SEC Company Response from NEW RIVER FUNDS (CIK 0001228431) — Dec 23, 2004
NEW RIVER FUNDS (CIK 0001228431)
Date: Dec. 23, 2004 · CIK: 0001228431 · Accession: 0000910472-04-000169
AI Filing Summary & Sentiment
Letter
Division of Investment Management Securities and Exchange Commission Washington, DC 20549 Re: 485(a) Amendment to Form N-1A filed October 29, 2004 for New River Funds; File Number: 811-21384____________________________________________
Dear Mr. Sandoe:
On behalf of the New River Funds (the “Trust”), this letter responds to the comments you provided by telephone to Bibb L. Strench, Esq. of Sutherland Asbill & Brennan LLP (“Sutherland”) on December 12, 2004, with respect to the above-referenced filing (“October 29, 2004 485(a) Filing”). Sutherland is legal counsel to the Trust.
Your comments are set forth below in italics, and each is followed by the Trust’s response. Attached is a black-lined version showing changes made to the October 29, 2004 485(a) Filing in response to these comments and for other reasons. We plan to file 485(b) amendment to the Trust’s registration statement on December 28, 2004.
1.
In the description of the New River Core Equity Fund’s principal investment strategies, there is a statement indicating that:
[T]he Fund will invest at least 80% of its assets in equity securities, including securities with an equity component such as preferred stock, warrants, rights or other securities that are convertible into or exchangeable for shares of common stock.
Please clarify whether Fund investments in “warrants, rights or other securities that are convertible into or exchangeable for shares of common stock” count toward the 80% threshold for purposes of the Rule 35d-1 name test.
To avoid ambiguity, the phrase “warrants, rights or other securities that are convertible into or exchangeable for shares of common stock” has been moved from the sentence referencing the Rule 35d-1 name test to a new sentence.
2.
The description of the New River Small Cap Fund’s (the “Small Cap Fund”) principal investment strategies indicates that the Small Cap Fund maintains a diversified portfolio. On a subsequent page in the Prospectus, the Small Cap Fund is described as non-diversified. Please correct this inconsistency.
The correction has been made; the sentence in the principal investment strategies now states that the Small Cap Fund maintains a non-diversified portfolio.
3.
Footnote 1 to the fee table indicates that “[y]ou may be charged a $10.00 fee for wire redemptions.” Should this sentence be revised to indicate that “[y]ou will be charged a $10.00 fee for wire redemptions”?
This sentence has been revised to indicate that a $10.00 fee will be charged for wire redemptions.
4.
The fee examples state that “the 1 Year example and the first year of the 3 Year example below reflect the effect of both of the manager’s expense limitation agreements as stated in footnote 3 to the table above.” The second of these expense limitations is lower than the previous limitation, and the previous limitation should have no effect on these figures. Because the second expense limitation supersedes the previous one, it is not necessary to discuss the previous expense limitation.
The reference in footnote 3 to the previous expense limitation has been deleted, and we have revised the text following the heading “Fee Examples” to indicate that the examples reflect the expense limitation. Because the previous expense limitation agreement has no effect on these figures, reference to the previous limitation agreement has been deleted.
5.
The sentence between the two fee example tables states that “[i]f the expense limitation agreement were discontinued, the 1 Year and 3 Year example amounts would be . . . .” (Table omitted.) Because the expense limitation agreement is contractually in effect until December 2005, the 1 Year numbers would not be affected.
A footnote has been added to the Fee Examples section to make it clear that only the 1 Year example and only the first year of the 3 Years, 5 Years and 10 Years examples reflect the effect of the expense limitation agreement, and that the figures stated in the example for the second through tenth years assume that the expense limitation was not continued beyond the first year.
6.
In the portion of the fund management description that pertains to sub-adviser Cook Mayer Taylor, please make it clear that Cook Mayer Taylor is the name under which Michael W. Cook Asset Management, Inc. is doing business.
We have revised this paragraph to indicate clearly that Michael W. Cook Asset Management, Inc. does business as Cook Mayer Taylor.
7.
