deal of diplomatic time and effort during the year in reaching a deal with Iran — which happens to be Saudi Arabia’s key rival in the region — in an attempt to check its nuclear ambitions while easing the west’s economic sanctions. Although Iran has vast amounts of oil reserves, most energy analysts do not believe the agreement will have an immediate impact on either the country’s oil production or the global price of oil. Still, Saudi Arabia has been willing to allow the price of oil to fall in order to recover market share, even running down its foreign-currency reserves and increasing its borrowing to cover government expenditures. We believe these oil-market dynamics could continue to have diverse and meaningful impacts on the world’s economies and financial markets.
Economic performance
The U.S. growth recovery that had started in the second quarter of 2014 slowed a bit in the fourth quarter before contracting once again in the first quarter of 2015. This year’s first-quarter disappointment was driven by extreme winter weather in certain parts of the U.S., as well as sluggish demand from abroad. The latter factor was made worse by a stronger dollar (which makes imports from the U.S. more expensive to foreign buyers) and increasingly contentious labor negotiations in several west-coast ports that, at times, prevented the smooth flow of goods into and out of the country. While overall U.S. growth was not terribly impressive for the full period, it remained positive and, encouragingly, the labor market continued to strengthen. Initial claims for unemployment benefits maintained their sharp, downward trajectory from the highs of 2009, and the U.S. unemployment rate fell from 6.3% at the end of May 2014 to 5.3% at the end of June 2015, according to the Bureau of Labor Statistics. The proportion of working-age individuals participating in the labor force, which declined sharply from 2008 to 2013, continued to show signs of stabilizing. Employee compensation also exhibited steady growth, although the pace remained below its long-term average. While
| 1 | “OPEC 166th Meeting concludes,” Organization of the Petroleum Exporting Countries, November 27, 2014, <http://www.opec.org/opec_web/en/press_room/2938.htm>. |
| New Covenant Funds / Annual Report / June 30, 2015 | 1 |
NEW COVENANT FUNDS — JUNE 30, 2015 (Unaudited) (Continued)
the U.S. economy appears to have rebounded in the second quarter of 2015, there have nonetheless been additional signs of sluggishness. For example, after a solid run during the first half of the Funds’ fiscal year, industrial production, capacity utilization and consumer-sentiment measures have been trending down since the start of 2015. And lower oil prices, historically a boon for U.S. consumers, have had a more mixed impact this time around. As global oil prices fell, many higher-cost North American producers began to struggle, as did states and regions where heavy energy investments were made in recent years. Still, the overall story during the reporting period was one of slow but continued growth. As a result, the Federal Reserve (Fed) ended its asset-purchase programs (also known as quantitative easing) in 2014, and most market observers still expect it to begin hiking interest rates sometime in late 2015. But these signs of sluggishness have pushed the expected start date of Fed interest rate hikes further into the future.
Among developed markets, Japan’s economy was a standout, as the government’s reform efforts continued to foster recovery. The world’s third largest national economy struggled in the third quarter of 2014, following a national sales-tax hike designed to chip away at its high level of sovereign debt. However, it reflected solid growth in the first quarter of 2015. Japan’s economy is still smaller than it was before the 2008-2009 financial crisis though, and as a result, policymakers in the government and at the Bank of Japan (BOJ) have signalled they are in no hurry to engage in further tightening measures at this point.
The U.K. economy, a stalwart among developed markets from 2013 into 2014, continued to grow during the Funds’ fiscal year but at a declining pace. The Bank of England, which began a stabilizing policy in mid-2012, stood pat during the period. In the last five monthly meetings of 2014, however, two members of the bank’s Monetary Policy Committee (MPC) voted to lower the bank’s official interest rate target from 0.50% to 0.25%, reflecting uncertainty over the country’s slowing pace of growth. Thus far in 2015, MPC members have voted unanimously to keep the rate at 0.50%, indicating a more optimistic outlook. This development, along with May 2015 elections that gave a surprisingly resounding victory to conservatives, supported the country’s currency (the pound sterling) against the euro through the first six months of 2015 and helped it rebound a bit against the U.S. dollar from April 2015 through the end of June.
Europe continued to play the sick man among developed economies, although consistent with recent years, country performance varied widely, and the eurozone’s growth trajectory was better than the period from 2011 through 2012 (although it was still slower than prior to the global financial crisis in 2008-2009). There were some important signs of improvement, driven in part by a weaker euro, which boosted demand for European exports. The catalyst for a weaker euro was the European Central Bank’s (ECB) initiation — finally — of a quantitative easing program aimed at stabilizing the continent’s financial system and fostering credit expansion and faster economic growth. These efforts were of limited help to Greece; the country remained the weakest link in the euro area, as it became clear that its government would not be able to make all of the scheduled payments to its creditors (most of them official institutions such as the ECB and the International Monetary Fund) in 2015. Elections in Greece led to the formation of a socialist government in early 2015 that was stridently opposed to the austerity measures imposed by 2011 and 2012 creditor agreements. As a result, investors and policymakers began to worry once more about whether Greece would have to leave the eurozone and, if so, whether its departure would cause financial contagion within and beyond Europe. After five months of testy bailout negotiations with international creditors, eurozone finance ministers and heads of state (with Germany continuing to play a prominent role among individual eurozone countries), Prime Minister Alexis Tsipras called for a July 5 referendum vote to address whether Greece should accept austerity measures demanded in exchange for rescue funding. Shortly after this announcement, Greece became the first developed country to default on the International Monetary Fund, failing to repay €1.6 billion. The uncertainty was reflected in its bond yields (which, after falling steadily from mid-2012, reversed course and rose steadily from September 2014 through the end of June) and its stock market (which, as reflected by the Athens Stock Exchange General Index, fell more than 30% over the Funds’ fiscal year in euro terms). Among the core countries of the eurozone, Germany remained the strongest of the group, while France showed some meaningful improvement in economic activity. Activity in Italy’s economy, the eurozone’s third largest, continued to stagnate in 2014, while Spain’s economy, the fourth largest in the eurozone, continued to recover from its lows of 2013. At the end of 2014, unemployment in both countries remained high at 12.7% and 24.5%, respectively, according to the Organization for Economic Cooperation and Development; even worse, youth unemployment (ages 15 to 24) remained above 40% in Italy and above 50% in Spain at the end of 2014. In our view, the eurozone economy still has a ways to go to return to full health, but policymakers finally appear to be taking steps in the right direction.
| 2 | New Covenant Funds / Annual Report / June 30, 2015 |
In emerging markets, the darlings of the prior decade — Brazil, China, India and Russia — continued to struggle with slowing growth or outright recession. Brazil and Russia were hit hard by the bear market in oil and other commodities, and slowdowns in their economies appeared to accelerate in 2015. Regionally, Brazil was not alone, as most economies in Latin America struggled during the period. Russia’s economy is widely expected to contract for full-year 2015, although its currency and its debt have stabilized since falling precipitously in the wake of the oil-price shock. China and India are still seeing very healthy rates of economic growth, but those rates continued to slow during the Funds’ fiscal year. In China, President Xi Jinping’s administration continued to vigorously pursue an anti-corruption agenda, but these efforts were overshadowed in the second half of the period by a series of surprise interest rate cuts and other easing measures by the People’s Bank of China (PBOC). In India, the election of Prime Minister Narendra Modi in 2014 was widely viewed as a business-friendly development, and the Indian stock market (as reflected by the India Bombay Stock Exchange 30 Sensex Index) responded favorably from early 2014 through early 2015. Since then, Indian stocks have moved sideways and slightly lower, as economic growth slowed and the new prime minister focused on longer-term reforms. Similar to the PBOC, the Reserve Bank of India made surprise cuts to its key lending rate in early 2015 for the first time since 2013. Growth in smaller emerging economies and frontier economies varied widely; this is normally the case, but the variation was accentuated by commodity-price shocks that favored commodity importers and hurt commodity exporters.
Market developments — commodities
Commodity markets were routed badly during the Funds’ fiscal year. As already noted, the oil market was hit especially hard due to substantial increases in global supply, driven by a massive expansion of North American production and OPEC’s refusal to cut output. Oil prices fell by more than half from mid-2014 through the start of 2015 and ended the period more than 40% lower. Most other commodities were also hit hard, as they: fell in sympathy with oil; reacted to concerns about slowing growth in China and other large emerging markets; and responded to a sharply stronger U.S. dollar. (Most commodity trading takes place in U.S. dollars; thus, as the dollar’s value increases, the prices of most commodities tend to fall.) The Bloomberg Commodity Index fell by roughly 25% over the Funds’ fiscal year.
Market developments — fixed income and foreign exchange
One of the biggest stories in currency markets was the sharp appreciation of the U.S. dollar against most currencies from July 2014 through March 2015, as expectations of tighter Fed policy and dovish actions by the ECB and BOJ led investors to favor the dollar.
In U.S. fixed-income markets, inflation-protected securities lagged, as inflation expectations fell in the face of lower commodity prices, a stronger dollar and sluggish growth. The U.S. Treasury yield curve flattened; shorter-term rates rose on expectations of a Fed rate hike in the near future, while longer-term rates fell on disappointing economic results, falling inflation expectations and bouts of risk aversion. Long rates reversed course in a choppy fashion from February 2015 through June 2015 but still ended the period slightly lower. This meant positive returns in longer-dated Treasurys, as Treasury bond yields and prices move inversely. Interest rate volatility was notably higher once the Fed ended its quantitative-easing efforts.
Most non-Treasury sectors performed well. Non-agency mortgage-backed securities (MBS) and asset-backed securities (ABS) outperformed comparably dated Treasurys. Non-agency MBS outperformance was driven by the ongoing U.S. housing recovery, limited supply and attractive risk-adjusted returns. Within ABS, securitized credit card and automobile loans were outperformers.