In the second paragraph of the discussion of valuation of fund shares, please indicate who the Fair Value Committee comprises (i.e., board members, or fund management and board members). Please add a statement indicating whether the Fair Value Committee makes its determinations pursuant to procedures adopted by the Trust’s Board of Trustees.
We have revised this paragraph to indicate that (a) the Fair Value Committee currently consists of one member of the Trust’s Board of Trustees and certain officers of Third Security, LLC, and (b) that the Fair Value Committee makes its determinations pursuant to procedures adopted by the Trust’s Board of Trustees.
8.
In the second paragraph of the discussion regarding anti-money laundering and customer identification, please make the following corrections to the sentence that reads “Until you provide the information or documents we need, we may not be able to open and account or effect any additional transactions for you”:
•
Replace “and” with “an.”
•
Delete the word “additional.”
We have edited this sentence to read as follows: “Until you provide the information or documents we need, we may not be able to open an account or effect any transactions for you.”
1.
In the discussion regarding anti-money laundering and customer identification, please modify the language concerning the context of “when you open an account.”
This paragraph has been revised in light of your comment. We have replaced the phrase “When you open an account” with the phrase “When an investor seeks to invest in a Fund.”
2.
In the discussion of the Trust’s general transaction policies, consider deleting the words “or cancel” from the statement indicating that the funds reserve the right to “[r]eject or cancel any purchase or exchange request . . . for any reason.”
We have deleted the words “or cancel” from this sentence.
3.
In the discussion regarding market timing, delete the word “other” from the first sentence of the second paragraph. In addition, address the following issues in this section:
•
Whether the Funds discourage frequent purchases and redemptions of Fund shares by Fund shareholders. (Item 6(e)(4)(i))
•
Whether the Funds accommodate frequent purchases and redemptions of Fund shares by Fund shareholders. (Item 6(e)(4)(ii))
•
Whether each restriction imposed by the Funds to prevent or minimize frequent purchases or redemptions applies uniformly in all cases or whether the restriction will not be applied in certain circumstances. Describe any circumstances under which a restriction will not be applied. (Item 6(e)(4)(iii))
We have added text to this section that addresses the issues you raised.
1.
The final sentence of the discussion regarding market timing states that “the exchange limit may be modified for accounts in certain so-called supermarket programs and retirement plans because of plan exchange limits or Department of Labor regulations.” Please explain how this can be done without violating Section 22(e) of the Investment Company Act of 1940. In addition, this sentence does not describe the exchange limit.
This sentence has been deleted.
2.
In the third paragraph regarding market timing, there is a statement indicating with respect to shares held through omnibus accounts that “a significant percentage of shareholders’ account activity may not be monitored by the Funds.” Please clarify this statement to indicate that the account activity is monitored, but that excessive trading practices might not be detected. Also, please indicate whether the Funds’ policies and procedures with respect to frequent purchases and redemptions of Fund shares are applicable to omnibus accounts.
We have revised the section of the Prospectus regarding market timing to address your comments.
3.
In the “Fundamental Investment Restrictions and Policies” section of the Statement of Additional Information, the second enumerated paragraph states that the industry concentration restriction “does not limit a Fund from investing in obligations issued or guaranteed by the U.S. government, or its agencies or instrumentalities or in tax-exempt securities or certificates of deposit.” Please delete “or certificates of deposit.”
We have deleted “or certificates of deposit” from this sentence.
4.
The discussion in the Statement of Additional Information regarding the disclosure of portfolio holdings is insufficient. Please revise it to address the requirements of Item 11(f).
This section has been substantially revised to address the requirements of Item 11(f).
5.
In the chart listing trustees and officers in the Statement of Additional Information, there appears to be a gap in Doit Koppler’s occupational history.
Doit Koppler was employed by GIV Holdings, Inc. from 1992 to August 31, 2000. He joined Third Security, LLC in April 2001. The gap was a result of a vacation taken by Mr. Koppler.
6.
In the Funds’ financial statements, the expense examples need to indicate conclusions reached by the Board regarding how the expenses compare to those of other funds in the relevant peer group.
We have revised this disclosure to address your comment.