Investment-grade and high-yield corporate debt underperformed Treasurys, as spreads widened in both sectors. The struggles of the energy sector (especially issues related to oil, gas and coal production) played a significant role in the underperformance. Industrial issues also performed poorly overall. Within investment-grade, financials outperformed (especially banks, where bondholders have benefited from stricter capital regulations and sturdier balance sheets). Healthcare was also positive, thanks to solid corporate fundamentals and strong merger-and-acquisition (M&A) activity.
Market developments — equities
In the U.S., stocks, as reflected by the S&P 500 Index, sold off sharply at two points during the Funds’ fiscal year — summer 2014 and October 2014. However, they recovered enough to post low double-digit returns over the full period. The more technology-heavy Nasdaq Composite Index was a notable outperformer among U.S. benchmarks, thanks to the strong performance of biotechnology and information technology
| New Covenant Funds / Annual Report / June 30, 2015 | 3 |
NEW COVENANT FUNDS — JUNE 30, 2015 (Unaudited) (Concluded)
names. Volatility, as measured by the Chicago Board Options Exchange Volatility Index or VIX (a measure of risk aversion derived from the behavior of buyers and sellers of options on the S&P 500), fell to extreme lows through the end of June 2014 before turning up and then spiking in October during the stock market selloff. Volatility spiked again from December 2014 through January 2015 on further bouts of risk aversion. From that point on, the VIX was in a downtrend, reminiscent of its behavior a year ago but at slightly higher levels overall. Small-cap stocks, as measured by the Russell 2000 Index, underperformed large caps (Russell 1000) during the first half of the Funds’ fiscal year. Small caps outperformed in March-to-April of 2015, then hit a bit of a rough patch through the end of May. However, June was a volatile month for all stocks, as the ripple effects after a drastic decline in China’s domestic-stock-market and the ongoing Greek-debt-repayment negotations caused a bout of risk aversion toward the end of the month. For the Funds’ full fiscal year, large- and small-cap stocks provided similar returns. Growth stocks (Russell 1000 Growth Index) and value stocks (Russell 1000 Value) performed largely in line from the start of the period through the October selloff. After that, growth stocks outperformed notably. This was driven primarily by the strong rallies in growth-oriented healthcare and biotechnology names and the carnage in value-heavy energy stocks that resulted from the aforementioned oil-market upheaval. After underperforming in the first few months, lower-volatility stocks outperformed higher-volatility ones in the second half of the fiscal year. Most U.S. equity sectors provided positive returns. Healthcare led the way (thanks to biotechnology and vigorous M&A activity) followed by information technology. Large-cap consumer discretionary names also did well. Energy was a significant underperformer, especially in the small-cap arena, which was heavy with exploration & production and oil-field services & equipment providers.
Outside of the U.S., stock returns were uninspiring in U.S. dollar terms; the MSCI ACWI ex-US Index was down slightly. (Returns measured in a global currency basket were over 10%.) There were notable divergences across (and within) sectors, countries and regions.
Our view
Toward the end of the Funds’ fiscal year, there were indications that the U.S. economy had returned to growth, but the immediate rebound was not as strong as the one seen in the second quarter of 2014. Whether its momentum improves remains to be seen, and the outcome could influence the Fed’s policy decisions later in 2015. Global growth also remains sluggish overall, but policy measures being taken in many developed and emerging economies should brighten the outlook in the quarters and years ahead. Although the U.S. and U.K. have led developed markets in recent years, we believe there may be more attractive opportunities in Europe and Japan, based on comparative equity-market valuations. Emerging-market equities are cheap in relative terms, but we would view them as a longer-term theme. In fixed-income markets, low-risk and sovereign government debt still looks expensive to us, but credit markets should continue to offer relative-value opportunities. Finally, while commodities and other inflation-sensitive asset classes may continue to struggle, we believe they still have a role to play in some investors’ portfolios; historically, they have helped protect against declines in purchasing power, and they are certainly cheaper after the developments of the 12 months ending June 30, 2015.
On behalf of SEI Investments, I want to thank you for your continued confidence. We are working every day to maintain that confidence, and we look forward to serving your investment needs in the future.
Sincerely,
William T. Lawrence, CFA
Managing Director, Portfolio Management Team
| 4 | New Covenant Funds / Annual Report / June 30, 2015 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
NEW COVENANT FUNDS — JUNE 30, 2015 (Unaudited)
New Covenant Growth Fund
| New Covenant Funds / Annual Report / June 30, 2015 | 5 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
NEW COVENANT FUNDS — JUNE 30, 2015 (Unaudited)
New Covenant Growth Fund (Concluded)
| 6 | New Covenant Funds / Annual Report / June 30, 2015 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
NEW COVENANT FUNDS — JUNE 30, 2015 (Unaudited)
New Covenant Income Fund
| New Covenant Funds / Annual Report / June 30, 2015 | 7 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
NEW COVENANT FUNDS — JUNE 30, 2015 (Unaudited)
New Covenant Balanced Growth Fund
| 8 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 9 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
NEW COVENANT FUNDS — JUNE 30, 2015 (Unaudited)
New Covenant Balanced Income Fund
| 10 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 11 |
New Covenant Growth Fund
June 30, 2015
| 12 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 13 |
SCHEDULE OF INVESTMENTS
New Covenant Growth Fund (Concluded)
June 30, 2015
| 14 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 15 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund
June 30, 2015
| 16 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 17 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund (Continued)
June 30, 2015
| 18 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 19 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund (Continued)
June 30, 2015
| 20 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 21 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund (Continued)
June 30, 2015
| 22 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 23 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund (Continued)
June 30, 2015
| 24 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 25 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund (Continued)
June 30, 2015
| 26 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 27 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund (Continued)
June 30, 2015
| 28 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 29 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund (Continued)
June 30, 2015
| 30 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 31 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund (Continued)
June 30, 2015
| 32 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 33 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund (Continued)
June 30, 2015
| 34 | New Covenant Funds / Annual Report / June 30, 2015 |
| New Covenant Funds / Annual Report / June 30, 2015 | 35 |
SCHEDULE OF INVESTMENTS
New Covenant Income Fund (Concluded)
June 30, 2015
| 36 | New Covenant Funds / Annual Report / June 30, 2015 |
SCHEDULE OF INVESTMENTS
New Covenant Balanced Growth Fund
June 30, 2015
| New Covenant Funds / Annual Report / June 30, 2015 | 37 |
SCHEDULE OF INVESTMENTS
New Covenant Balanced Income Fund
June 30, 2015
| 38 | New Covenant Funds / Annual Report / June 30, 2015 |
Statements of Assets and Liabilities ($ Thousands)
June 30, 2015
| Growth Fund | Income Fund | Balanced Growth Fund |
Balanced Income Fund |
|||||||||||||
| ASSETS: |
||||||||||||||||
| Investments, at value† |
$ | 405,693 | $ | 290,796 | $ | — | $ | — | ||||||||
| Repurchase Agreements, at value†† |
— | 21,000 | — | — | ||||||||||||
| Affiliated investments, at value††† |
10,750 | 5,644 | 296,758 | 80,190 | ||||||||||||
| Cash |
— | 1,544 | — | — | ||||||||||||
| Cash pledged as collateral for futures contracts |
— | 295 | — | — | ||||||||||||
| Receivable for investment securities sold |
3,164 | 9,541 | 3,200 | — | ||||||||||||
| Dividends and interest receivable |
315 | 1,438 | 167 | 72 | ||||||||||||
| Foreign tax reclaim receivable |
54 | — | — | — | ||||||||||||
| Receivable for fund shares sold |
751 | 4 | 5 | 1 | ||||||||||||
| Receivable for variation margin |
— | 272 | — | — | ||||||||||||
| Prepaid expenses |
28 | 21 | 21 | 6 | ||||||||||||
| Total Assets |
420,755 | 330,555 | 300,151 | 80,269 | ||||||||||||
| LIABILITIES: |
||||||||||||||||
| Payable for investment securities purchased |
4,154 | 22,267 | 737 | — | ||||||||||||
| Investment advisory fees payable |
217 | 70 | — | — | ||||||||||||
| Payable for fund shares redeemed |
1 | 3,203 | 1,770 | 39 | ||||||||||||
| Administration fees payable |
70 | 51 | 21 | 11 | ||||||||||||
| Social witness and licensing fees payable |
50 | 37 | — | — | ||||||||||||
| Shareholder servicing fees payable |
35 | 25 | — | — | ||||||||||||
| Trustees’ fees payable |
1 | 1 | 1 | — | ||||||||||||
| Income distribution payable |
— | 382 | — | — | ||||||||||||
| Payable for variation margin |
— | 135 | — | — | ||||||||||||
| Accrued expense payable |
69 | 89 | 62 | 16 | ||||||||||||
| Total Liabilities |
4,597 | 26,260 | 2,591 | 66 | ||||||||||||
| Net Assets |
$ | 416,158 | $ | 304,295 | $ | 297,560 | $ | 80,203 | ||||||||
| † Cost of investments |
$ | 355,729 | $ | 287,448 | $ | — | $ | — | ||||||||
| †† Cost of repurchase agreements |
— | 21,000 | — | — | ||||||||||||
| ††† Cost of affiliated investments |
10,750 | 5,644 | 248,693 | 70,442 | ||||||||||||
| NET ASSETS: |
||||||||||||||||
| Paid-in Capital — (unlimited authorization — par value $0.001) |
$ | 345,298 | $ | 356,697 | $ | 234,353 | $ | 68,197 | ||||||||
| Undistributed (distributions in excess of) net investment income |
1 | (1 | ) | 24 | 8 | |||||||||||
| Accumulated net realized gain (loss) on investments, affiliated investments, capital gain distributions from affiliated investments, futures contracts and foreign currency transactions |
20,903 | (55,523 | ) | 15,118 | 2,250 | |||||||||||
| Net unrealized appreciation on investments and affiliated investments |
49,964 | 3,348 | 48,065 | 9,748 | ||||||||||||
| Net unrealized depreciation on futures contracts |
— | (226 | ) | — | — | |||||||||||
| Net unrealized depreciation on foreign currencies and translation of other assets and liabilities denominated in foreign currencies |
(8 | ) | — | — | — | |||||||||||
| Net Assets |
$ | 416,158 | $ | 304,295 | $ | 297,560 | $ | 80,203 | ||||||||
| Net Asset Value, Offering and Redemption Price Per Share |
$ | 38.28 | $ | 23.09 | $ | 101.71 | $ | 21.20 | ||||||||
| |
($416,158,363 ÷ 10,871,995 shares |
) |
|
($304,295,296 ÷ 13,177,199 shares |
) |
|
($297,559,698 ÷ 2,925,636 shares |
) |
|
($80,202,999 ÷ 3,783,593 shares |
) | |||||
Amounts designated as “—” are $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
| New Covenant Funds / Annual Report / June 30, 2015 | 39 |
Statements of Operations ($ Thousands)
For the year ended June 30, 2015
| Growth Fund | Income Fund | Balanced Growth Fund |
Balanced Income Fund |
|||||||||||||
| Investment Income: |
||||||||||||||||
| Dividend Income |
$ | 6,552 | $ | — | $ | — | $ | — | ||||||||
| Dividend Income from Affiliated Registered Investment Company |
1 | 1 | 2,947 | 1,025 | ||||||||||||
| Interest Income |
2 | 7,051 | — | — | ||||||||||||
| Less: Foreign Taxes Withheld |
(30 | ) | 2 | — | — | |||||||||||
| 6,525 | 7,054 | 2,947 | 1,025 | |||||||||||||
| Expenses: |
||||||||||||||||
| Investment Advisory Fees |
2,604 | 1,287 | — | — | ||||||||||||
| Administration Fees |
840 | 613 | 609 | 166 | ||||||||||||
| Social Witness and Licensing Fees |
630 | 460 | — | — | ||||||||||||
| Shareholder Servicing Fees |
420 | 307 | — | — | ||||||||||||
| Chief Compliance Officer Fees |
1 | 1 | 1 | — | ||||||||||||
| Transfer Agent Fees |
105 | 76 | 74 | 20 | ||||||||||||
| Printing Fees |
35 | 26 | 25 | 7 | ||||||||||||
| Professional Fees |
26 | 19 | 19 | 5 | ||||||||||||
| Registration Fees |
35 | 26 | 25 | 7 | ||||||||||||
| Custodian Fees |
14 | 14 | 14 | 4 | ||||||||||||
| Other Expenses |
14 | 91 | 11 | 2 | ||||||||||||
| Total Expenses |
4,724 | 2,920 | 778 | 211 | ||||||||||||
| Less: |
||||||||||||||||
| Waiver of Investment Advisory Fees |
(449 | ) | (472 | ) | — | — | ||||||||||
| Waiver of Administration Fees |
— | — | (359 | ) | (46 | ) | ||||||||||
| Net Expenses |
4,275 | 2,448 | 419 | 165 | ||||||||||||
| Net Investment Income |
2,250 | 4,606 | 2,528 | 860 | ||||||||||||
| Net Realized and Change in Unrealized Gain (Loss) on Investments: |
||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||
| Investments |
51,893 | 1,263 | — | — | ||||||||||||
| Affiliated Investments |
— | — | 482 | 473 | ||||||||||||
| Capital Gain Distributions Received from Affiliated Investments |
— | — | 31,515 | 5,086 | ||||||||||||
| Written and Purchased Options |
— | 4 | — | — | ||||||||||||
| Futures Contracts |
615 | 677 | — | — | ||||||||||||
| Foreign Currency Transactions |
(2 | ) | — | — | — | |||||||||||
| Net Change in Unrealized Depreciation on: |
||||||||||||||||
| Investments |
(27,889 | ) | (1,846 | ) | — | — | ||||||||||
| Affiliated Investments |
— | — | (21,051 | ) | (3,802 | ) | ||||||||||
| Futures Contracts |
— | (170 | ) | — | — | |||||||||||
| Foreign Currency Transactions and Translation of Other Assets and Liabilities Denominated in Foreign Currencies |
(8 | ) | — | — | — | |||||||||||
| Net Increase in Net Assets Resulting from Operations |
$ | 26,859 | $ | 4,534 | $ | 13,474 | $ | 2,617 | ||||||||
Amounts designated as “—” are $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
| 40 | New Covenant Funds / Annual Report / June 30, 2015 |
Statements of Changes in Net Assets ($ Thousands)
For the years ended June 30,
| Growth Fund | Income Fund | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Operations: |
||||||||||||||||
| Net Investment Income |
$ | 2,250 | $ | 2,214 | $ | 4,606 | $ | 4,504 | ||||||||
| Net Realized Gain from Investments, Affiliated Investments, Written and Purchased Options and Futures Contracts |
52,508 | 58,155 | 1,944 | 1,346 | ||||||||||||
| Net Realized Loss on Foreign Currency Transactions |
(2 | ) | (46 | ) | — | — | ||||||||||
| Net Change in Unrealized Appreciation (Depreciation) on Investments, Affiliated Investments, and Futures Contracts |
(27,889 | ) | 25,664 | (2,016 | ) | 4,046 | ||||||||||
| Net Change in Unrealized Appreciation (Depreciation) on Foreign Currency Transactions and Translation of Other Assets and Liabilities Denominated in Foreign Currencies |
(8 | ) | 9 | — | — | |||||||||||
| Net Increase in Net Assets Resulting from Operations |
26,859 | 85,996 | 4,534 | 9,896 | ||||||||||||
| Dividends and Distributions From: |
||||||||||||||||
| Net Investment Income |
(2,335 | ) | (2,370 | ) | (4,984 | ) | (5,087 | ) | ||||||||
| Net Realized Gains |
(71,687 | ) | (20,063 | ) | — | — | ||||||||||
| Total Dividends and Distributions |
(74,022 | ) | (22,433 | ) | (4,984 | ) | (5,087 | ) | ||||||||
| Capital Share Transactions: |
||||||||||||||||
| Proceeds from Shares Issued |
25,692 | 23,694 | 35,466 | 43,941 | ||||||||||||
| Reinvestment of Dividends & Distributions |
69,245 | 19,433 | 546 | 558 | ||||||||||||
| Cost of Shares Redeemed |
(56,468 | ) | (50,971 | ) | (40,306 | ) | (31,938 | ) | ||||||||
| Increase (Decrease) in Net Assets Derived from Capital Share Transactions |
38,469 | (7,844 | ) | (4,294 | ) | 12,561 | ||||||||||
| Net Increase (Decrease) in Net Assets |
(8,694 | ) | 55,719 | (4,744 | ) | 17,370 | ||||||||||
| Net Assets: |
||||||||||||||||
| Beginning of Year |
424,852 | 369,133 | 309,039 | 291,669 | ||||||||||||
| End of Year |
$ | 416,158 | $ | 424,852 | $ | 304,295 | $ | 309,039 | ||||||||
| Undistributed (Distributions in Excess of) Net Investment Income Included in Net Assets at Year End |
$ | 1 | $ | 87 | $ | (1 | ) | $ | (1 | ) | ||||||
| Share Transactions: |
||||||||||||||||
| Shares Issued |
634 | 576 | 1,530 | 1,928 | ||||||||||||
| Shares Issued in Lieu of Dividends and Distributions |
1,868 | 488 | 24 | 24 | ||||||||||||
| Shares Redeemed |
(1,351 | ) | (1,246 | ) | (1,739 | ) | (1,397 | ) | ||||||||
| Increase (Decrease) in Net Assets Derived from Share Transactions |
1,151 | (182 | ) | (185 | ) | 555 | ||||||||||
Amounts designated as “—” are $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
| New Covenant Funds / Annual Report / June 30, 2015 | 41 |
Statements of Changes in Net Assets ($ Thousands)
For the years ended June 30,
| Balanced Growth Fund | Balanced Income Fund | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Operations: |
||||||||||||||||
| Net Investment Income |
$ | 2,528 | $ | 4,293 | $ | 860 | $ | 1,212 | ||||||||
| Net Realized Gain (Loss) from Affiliated Investments |
482 | 3,892 | 473 | (249 | ) | |||||||||||
| Capital Gain Distributions received from Affiliated Investments |
31,515 | 8,811 | 5,086 | 1,493 | ||||||||||||
| Net Change in Unrealized Appreciation (Depreciation) on Affiliated Investments |
(21,051 | ) | 24,111 | (3,802 | ) | 5,497 | ||||||||||
| Net Increase in Net Assets Resulting from Operations |
13,474 | 41,107 | 2,617 | 7,953 | ||||||||||||
| Dividends and Distributions From: |
||||||||||||||||
| Net Investment Income |
(8,482 | ) | (4,300 | ) | (1,821 | ) | (1,208 | ) | ||||||||
| Net Realized Gains |
(5,579 | ) | — | (2,156 | ) | (338 | ) | |||||||||
| Total Dividends and Distributions |
(14,061 | ) | (4,300 | ) | (3,977 | ) | (1,546 | ) | ||||||||
| Capital Share Transactions: |
||||||||||||||||
| Proceeds from Shares Issued |
17,616 | 21,832 | 6,727 | 9,924 | ||||||||||||
| Reinvestment of Dividends & Distributions |
11,934 | 2,820 | 3,222 | 944 | ||||||||||||
| Cost of Shares Redeemed |
(37,327 | ) | (27,053 | ) | (14,008 | ) | (13,471 | ) | ||||||||
| Decrease in Net Assets Derived from Capital Share Transactions |
(7,777 | ) | (2,401 | ) | (4,059 | ) | (2,603 | ) | ||||||||
| Net Increase (Decrease) in Net Assets |
(8,364 | ) | 34,406 | (5,419 | ) | 3,804 | ||||||||||
| Net Assets: |
||||||||||||||||
| Beginning of Year |
305,924 | 271,518 | 85,622 | 81,818 | ||||||||||||
| End of Year |
$ | 297,560 | $ | 305,924 | $ | 80,203 | $ | 85,622 | ||||||||
| Undistributed Net Investment Income Included in Net Assets at Year End |
$ | 24 | $ | 9 | $ | 8 | $ | 6 | ||||||||
| Share Transactions: |
||||||||||||||||
| Shares Issued |
171 | 226 | 314 | 474 | ||||||||||||