The Trust acknowledges that:
•
The Trust is responsible for the adequacy and accuracy of the disclosure in the filings;
•
Staff comments or changes to disclosure in response to staff comments in the filings reviewed by the staff do not foreclose the Securities and Exchange Commission from taking any action with respect to the filing; and
•
The Trust may not assert staff comments as a defense in any proceeding initiated by the Securities and Exchange Commission or any person under the federal securities laws of the United States.
* * *
We hope that this letter is responsive to your comments. If you have any questions regarding the information set out above or any additional comments, please call the undersigned at (540) 633-7909 or Bibb L. Strench at (202) 383-0509.
Sincerely,
/s/ Doit L. Koppler II
Show Raw Text
CORRESP
1
ltrseccomments.htm
April 29, 1997
New River Funds
December 23, 2004
Mr. Christian Sandoe
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re:
485(a) Amendment to Form N-1A filed October 29, 2004 for New River Funds;
File Number: 811-21384____________________________________________
Dear Mr. Sandoe:
On behalf of the New River Funds (the “Trust”), this letter responds to the comments you provided by telephone to Bibb L. Strench, Esq. of Sutherland Asbill & Brennan LLP (“Sutherland”) on December 12, 2004, with respect to the above-referenced filing (“October 29, 2004 485(a) Filing”). Sutherland is legal counsel to the Trust.
Your comments are set forth below in italics, and each is followed by the Trust’s response. Attached is a black-lined version showing changes made to the October 29, 2004 485(a) Filing in response to these comments and for other reasons. We plan to file 485(b) amendment to the Trust’s registration statement on December 28, 2004.
1.
In the description of the New River Core Equity Fund’s principal investment strategies, there is a statement indicating that:
[T]he Fund will invest at least 80% of its assets in equity securities, including securities with an equity component such as preferred stock, warrants, rights or other securities that are convertible into or exchangeable for shares of common stock.
Please clarify whether Fund investments in “warrants, rights or other securities that are convertible into or exchangeable for shares of common stock” count toward the 80% threshold for purposes of the Rule 35d-1 name test.
To avoid ambiguity, the phrase “warrants, rights or other securities that are convertible into or exchangeable for shares of common stock” has been moved from the sentence referencing the Rule 35d-1 name test to a new sentence.
2.
The description of the New River Small Cap Fund’s (the “Small Cap Fund”) principal investment strategies indicates that the Small Cap Fund maintains a diversified portfolio. On a subsequent page in the Prospectus, the Small Cap Fund is described as non-diversified. Please correct this inconsistency.
The correction has been made; the sentence in the principal investment strategies now states that the Small Cap Fund maintains a non-diversified portfolio.
3.
Footnote 1 to the fee table indicates that “[y]ou may be charged a $10.00 fee for wire redemptions.” Should this sentence be revised to indicate that “[y]ou will be charged a $10.00 fee for wire redemptions”?
This sentence has been revised to indicate that a $10.00 fee will be charged for wire redemptions.
4.
The fee examples state that “the 1 Year example and the first year of the 3 Year example below reflect the effect of both of the manager’s expense limitation agreements as stated in footnote 3 to the table above.” The second of these expense limitations is lower than the previous limitation, and the previous limitation should have no effect on these figures. Because the second expense limitation supersedes the previous one, it is not necessary to discuss the previous expense limitation.
The reference in footnote 3 to the previous expense limitation has been deleted, and we have revised the text following the heading “Fee Examples” to indicate that the examples reflect the expense limitation. Because the previous expense limitation agreement has no effect on these figures, reference to the previous limitation agreement has been deleted.
5.
The sentence between the two fee example tables states that “[i]f the expense limitation agreement were discontinued, the 1 Year and 3 Year example amounts would be . . . .” (Table omitted.) Because the expense limitation agreement is contractually in effect until December 2005, the 1 Year numbers would not be affected.
A footnote has been added to the Fee Examples section to make it clear that only the 1 Year example and only the first year of the 3 Years, 5 Years and 10 Years examples reflect the effect of the expense limitation agreement, and that the figures stated in the example for the second through tenth years assume that the expense limitation was not continued beyond the first year.
6.