| Shares Issued in Lieu of Dividends and Distributions |
118 | 29 | 151 | 45 | ||||||||||||
| Shares Redeemed |
(365 | ) | (280 | ) | (654 | ) | (646 | ) | ||||||||
| Decrease in Net Assets Derived from Share Transactions |
(76 | ) | (25 | ) | (189 | ) | (127 | ) | ||||||||
Amounts designated as “—” are $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
| 42 | New Covenant Funds / Annual Report / June 30, 2015 |
For the years ended June 30,
For a share outstanding throughout the year
| Growth Fund | ||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012(2) | 2011(2) | ||||||||||||||||
| Net Asset Value, Beginning of Year |
$ | 43.70 | $ | 37.28 | $ | 32.23 | $ | 32.53 | $ | 25.11 | ||||||||||
| INVESTMENT ACTIVITIES: |
||||||||||||||||||||
| Net investment income |
0.22 | (1) | 0.23 | (1) | 0.28 | (1) | 0.31 | (1) | 0.24 | |||||||||||
| Net realized and unrealized gains (losses) on investments and foreign currency transactions |
2.29 | (1) | 8.55 | (1) | 5.20 | (1) | (0.38 | )(1) | 7.41 | |||||||||||
| Total from investment activities |
2.51 | 8.78 | 5.48 | (0.07 | ) | 7.65 | ||||||||||||||
| DIVIDENDS AND DISTRIBUTIONS FROM: |
||||||||||||||||||||
| Net investment income |
(0.22 | ) | (0.24 | ) | (0.43 | ) | (0.23 | ) | (0.23 | ) | ||||||||||
| Net realized gains |
(7.71 | ) | (2.12 | ) | — | — | — | |||||||||||||
| Total dividends and distributions |
(7.93 | ) | (2.36 | ) | (0.43 | ) | (0.23 | ) | (0.23 | ) | ||||||||||
| Net Asset Value, End of Year | $ | 38.28 | $ | 43.70 | $ | 37.28 | $ | 32.23 | $ | 32.53 | ||||||||||
| Total Return† |
6.41 | % | 24.18 | % | 17.11 | % | (0.15 | )% | 30.54 | % | ||||||||||
| SUPPLEMENTAL DATA AND RATIOS: |
||||||||||||||||||||
| Net assets, end of year ($ Thousands) |
$ | 416,158 | $ | 424,852 | $ | 369,133 | $ | 652,311 | $ | 721,633 | ||||||||||
| Ratio of net expenses to average net assets |
1.02 | % | 1.02 | % | 0.99 | % | 0.97 | % | 1.08 | % | ||||||||||
| Ratio of expenses to average net assets, excluding waivers |
1.12 | % | 1.15 | % | 1.15 | % | 1.03 | % | 1.12 | % | ||||||||||
| Ratio of net investment income to average net assets |
0.54 | % | 0.55 | % | 0.81 | % | 1.01 | % | 0.78 | % | ||||||||||
| Portfolio turnover rate |
107 | % | 86 | % | 47 | % | 83 | % | 44 | % | ||||||||||
| † | Returns shown 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) | As disclosed in Note 1, prior to February 20, 2012, the Funds’ investment advisor was One Compass Advisors, a wholly owned subsidiary of the Presbyterian Church (U.S.A.) Foundation. |
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, 2015 | 43 |
Financial Highlights
For the years ended June 30,
For a share outstanding throughout the year
| Income Fund | ||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012(2) | 2011(2) | ||||||||||||||||
| Net Asset Value, Beginning of Year |
$ | 23.13 | $ | 22.77 | $ | 23.28 | $ | 22.85 | $ | 22.57 | ||||||||||
| INVESTMENT ACTIVITIES: |
||||||||||||||||||||
| Net investment income |
0.35 | (1) | 0.34 | (1) | 0.29 | (1) | 0.60 | (1) | 0.62 | |||||||||||
| Net realized and unrealized gains (losses) on investments |
(0.01 | )(1) | 0.41 | (1) | (0.41 | )(1) | 0.62 | (1) | 0.27 | |||||||||||
| Total from investment activities |
0.34 | 0.75 | (0.12 | ) | 1.22 | 0.89 | ||||||||||||||
| DIVIDENDS AND DISTRIBUTIONS FROM: |
||||||||||||||||||||
| Net investment income |
(0.38 | ) | (0.39 | ) | (0.39 | ) | (0.79 | ) | (0.61 | ) | ||||||||||
| Total dividends and distributions |
(0.38 | ) | (0.39 | ) | (0.39 | ) | (0.79 | ) | (0.61 | ) | ||||||||||
| Net Asset Value, End of Year | $ | 23.09 | $ | 23.13 | $ | 22.77 | $ | 23.28 | $ | 22.85 | ||||||||||
| Total Return† |
1.46 | % | 3.31 | % | (0.55 | )% | 5.45 | % | 4.00 | % | ||||||||||
| SUPPLEMENTAL DATA AND RATIOS: |
||||||||||||||||||||
| Net assets, end of year ($ Thousands) |
$ | 304,295 | $ | 309,039 | $ | 291,669 | $ | 374,870 | $ | 455,136 | ||||||||||
| Ratio of net expenses to average net assets |
0.80 | % | 0.80 | % | 0.77 | % | 0.75 | % | 0.83 | % | ||||||||||
| Ratio of expenses to average net assets, excluding waivers |
0.95 | % | 0.98 | % | 0.95 | % | 0.81 | % | 0.89 | % | ||||||||||
| Ratio of net investment income to average net assets |
1.50 | % | 1.50 | % | 1.23 | % | 2.60 | % | 2.76 | % | ||||||||||
| Portfolio turnover rate |
115 | % | 168 | % | 295 | % | 95 | % | 38 | % | ||||||||||
| † | Returns shown 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) | As disclosed in Note 1, prior to February 20, 2012, the Funds’ investment advisor was One Compass Advisors, a wholly owned subsidiary of the Presbyterian Church (U.S.A.) Foundation. |
The accompanying notes are an integral part of the financial statements.
| 44 | New Covenant Funds / Annual Report / June 30, 2015 |
Financial Highlights
For the years ended June 30,
For a share outstanding throughout the year
| Balanced Growth Fund | ||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012(3) | 2011(3) | ||||||||||||||||
| Net Asset Value, Beginning of Year |
$ | 101.92 | $ | 89.69 | $ | 82.87 | $ | 82.33 | $ | 69.47 | ||||||||||
| INVESTMENT ACTIVITIES: |
||||||||||||||||||||
| Net investment income |
0.85 | (1) | 1.43 | (1) | 1.08 | (1) | 1.25 | (1) | 0.99 | |||||||||||
| Net realized and unrealized gains from Affiliated Funds |
3.71 | (1) | 12.23 | (1) | 6.96 | (1) | 0.41 | (1) | 12.86 | |||||||||||
| Total from investment activities |
4.56 | 13.66 | 8.04 | 1.66 | 13.85 | |||||||||||||||
| DIVIDENDS AND DISTRIBUTIONS FROM: |
||||||||||||||||||||
| Net investment income |
(2.86 | ) | (1.43 | ) | (1.22 | ) | (1.12 | ) | (0.99 | ) | ||||||||||
| Net realized gains |
(1.91 | ) | — | — | — | — | ||||||||||||||
| Tax return of capital |
— | — | — | — | — | (2) | ||||||||||||||
| Total dividends and distributions |
(4.77 | ) | (1.43 | ) | (1.22 | ) | (1.12 | ) | (0.99 | ) | ||||||||||
| Net Asset Value, End of Year | $ | 101.71 | $ | 101.92 | $ | 89.69 | $ | 82.87 | $ | 82.33 | ||||||||||
| Total Return† |
4.54 | % | 15.30 | % | 9.77 | % | 2.07 | % | 19.99 | % | ||||||||||
| SUPPLEMENTAL DATA AND RATIOS: |
||||||||||||||||||||
| Net assets, end of year ($ Thousands) |
$ | 297,560 | $ | 305,924 | $ | 271,518 | $ | 258,499 | $ | 271,314 | ||||||||||
| Ratio of net expenses to average net assets* |
0.14 | % | 0.14 | % | 0.14 | % | 0.14 | % | 0.18 | % | ||||||||||
| Ratio of expenses to average net assets, excluding waivers* |
0.26 | % | 0.27 | % | 0.27 | % | 0.17 | % | 0.26 | % | ||||||||||
| Ratio of net investment income to average net assets |
0.83 | % | 1.48 | % | 1.24 | % | 1.55 | % | 1.25 | % | ||||||||||
| Portfolio turnover rate |
13 | % | 6 | % | 7 | % | 9 | % | 8 | % | ||||||||||
| † | Returns shown do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares. |
| * | The expense ratios do not include expenses of the underlying affiliated investment companies. |
| (1) | Per share net investment income and net realized and unrealized gains (losses) calculated using average shares. |
| (2) | Less than $0.005. |
| (3) | As disclosed in Note 1, prior to February 20, 2012, the Funds’ investment advisor was One Compass Advisors, a wholly owned subsidiary of the Presbyterian Church (U.S.A.) Foundation. |
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, 2015 | 45 |
Financial Highlights
For the years ended June 30,
For a share outstanding throughout the year
| Balanced Income Fund | ||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012(3) | 2011(3) | ||||||||||||||||
| Net Asset Value, Beginning of Year |
$ | 21.55 | $ | 19.95 | $ | 19.25 | $ | 18.97 | $ | 17.06 | ||||||||||
| INVESTMENT ACTIVITIES: |
||||||||||||||||||||
| Net investment income |
0.22 | (1) | 0.30 | (1) | 0.26 | (1) | 0.41 | (1) | 0.31 | |||||||||||
| Net realized and unrealized gains from Affiliated Funds |
0.46 | (1) | 1.68 | (1) | 0.76 | (1) | 0.22 | (1) | 1.91 | |||||||||||
| Total from investment activities |
0.68 | 1.98 | 1.02 | 0.63 | 2.22 | |||||||||||||||
| DIVIDENDS AND DISTRIBUTIONS FROM: |
||||||||||||||||||||
| Net investment income |
(0.47 | ) | (0.30 | ) | (0.32 | ) | (0.35 | ) | (0.31 | ) | ||||||||||
| Net realized gains |
(0.56 | ) | (0.08 | ) | — | — | — | |||||||||||||
| Tax return of capital |
— | — | — | — | — | (2) | ||||||||||||||
| Total dividends and distributions |
(1.03 | ) | (0.38 | ) | (0.32 | ) | (0.35 | ) | (0.31 | ) | ||||||||||
| Net Asset Value, End of Year | $ | 21.20 | $ | 21.55 | $ | 19.95 | $ | 19.25 | $ | 18.97 | ||||||||||
| Total Return† |
3.22 | % | 10.01 | % | 5.34 | % | 3.42 | % | 13.07 | % | ||||||||||
| SUPPLEMENTAL DATA AND RATIOS: |
||||||||||||||||||||
| Net assets, end of year ($ Thousands) |
$ | 80,203 | $ | 85,622 | $ | 81,818 | $ | 85,602 | $ | 92,131 | ||||||||||
| Ratio of net expenses to average net assets* |
0.20 | % | 0.20 | % | 0.20 | % | 0.18 | % | 0.22 | % | ||||||||||
| Ratio of expenses to average net assets, excluding waivers* |
0.25 | % | 0.26 | % | 0.27 | % | 0.20 | % | 0.30 | % | ||||||||||
| Ratio of net investment income to average net assets |
1.04 | % | 1.44 | % | 1.30 | % | 2.18 | % | 1.65 | % | ||||||||||
| Portfolio turnover rate |
15 | % | 9 | % | 7 | % | 9 | % | 8 | % | ||||||||||
| † | Returns shown do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares. |
| * | The expense ratios do not include expenses of the underlying affiliated investment companies. |
| (1) | Per share net investment income and net realized and unrealized gains (losses) calculated using average shares. |
| (2) | Less than $0.005. |
| (3) | As disclosed in Note 1, prior to February 20, 2012, the Funds’ investment advisor was One Compass Advisors, a wholly owned subsidiary of the Presbyterian Church (U.S.A.) Foundation. |
Amounts designated as “—” are $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
| 46 | New Covenant Funds / Annual Report / June 30, 2015 |
June 30, 2015
1. ORGANIZATION
New Covenant Funds (the “Trust”), an open-end, diversified management investment company, was organized as a Delaware business 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
| New Covenant Funds / Annual Report / June 30, 2015 | 47 |
Notes to Financial Statements (Continued)
June 30, 2015
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 investments in underlying affiliated investment companies, which are valued at their respective daily net asset values in accordance with the established NAV of each fund.
In accordance with U.S. GAAP, fair value is defined as the price that a Fund would receive upon selling an investment in an orderly 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, 2015 maximized the use of observable inputs and minimized the use of unobservable inputs.
For the year ended June 30, 2015, there have been no significant changes to the Trust’s fair valuation methodologies. For details of the investment classifications reference the Schedules of Investments.
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.
| 48 | New Covenant Funds / Annual Report / June 30, 2015 |
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.
Repurchase Agreements — To the extent consistent with its investment objective and strategies, a Fund may enter into repurchase agreements which are secured by obligations of the U.S. Government with a bank, broker-dealer or other financial institution. Each repurchase agreement is at least 102% collateralized and marked-to-market. However, in the event of default or bankruptcy by the counterparty to the repurchase agreement, realization of the collateral may by subject to certain costs, losses or delays.
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.
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, 2015, 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.
Forward Treasury Commitments — To the extent consistent with its investment objective and strategies, the Growth Fund and Income Funds 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
| New Covenant Funds / Annual Report / June 30, 2015 | 49 |
Notes to Financial Statements (Continued)
June 30, 2015
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.
Master Limited Partnerships — To the extent consistent with its investment objective and strategies, a Fund may invest in entities commonly referred to as “MLPs” that are generally organized under state law as limited partnerships or limited liability companies. The Funds intend to primarily invest in MLPs receiving partnership taxation treatment under the Internal Revenue Code of 1986 (the “Code”), and whose interests or “units” are traded on securities exchanges like shares of corporate stock. To be treated as a partnership for U.S. federal income tax purposes, an MLP whose units are traded on a securities exchange must receive at least 90% of its income from qualifying sources such as interest, dividends, real estate rents, gain from the sale or disposition of real property, income and gain from mineral or natural resources activities, income and gain from the transportation or storage of certain fuels, and, in certain circumstances, income and gain from commodities or futures, forwards and options with respect to commodities. Mineral or natural resources activities include exploration, development, production, processing, mining, refining, marketing and transportation (including pipelines) of oil and gas, minerals, geothermal energy, fertilizer, timber or industrial source carbon dioxide. An MLP consists of a general partner and limited partners (or in the case of MLPs organized as limited liability companies, a managing member and members). The general partner or managing member typically controls the operations and management of the MLP and has an ownership stake in the partnership. The limited partners or members, through their ownership of limited partner or member interests, provide capital to the entity, are intended to have no role in the operation and management of the entity and receive cash distributions. The MLPs themselves generally do not pay U.S. Federal income taxes. Thus, unlike investors in corporate securities, direct MLP investors are generally not subject to double taxation (i.e., corporate level tax and tax on corporate dividends). Currently, most MLPs operate in the energy and/or natural resources sector.
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. As of June 30, 2015, the Funds did not own any illiquid securities.
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.
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Administration Agreement — 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.
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.
| 50 | New Covenant Funds / Annual Report / June 30, 2015 |
Investment Advisory Agreement — The Trust, on behalf of each Fund, entered into an Investment Advisory Agreement (“Agreement”) with SEI Investments Management Corporation (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 1.02% and 0.80% 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: BlackRock Investment Management, LLC, Brandywine Global Investment Management, LLC, Parametric Portfolio Associates, and Waddell & Reed Investment Management Company. Sustainable Growth Advisers, LP was terminated from the Fund during the year.
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.
Shareholder Service Plan and Agreement — 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 Funds 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 — 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”). In consideration of the services and facilities to be provided by the Distributor or any service provider, each of the New Covenant Growth Fund and the New Covenant Income Fund (if such Fund has issued Shares) will pay to the Distributor a fee, as agreed from time to time, at an annual rate of up to 0.10% (ten basis points) of the average daily net asset value of the New Covenant Growth Fund and the New Covenant Income Fund, respectively, which fee will be computed daily and paid monthly.
Social Witness Services and License Agreement — 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 and 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 interested trustees of the Trust are also officers of the Distributor, the Adviser, the Administrator or NCTC. 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.
| New Covenant Funds / Annual Report / June 30, 2015 | 51 |
Notes to Financial Statements (Continued)
June 30, 2015
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.
Investment in Affiliated Security — The Funds may invest excess cash in the SEI Daily Income Trust (SDIT) Prime Obligation Fund, an affiliated money market fund. The Balanced Funds invest in the Growth Fund and Income Fund.
Interfund Lending — The SEC has granted an exemption that permits the Trust to participate in an interfund lending program (the ‘‘Program’’) with existing or future investment companies registered under the 1940 Act that are advised by SIMC (the ‘‘SEI Funds’’). The Program allows the SEI Funds to lend money to and borrow money from each other for temporary or emergency purposes. Participation in the Program is voluntary for both borrowing and lending funds. Interfund loans may be made only when the rate of interest to be charged is more favorable to the lending fund than an investment in overnight repurchase agreements (‘‘Repo Rate’’), and more favorable to the borrowing fund than the rate of interest that would be charged by a bank for short-term borrowings (‘‘Bank Loan Rate’’). The Bank Loan Rate will be determined using a formula reviewed annually by the SEI Funds’ Board of Trustees. The interest rate imposed on interfund loans is the average of the Repo Rate and the Bank Loan Rate. During the year ended June 30, 2015, the Trust did not participate in interfund lending.
4. DERIVATIVE TRANSACTIONS
The International Swaps and Derivatives Association, Inc. Master Agreements and Credit Support Annexes (“ISDA Master Agreements”) maintain provisions for general obligations, representations, agreements, collateral, and events of default or termination. The occurrence of a specified event of termination may give a counterparty the right to terminate all of its contracts and affect settlement of all outstanding transactions under the applicable ISDA Master Agreement.
To reduce counterparty risk with respect to Over The Counter (“OTC”) transactions, the Funds have entered into master netting arrangements, established within the Fund’s ISDA master agreements, which allow the Funds to make (or to have an entitlement to receive) a single net payment in the event of default (close-out netting) for outstanding payables and receivables with respect to certain OTC positions in swaps for each individual counterparty. In addition, the Funds may require that certain counterparties post cash and/or securities in collateral accounts to cover their net payment obligations for those derivative contracts subject to ISDA Master Agreements. If the counterparty fails to perform under these contracts and agreements, the cash and/or securities will be made available to the Funds.
For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statement of Assets and Liabilities and therefore disclose these derivative assets and derivative liabilities on a gross basis. Bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events.