In the portion of the fund management description that pertains to sub-adviser Cook Mayer Taylor, please make it clear that Cook Mayer Taylor is the name under which Michael W. Cook Asset Management, Inc. is doing business.
We have revised this paragraph to indicate clearly that Michael W. Cook Asset Management, Inc. does business as Cook Mayer Taylor.
7.
In the second paragraph of the discussion of valuation of fund shares, please indicate who the Fair Value Committee comprises (i.e., board members, or fund management and board members). Please add a statement indicating whether the Fair Value Committee makes its determinations pursuant to procedures adopted by the Trust’s Board of Trustees.
We have revised this paragraph to indicate that (a) the Fair Value Committee currently consists of one member of the Trust’s Board of Trustees and certain officers of Third Security, LLC, and (b) that the Fair Value Committee makes its determinations pursuant to procedures adopted by the Trust’s Board of Trustees.
8.
In the second paragraph of the discussion regarding anti-money laundering and customer identification, please make the following corrections to the sentence that reads “Until you provide the information or documents we need, we may not be able to open and account or effect any additional transactions for you”:
•
Replace “and” with “an.”
•
Delete the word “additional.”
We have edited this sentence to read as follows: “Until you provide the information or documents we need, we may not be able to open an account or effect any transactions for you.”
1.
In the discussion regarding anti-money laundering and customer identification, please modify the language concerning the context of “when you open an account.”
This paragraph has been revised in light of your comment. We have replaced the phrase “When you open an account” with the phrase “When an investor seeks to invest in a Fund.”
2.
In the discussion of the Trust’s general transaction policies, consider deleting the words “or cancel” from the statement indicating that the funds reserve the right to “[r]eject or cancel any purchase or exchange request . . . for any reason.”
We have deleted the words “or cancel” from this sentence.
3.
In the discussion regarding market timing, delete the word “other” from the first sentence of the second paragraph. In addition, address the following issues in this section:
•
Whether the Funds discourage frequent purchases and redemptions of Fund shares by Fund shareholders. (Item 6(e)(4)(i))
•
Whether the Funds accommodate frequent purchases and redemptions of Fund shares by Fund shareholders. (Item 6(e)(4)(ii))
•
Whether each restriction imposed by the Funds to prevent or minimize frequent purchases or redemptions applies uniformly in all cases or whether the restriction will not be applied in certain circumstances. Describe any circumstances under which a restriction will not be applied. (Item 6(e)(4)(iii))
We have added text to this section that addresses the issues you raised.
1.
The final sentence of the discussion regarding market timing states that “the exchange limit may be modified for accounts in certain so-called supermarket programs and retirement plans because of plan exchange limits or Department of Labor regulations.” Please explain how this can be done without violating Section 22(e) of the Investment Company Act of 1940. In addition, this sentence does not describe the exchange limit.
This sentence has been deleted.
2.
In the third paragraph regarding market timing, there is a statement indicating with respect to shares held through omnibus accounts that “a significant percentage of shareholders’ account activity may not be monitored by the Funds.” Please clarify this statement to indicate that the account activity is monitored, but that excessive trading practices might not be detected. Also, please indicate whether the Funds’ policies and procedures with respect to frequent purchases and redemptions of Fund shares are applicable to omnibus accounts.
We have revised the section of the Prospectus regarding market timing to address your comments.
3.
In the “Fundamental Investment Restrictions and Policies” section of the Statement of Additional Information, the second enumerated paragraph states that the industry concentration restriction “does not limit a Fund from investing in obligations issued or guaranteed by the U.S. government, or its agencies or instrumentalities or in tax-exempt securities or certificates of deposit.” Please delete “or certificates of deposit.”
We have deleted “or certificates of deposit” from this sentence.
4.
The discussion in the Statement of Additional Information regarding the disclosure of portfolio holdings is insufficient. Please revise it to address the requirements of Item 11(f).
This section has been substantially revised to address the requirements of Item 11(f).
5.
In the chart listing trustees and officers in the Statement of Additional Information, there appears to be a gap in Doit Koppler’s occupational history.