Collateral terms are contract specific for OTC derivatives. For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market amount of each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Funds or the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Funds, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral. Non-cash collateral pledged by the Funds, if any, is noted in the Schedules of Investments. Generally, the amount of collateral due from or to a party must exceed a minimum transfer amount threshold before a transfer has to be made. To the extent amounts due to the Funds from its counterparties are not fully collateralized, contractually or otherwise, the Funds bear the risk of loss from counterparty nonperformance.
The following is a summary of the variation margin of exchange-traded financial derivative instruments of the Funds as of June 30, 2015 ($ Thousands):
| Financial Derivative Asset | Finanical Derivative Liability | |||||||
| Variation Margin Asset | Variation Margin Liability | |||||||
| Fund | Futures | Futures | ||||||
| Income Fund | $ | 272 | $ | 135 | ||||
| Total Exchange-Traded |
$ | 272 | $ | 135 | ||||
Cash with a total market value of $295 ($ Thousands) has been pledged as collateral for exchange-traded derivative instruments as of June 30, 2015.
| 52 | New Covenant Funds / Annual Report / June 30, 2015 |
5. 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, 2015, were as follows:
| Fund |
Purchases Short-Term |
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 | $ | 432,629 | $ | 478,443 | $ | — | $ | — | ||||||||
| Income Fund | 44,396 | 42,267 | 282,333 | 286,005 | ||||||||||||
| Balanced Growth Fund | 53,216 | 39,936 | — | — | ||||||||||||
| Balanced Income Fund | 12,227 | 14,549 | — | — | ||||||||||||
The following is a summary of the transactions with affiliates for the year ended June 30, 2015:
| Value 6/30/2014 ($ Thousands) |
Purchases at Cost ($ Thousands) |
Proceeds from Sales ($ Thousands) |
Realized Gain (Loss) ($ Thousands) |
Unrealized Gain (Loss) ($ Thousands) |
Value 6/30/2015 ($ Thousands) |
|||||||||||||||||||
| Growth Fund |
||||||||||||||||||||||||
| SDIT Prime Obligation Fund |
$ | 4,580 | $ | 65,553 | $ | (59,383 | ) | $ | — | $ | — | $ | 10,750 | |||||||||||
| Income Fund |
||||||||||||||||||||||||
| SDIT Prime Obligation Fund |
8,822 | 33,391 | (36,569 | ) | — | — | 5,644 | |||||||||||||||||
| Balanced Growth Fund |
||||||||||||||||||||||||
| New Covenant Growth Fund |
186,559 | 38,043 | (24,426 | ) | 1,533 | (21,933 | ) | 179,776 | ||||||||||||||||
| New Covenant Income Fund |
116,964 | 15,173 | (15,509 | ) | (1,051 | ) | 882 | 116,459 | ||||||||||||||||
| SDIT Prime Obligation Fund |
2,477 | 26,257 | (28,211 | ) | — | — | 523 | |||||||||||||||||
| Balanced Income Fund |
||||||||||||||||||||||||
| New Covenant Growth Fund |
30,592 | 7,179 | (6,815 | ) | 1,048 | (4,309 | ) | 27,695 | ||||||||||||||||
| New Covenant Income Fund |
54,295 | 5,048 | (7,735 | ) | (575 | ) | 507 | 51,540 | ||||||||||||||||
| SDIT Prime Obligation Fund |
722 | 12,140 | (11,907 | ) | — | — | 955 | |||||||||||||||||
6. 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.
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, FX gain and loss, distribution re-designation, RIC distribution reclassification, and basis adjustments for investments in partnerships, have been reclassified to/ (from) the following accounts as of June 30, 2015:
| Accumulated Net Realized Gain (Loss) ($ Thousands) |
Undistributed Net Investment Income (Loss) ($ Thousands) |
Paid-in Capital ($ Thousands) |
||||||||||
| Growth Fund |
$ | 1 | $ | (1 | ) | $ | — | |||||
| Income Fund |
(378 | ) | 378 | — | ||||||||
| Balanced Growth Fund |
(5,969 | ) | 5,969 | — | ||||||||
| Balanced Income Fund |
(963 | ) | 963 | — | ||||||||
These reclassifications have no impact on net assets or net asset value per share.
| New Covenant Funds / Annual Report / June 30, 2015 | 53 |
Notes to Financial Statements (Continued)
June 30, 2015
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 Gains ($ Thousands) |
Total Taxable Deductions ($ Thousands) |
Total Distributions Paid ($ Thousands) |
|||||||||||||||||
| Growth Fund | 2015 | $ | 15,913 | $ | 58,109 | $ | 74,022 | $ | 74,022 | |||||||||||
| 2014 | 6,381 | 16,052 | 22,433 | 22,433 | ||||||||||||||||
| Income Fund | 2015 | 4,984 | — | 4,984 | 4,984 | |||||||||||||||
| 2014 | 5,087 | — | 5,087 | 5,087 | ||||||||||||||||
| Balanced Growth Fund | 2015 | 9,579 | 4,482 | 14,061 | 14,061 | |||||||||||||||
| 2014 | 4,300 | — | 4,300 | 4,300 | ||||||||||||||||
| Balanced Income Fund | 2015 | 2,080 | 1,897 | 3,977 | 3,977 | |||||||||||||||
| 2014 | 1,208 | 338 | 1,546 | 1,546 | ||||||||||||||||
As of June 30, 2015, the components of distributable earnings (accumulated losses) were as follows:
| Undistributed Ordinary Income ($ Thousands) |
Undistributed Long-Term Capital Gains ($ Thousands) |
Capital Loss Carryforwards ($ Thousands) |
Unrealized Appreciation ($ Thousands) |
Other Temporary Differences ($ Thousands) |
Total Distributable Earnings (Accumulated Losses) ($ Thousands) |
|||||||||||||||||||
| Growth Fund | $ | 7,217 | $ | 15,293 | $ | — | $ | 48,350 | $ | — | $ | 70,860 | ||||||||||||
| Income Fund | 438 | — | (55,101 | ) | 3,024 | (763 | ) | (52,402 | ) | |||||||||||||||
| Balanced Growth Fund | 498 | 25,218 | — | 37,491 | — | 63,207 | ||||||||||||||||||
| Balanced Income Fund | 128 | 3,963 | — | 7,915 | — | 12,006 | ||||||||||||||||||
For Federal income tax purposes, capital loss carryforwards incurred in taxable years beginning before December 22, 2010 may be carried forwards for a maximum period of eight years and applied against future net realized gains. At June 30, 2015, the breakdown of capital loss carryforwards was as follow:
|
Expires 2017 ($ Thousands) |
Expires 2018 ($ Thousands) |
Expires 2019 ($ Thousands) |
Total
Capital ($ Thousands) |
|||||||||||||
| Income Fund | $ | — | $ | (55,101 | ) | $ | — | $ | (55,101 | ) | ||||||
Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Funds are 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.
During the fiscal year ended June 30, 2015, the following Funds utilized capital loss carryforwards to offset capital gains:
|
Amount Utilized ($ Thousands) |
||||
| Income Fund | $ | 1,622 | ||
For Federal income tax purposes, the cost of securities owned at June 30, 2015, 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, MLP basis adjustments, basis adjustments from investments in registered investment companies and adjustments in treasury inflation protected securities 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 held by the Funds at June 30, 2015, was as follows:
|
Federal Tax Cost ($ Thousands) |
Appreciated Securities ($ Thousands) |
Depreciated Securities ($ Thousands) |
Net Unrealized Appreciation ($ Thousands) |
|||||||||||||
| Growth Fund | $ | 368,085 | $ | 60,159 | $ | (11,801 | ) | $ | 48,358 | |||||||
| Income Fund | 314,190 | 4,925 | (1,675 | ) | 3,250 | |||||||||||
| Balanced Growth Fund | 259,267 | 39,280 | (1,789 | ) | 37,491 | |||||||||||
| Balanced Income Fund | 72,275 | 9,034 | (1,119 | ) | 7,915 | |||||||||||
| 54 | New Covenant Funds / Annual Report / June 30, 2015 |
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, 2015, 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.
7. 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.
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 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. 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.
8. NEW ACCOUNTING PRONOUNCEMENT
In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-07 regarding “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share”. The amendments in this update are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. ASU No. 2015-07 will eliminate the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value (“NAV”) per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. At this time, management is evaluating the implications of ASU No. 2015-07 and its impact on the financial statement disclosures has not yet been determined.
9. 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 disclosures and/or adjustments were required to the financial statements as of June 30, 2015.
| New Covenant Funds / Annual Report / June 30, 2015 | 55 |
Report of Independent Registered Public Accounting Firm
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
NEW COVENANT FUNDS:
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of New Covenant Funds, comprised of 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, 2015, and the related statements of operations for the year then ended, changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the four-year period 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 financial highlights for the year ended June 30, 2011 were audited by other auditors. Those auditors expressed an unqualified opinion on 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 audit 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, 2015, by correspondence with the custodian, transfer agent of the underlying funds, and brokers 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, 2015, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the four-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
August 28, 2015
| 56 | New Covenant Funds / Annual Report / June 30, 2015 |
TRUSTEES AND OFFICERS OF THE TRUST (Unaudited)
The following chart lists Trustees and Officers as of June 30, 2015.
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 68 yrs. old |
Chairman of the Board of Trustees* | since 1982 | Currently performs various services on behalf of SEI for which Mr. Nesher is compensated. | 101 | 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 Global Nominee Ltd., SEI Structured Credit Fund, L.P. | |||||
| William M. Doran One Freedom Valley Drive Oaks, PA 19456 74 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. | 101 | Trustee of The Advisors’ Inner Circle Fund, The Advisors’ Inner Circle Fund II, Trustee of The Advisors’ Inner Circle Fund III, The KP Funds, O’Connor EQUUS, 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. | |||||
| TRUSTEES | ||||||||||
| George J. Sullivan, Jr. One Freedom Valley Drive Oaks, PA 19456 72 yrs. old |
Trustee | since 1996 | Retired since January 2012. Self- Employed Consultant, Newfound Consultants Inc. since April 1997- December 2011. | 101 | Trustee of The Advisors’ Inner Circle Fund, The Advisors’ Inner Circle Fund II, Trustee of The KP Funds, 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. | |||||
| * | 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. |
| 1 | There is no stated term of office for the Trustees of the Trust. However, a Trustee must retire from the Board by the end of the calendar year in which the Trustee turns 75 provided that, although there shall be a presumption that each Trustee attaining such age shall retire, the Board may, if it deems doing so to be consistent with the best interest of the Trust, and with the consent of any Trustee that is eligible for retirement, by unanimous vote, extend the term of such Trustee for successive periods of one year. |
| 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, SEI Insurance Products Trust, New Covenant Funds and SEI Catholic Values Trust. |
| New Covenant Funds / Annual Report / June 30, 2015 | 57 |
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 by Trustee2 |
Other Directorships Held by Trustee | |||||
| TRUSTEES (continued) | ||||||||||
| Nina Lesavoy One Freedom Valley Drive Oaks, PA 19456 57 yrs. old |
Trustee | since 2003 | Founder and Managing Director, Avec Capital since 2008. Managing Director, Cue Capital from March 2002-March 2008. | 101 | Director of SEI Structured Credit Fund, L.P. | |||||
| James M. Williams Valley Drive Oaks, PA 19456 67 yrs. old |
Trustee | since 2004 | Vice President and Chief Investment Officer, J. Paul Getty Trust, Non-Profit Foundation for Visual Arts, since December 2002. | 101 | Trustee/Director of Ariel Mutual Funds, and SEI Strucured Credit Fund, L.P. | |||||
| Mitchell A. Johnson One Freedom Valley Drive Oaks, PA 19456 73 yrs. old |
Trustee | Since 2007 | Private Investor since 1994. | 101 | Trustee of the Advisors’ Inner Circle Fund, The Advisors’ Inner Circle Fund II, The KP Funds, and Bishop Street Funds | |||||
| Hubert L. Harris, Jr. One Freedom Valley Drive Oaks, PA 19456 71 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. | 101 | 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 68 yrs. old |
President and CEO | since 2005 | Currently performs various services on behalf of SEI for which Mr. Nesher is compensated. | N/A | N/A | |||||
| Arthur Ramanjulu Valley Drive Oaks, PA 19456 51 yrs. old |
Controller and Chief Financial Officer | since 2015 | Director, Funds Accounting, SEI Investments Global Funds Services (March 2015); Senior Manager, Funds Accounting, SEI Investments Global Funds Services (March 2007 to February 2015). | N/A | N/A | |||||
| Russell Emery One Freedom Valley Drive Oaks, PA 19456 52 yrs. old |
Chief Compliance Officer | since 2006 | Chief Compliance Officer of SEI Institutional Managed Trust, SEI Asset Allocation Trust, SEI Daily Income 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, Chief Compliance Officer of The Advisors’ Inner Circle Fund III, O’Connor EQUUS and Winton Series Trust since 2014 and Bishop Street Funds, since March 2006. Chief Compliance Officer of SEI Structured Credit Fund, LP since June 2007. Chief Compliance Officer of Adviser Managed Trust since December 2010. Chief Compliance Officer of New Covenant Funds since February 2012. Chief Compliance Officer of SEI Insurance Products Trust and The KP Funds since 2013. Chief Compliance Officer of SEI Catholic Values Trust since 2015. | N/A | N/A | |||||
| Timothy D. Barto One Freedom Valley Drive Oaks, PA 19456 47 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 | |||||
| 58 | New Covenant Funds / Annual Report / June 30, 2015 |
| 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 by Trustee2 |
Other Directorships Held by Trustee | |||||
| OFFICERS (continued) | ||||||||||
| Aaron Buser One Freedom Valley Drive Oaks, PA 19456 44 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 39 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. Attorney, Pepper Hamilton, LLP (law firm), September 2001-May 2005. | N/A | N/A | |||||
| Stephen G. MacRae One Freedom Valley Drive Oaks, PA 19456 47 yrs. old |
Vice President | since 2012 | Director of Global Investment Product Management, January 2004 to present. | N/A | N/A | |||||
| Bridget E. Sudall One Freedom Valley Drive Oaks, PA 19456 35 yrs. old |
Anti-Money Laundering Compliance Officer and Privacy Officer | Since 2015 | Anti-Money Laundering Compliance Officer and Privacy Officer since 2015. Senior Associate and AML Officer, Morgan Stanley Alternative Investment Partners, April 2011 to March 2015. Investor Services Team Lead, Morgan Stanley Alternative Investment Partners, July 2007 to April 2011. | 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, SEI Insurance Products Trust, New Covenant Funds and SEI Catholic Values Trust. |
| New Covenant Funds / Annual Report / June 30, 2015 | 59 |
June 30, 2015 (Unaudited)
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 its 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 (January 1, 2015 to June 30, 2015).
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 “Expenses 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 1/1/15 |
Ending Account Value |
Annualized Expense Ratios |
Expenses Paid During Period* |
|||||||||||||
| Growth Fund |
||||||||||||||||
| Actual Fund Return |
$ | 1,000.00 | $ | 1,017.80 | 1.02 | % | $ | 5.09 | ||||||||
| Hypothetical 5% Return |
$ | 1,000.00 | $ | 1,019.75 | 1.02 | % | $ | 5.09 | ||||||||
| Income Fund |
||||||||||||||||
| Actual Fund Return |
$ | 1,000.00 | $ | 1,006.90 | 0.80 | % | $ | 3.96 | ||||||||
| Hypothetical 5% Return |
$ | 1,000.00 | $ | 1,020.84 | 0.80 | % | $ | 3.99 | ||||||||
| Balanced Growth Fund† |
||||||||||||||||
| Actual Fund Return |
$ | 1,000.00 | $ | 1,013.10 | 0.14 | % | $ | 0.68 | ||||||||
| Hypothetical 5% Return |
$ | 1,000.00 | $ | 1,024.12 | 0.14 | % | $ | 0.68 | ||||||||
| Balanced Income Fund† |
||||||||||||||||
| Actual Fund Return |
$ | 1,000.00 | $ | 1,010.30 | 0.20 | % | $ | 0.98 | ||||||||
| Hypothetical 5% Return |
$ | 1,000.00 | $ | 1,023.82 | 0.20 | % | $ | 0.98 | ||||||||
| * | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period shown). |
| † | Excludes expenses of the underlying affiliated investment companies. |
| 60 | New Covenant Funds / Annual Report / June 30, 2015 |
Board of Trustees Considerations in Approving the
Advisory and Sub-Advisory
Agreements (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 is responsible for the investment advisory services provided to the series of the Trust (the “Funds”). Pursuant to separate sub-advisory agreements with SIMC (the “Sub-Advisory Agreements” and, together with the Advisory Agreement, the “Investment Advisory Agreements”), 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”) provide security selection and certain other advisory services with respect to 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 these 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 Investment 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 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 Investment Advisory Agreement.
Consistent with these responsibilities, the Board calls and holds meetings each year to consider whether to approve new and/or renew existing Investment Advisory Agreements between the Trust and SIMC and SIMC and the Sub-Advisers with respect to the Funds of the Trust. In preparation for these meetings, the Board requests and reviews a wide variety of materials provided by SIMC and the Sub-Advisers, including information about SIMC’s and the Sub-Advisers’ affiliates, personnel and operations and the services provided pursuant to the Investment Advisory Agreements. The Board also receives data from third parties. This information is 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 receive a memorandum from counsel regarding the responsibilities of Trustees in connection with their consideration of whether to approve the Trust’s Investment Advisory Agreements. Finally, the Independent Trustees receive advice from independent counsel to the Independent Trustees, meet in executive sessions outside the presence of Fund management and participate in question and answer sessions with representatives of SIMC and the Sub-Advisers.
Specifically, during the course of the Trust’s fiscal year, the Board requested and received written materials from SIMC and the Sub-Advisers regarding: (i) the quality of SIMC’s and the Sub-Advisers’ investment management and other services; (ii) SIMC’s and the Sub-Advisers’ investment management personnel; (iii) SIMC’s and the Sub-Advisers’ operations and financial condition; (iv) SIMC’s and the Sub-Advisers’ brokerage practices (including any soft dollar arrangements) and investment strategies; (v) the level of the advisory fees that SIMC charges the Funds and the level of the sub-advisory fees that SIMC pays the Sub-Advisers, compared with fees each charge to comparable accounts; (vi) the advisory fees charged by SIMC and the Funds’ overall fees and operating expenses compared with peer groups of mutual funds prepared by Lipper, an independent provider of investment company data; (vii) the level of SIMC’s and the Sub-Advisers’ profitability from their Fund-related operations; (viii) SIMC’s and the Sub-Advisers’ compliance program, including a description of material compliance matters and material compliance violations; (ix) SIMC’s potential economies of scale; (x) SIMC’s and the Sub-Advisers’ policies on and compliance procedures for personal securities transactions; (xi) SIMC’s and the Sub-Advisers’ expertise and resources in domestic and/or international financial markets; and (xii) the Funds’ performance over various periods of time compared with peer groups of mutual funds prepared by Lipper and the Funds’ benchmark indices.
| New Covenant Funds / Annual Report / June 30, 2015 | 61 |
Board of Trustees Considerations in Approving the
Advisory and Sub-Advisory Agreements (Unaudited) (Continued)
At the March 24-25, 2015 meeting of the Board of Trustees, the Trustees, including a majority of the Independent Trustees, approved the renewal of the Advisory Agreement. Also, each Sub-Advisory Agreement (other than certain of those operating under an initial two-year term) was either initially approved or, if the Sub-Advisory Agreement was already in effect, renewed at a meeting of the Board of Trustees during the course of the Trust’s fiscal year. In each case, the Board’s approvals were based on its consideration and evaluation of the factors described above, as discussed at the meetings and at prior meetings. The following discusses some, but not all, of the factors that were considered by the Board in connection with its assessment of the Investment Advisory Agreements.
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by SIMC and the Sub-Advisers to the Funds and the resources of SIMC and the Sub-Advisers and their affiliates dedicated to the Funds. In this regard, the Trustees evaluated, among other things, SIMC’s and each Sub-Adviser’s personnel, experience, track record and compliance program. Following evaluation, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of services provided by SIMC and the Sub-Advisers to the Funds and the resources of SIMC and the Sub-Advisers and their affiliates dedicated to the Funds were sufficient to support renewal of the Investment Advisory Agreements. In addition to advisory services, the Board considered the nature and quality of certain administrative, transfer agency and other non-investment advisory services provided to the Funds by SIMC and/or its affiliates.
Performance. In determining whether to renew SIMC’s Advisory Agreement, the Trustees considered the Funds’ performance relative to their peer groups and appropriate indices/benchmarks. The Trustees reviewed performance information for each Fund, noting that they receive performance reports that permit them to monitor each Fund’s performance at board meetings throughout the year. As part of this review, the Trustees considered the composition of each peer group and selection criteria. In assessing Fund performance, the Trustees considered a report compiled by Lipper, an independent third-party, which was engaged to prepare an assessment of the Funds in connection with the renewal of the Advisory Agreement (the “Lipper Report”). The Lipper Report included metrics on risk analysis, volatility versus total return, net total return and performance consistency for the Funds and a universe of comparable funds. Based on the materials considered and discussed at the meetings, the Trustees found Fund performance satisfactory, or, where performance was materially below the benchmark and/or peer group, the Trustees were satisfied of the reasons provided to explain such performance. In connection with the approval or renewal of Sub-Advisory Agreements, the Board considered the performance of the Sub-Adviser relative to appropriate indices/benchmarks. Following evaluation, the Board concluded that, within the context of its full deliberations, the performance of the Funds was sufficient to support renewal of SIMC’s Advisory Agreement, and the performance of each Sub-Adviser was sufficient to support approval or renewal of the Sub-Advisory Agreement.
Fees. With respect to the Funds’ expenses under the Investment Advisory Agreements, the Trustees considered the rate of compensation called for by the Investment Advisory Agreements and the Funds’ net operating expense ratio in comparison to those of the Funds’ respective peer groups. In assessing Fund expenses, the Trustees considered the information in the Lipper Report, which included various metrics related to fund expenses, including, but not limited to, contractual management fees at various fee levels, actual management fees, and actual total expenses (including underlying fund expenses) for the Funds and a universe of comparable funds. Based on the materials considered and discussion at the meetings, the Trustees further determined that fees were either shown to be below the peer average in the comparative fee analysis, or that there was a reasonable basis for the fee level. The Trustees also considered the effects of SIMC’s voluntary waiver of management and other fees to prevent total Fund expenses from exceeding a specified cap and concluded that SIMC, through waivers, has maintained the Funds’ net operating expenses at competitive levels for its distribution channels. In determining the appropriateness of fees, the Board also took into consideration the impact of fees incurred indirectly by the Funds as a result of investments into underlying funds, including funds from which SIMC or its affiliates earn fees. The Board also took into consideration compensation earned from the Funds by SIMC or its affiliates for non-advisory services, such as administration, transfer agency, shareholder services or brokerage, and considered whether SIMC and its affiliates may have realized other benefits from their relationship with the Funds, such as any research and brokerage services received under soft dollar arrangements. When
| 62 | New Covenant Funds / Annual Report / June 30, 2015 |
considering fees paid to Sub-Advisers, the Board took into account the fact that the Sub-Advisers are compensated by SIMC and not by the Funds directly, and that such compensation with respect to any unaffiliated Sub-Adviser reflects an arms-length negotiation between the Sub-Adviser and SIMC. Following evaluation, the Board concluded that, within the context of its full deliberations, the expenses of the Funds are reasonable and supported renewal of the Investment Advisory Agreements. The Board also considered whether the Sub-Advisers and their affiliates may have realized other benefits from their relationship with the Funds, such as any research and brokerage services received under soft dollar arrangements.
Profitability. With regard to profitability, the Trustees considered compensation flowing to SIMC and the Sub-Advisers and their affiliates, directly or indirectly. The Trustees considered whether the levels of compensation and profitability were reasonable. As with the fee levels, when considering the profitability of the Sub-Advisers, the Board took into account the fact that compensation with respect to any unaffiliated Sub-Adviser reflects an arms-length negotiation between the Sub-Adviser and SIMC. In connection with the approval or renewal of each Sub-Advisory Agreement, the Board also took into consideration the impact that the fees paid to the Sub-Adviser have on SIMC’s advisory fee margin and profitability. Based on this evaluation, the Board concluded that, within the context of its full deliberations, the profitability of each of SIMC and the Sub-Advisers is reasonable and supported renewal of the Investment Advisory Agreements.
Economies of Scale. With respect to the Advisory Agreement, the Trustees considered whether any economies of scale were being realized by SIMC and their affiliates and, if so, whether the benefits of such economies of scale 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. The Trustees recognized that economies of scale are difficult to identify and quantify and are rarely identifiable on a fund-by-fund basis. Based on this evaluation, the Board determined that the fees were reasonable in light of the information that was provided by SIMC with respect to economies of scale.
Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, with the assistance of Fund counsel and Independent Trustees’ counsel, unanimously approved the approval or renewal, as applicable, of the Investment Advisory Agreements and concluded that the compensation under the Investment 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 its deliberations, the Board did not identify any particular factor (or conclusion with respect thereto) or single piece of information that was all-important, controlling or determinative of its decision, but considered all of the factors together, and each Trustee may have attributed different weights to the various factors (and conclusions with respect thereto) and information.
| New Covenant Funds / Annual Report / June 30, 2015 | 63 |
Notice to Shareholders (Unaudited)
For shareholders who do not have a June 30, 2015 taxable year end, this notice is for information purposes only. For shareholders with a June 30, 2015 taxable year end, please consult your tax adviser as to the pertinence of this notice.
For the fiscal year ended June 30, 2015, the Funds are designating long term and qualifying dividend income with regard to distributions paid during the year as follows:
| Fund |
(A) (Tax Basis) |
(B) Ordinary Income Distributions (Tax Basis) |
Total Distributions (Tax Basis) |
(C) Dividends |
(D) Qualifying |
(E) U.S. |
Interest Related Dividends (4) |
Short-Term Capital Gain Dividends (5) |
||||||||||||||||||||||||
| New Covenant Growth Fund | 78.50 | % | 21.50 | % | 100.00 | % | 36.72 | % | 32.73 | % | 0.00 | % | 0.02 | % | 100.00 | % | ||||||||||||||||
| New Covenant Income Fund | 0.00 | % | 100.00 | % | 100.00 | % | 0.00 | % | 0.00 | % | 11.32 | % | 93.71 | % | 0.00 | % | ||||||||||||||||
| New Covenant Balanced Growth Fund |
31.87 | % | 68.13 | % | 100.00 | % | 25.57 | % | 26.27 | % | 0.00 | % | 0.00 | % | 100.00 | % | ||||||||||||||||
| New Covenant Balanced Income Fund |
47.71 | % | 52.29 | % | 100.00 | % | 23.61 | % | 19.99 | % | 0.00 | % | 0.00 | % | 100.00 | % | ||||||||||||||||
| (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, 2014. Complete information will be computed and reported in conjunction with your 2015 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 ordinary income distributions for calendar year ended 2015 that are 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 for the calendar year ended 2015 that are 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.
| 64 | New Covenant Funds / Annual Report / June 30, 2015 |
NEW COVENANT FUNDS ANNUAL REPORT JUNE 30, 2015
One Freedom Valley Drive
Oaks, Pennsylvania 19456
NCF-F-001 (6/15)
| 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”) related to the Registrant.
KPMG billed the Registrant aggregate fees for services rendered to the Registrant for the fiscal years 2015 and 2014 as follows:
| Fiscal 2015 | Fiscal 2014 | |||||||||||||||||||||||||
| 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) | $ | 66,000 | N/A | $ | 0 | $ | 60,500 | N/A | $ | 0 | |||||||||||||||
| (b) |
Audit-Related Fees | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||
| (c) |
Tax Fees(3) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 23,000 | $ | 0 | |||||||||||||
| (d) |
All Other Fees(2) | $ | 0 | $ | 240,350 | $ | 0 | $ | 0 | $ | 237,000 | $ | 0 | |||||||||||||
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) | Tax fees include amounts related to tax compliance and consulting services |
(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 applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:
| Fiscal 2015 |
Fiscal 2014 |
|||||||
| Audit-Related Fees |
0 | % | 0 | % | ||||
| Tax Fees |
0 | % | 0 | % | ||||
| All Other Fees |
0 | % | 0 | % | ||||
(f) Not Applicable.
(g)(1) The aggregate non-audit fees and services billed by KPMG for the fiscal years 2015 and 2014 were $240,350 and $237,000, respectively. 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 and tax compliance and consulting services for various service affiliates of the registrant.
(h) During the past fiscal year, the Registrant’s principal accountant provided certain non-audit services to the Registrant’s investment adviser or to entities controlling, controlled by, or under common control with the Registrant’s investment adviser that provide ongoing services to the 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 the Registrant’s Board of Trustees reviewed and considered these non-audit services provided by the Registrant’s principal accountant to the 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”)) (17 CFR 270.30a-3(c)) are effective, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 (17 CFR 240.13a-15(b) or 240.15d-15(b)) 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) (17 CFR 270.30a-3(d)) 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 8, 2015
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 8, 2015
| By | /s/ Arthur Ramanjulu | |||||
| Arthur Ramanjulu | ||||||
| Controller & CFO | ||||||
Date: September 8, 2015