Doit Koppler was employed by GIV Holdings, Inc. from 1992 to August 31, 2000. He joined Third Security, LLC in April 2001. The gap was a result of a vacation taken by Mr. Koppler.
6.
In the Funds’ financial statements, the expense examples need to indicate conclusions reached by the Board regarding how the expenses compare to those of other funds in the relevant peer group.
We have revised this disclosure to address your comment.
The Trust acknowledges that:
•
The Trust is responsible for the adequacy and accuracy of the disclosure in the filings;
•
Staff comments or changes to disclosure in response to staff comments in the filings reviewed by the staff do not foreclose the Securities and Exchange Commission from taking any action with respect to the filing; and
•
The Trust may not assert staff comments as a defense in any proceeding initiated by the Securities and Exchange Commission or any person under the federal securities laws of the United States.
* * *
We hope that this letter is responsive to your comments. If you have any questions regarding the information set out above or any additional comments, please call the undersigned at (540) 633-7909 or Bibb L. Strench at (202) 383-0509.
Sincerely,
/s/ Doit L. Koppler II
Doit L. Koppler II
Chairman, Chief Financial Officer and Treasurer
New River Funds
cc:
Emile Molineaux
Gemini Fund Services, LLC
Bibb L. Strench, Esq.
Sutherland Asbill & Brennan LLP
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
Prospectus
January 1, 2005
NEW RIVER FUNDS
New River Small Cap Fund
New River Core Equity Fund
1-866-NRA-FUND (1-866-672-3863)
www.newriverfunds.com
Investment Manager:
New River Advisers LLC
1881 Grove Avenue
Radford, VA 24141
As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved of these securities or determined if this prospectus is accurate or complete. It is a criminal offense to suggest otherwise.
#
OVERVIEW
New River Funds are a family of no-load mutual funds managed by New River Advisers LLC in Radford, Virginia. Originally conceived as investment options for clients of Third Security, LLC in Radford, Virginia and its affiliated investment advisory firms, Cook Mayer Taylor in Memphis, Tennessee and
Howe and Rusling, Inc., in Rochester, New York the following two New River Funds (each a “Fund,” collectively “Funds”)
are now available to the public for investment:
The New River Small Cap Fund seeks to provide long-term capital appreciation. The Fund typically invests in a non-diversified portfolio of common stocks of smaller capitalization U.S. companies that are selected using a research-driven, value-oriented investment strategy. The Fund is intended to serve as an option for the more aggressive equity portion of an investor’s overall investment plan.
The New River Core Equity Fund seeks to provide long-term capital appreciation. The Fund typically invests in a diversified portfolio of common stocks of medium and large capitalization companies that are selected to serve as the core equity portion of an investor’s overall investment plan.
TABLE OF CONTENTS
Investment Goals, Strategies and Risks
……………………………………………………………………
2
New River Small Cap Fund……………………………………………………………………………….
2
New River Core Equity Fund……………………………………………………………………………...
4
Fees and Expenses
…………………………………………………………………………………………...
7
Management of the Funds
………………………………………………………………………………….
9
Manager……………………………………………………………………………………………………
9
Sub-Advisers………………………………………………………………………………………………
9
Valuation, Buying and Selling of Fund Shares
……………………………………………………………
11
Valuation of Fund Shares………………………………………………………………………………….
11
Buying Shares……………………………………………………………………………………………..
11
Selling Shares……………………………………………………………………………………………..
11
Distribution of Fund Shares
………………………………………………………………………………..
18
Financial Statements
……………………..………………………………………………………………..
19
Privacy Policy
…………….………………………………………………………………………………...
20
Prior Performance of Sub-Advisers
……………………….……………………………………………..
21
For More Information
……………………………………………………………………………………...
24
#
INVESTMENT GOALS, STRATEGIES AND RISKS
New River Small Cap Fund
Investment Goal
The New River Small Cap Fund seeks to provide long-term capital appreciation.
Principal Investment Strategies
The Fund invests primarily in common stocks of smaller capitalization U.S. companies that the sub-adviser selects using a research-driven, value-oriented investment strategy. Securities with value characteristics are those that the sub-adviser believes are trading at undervalued prices and have an above-average potential to increase in price. The Fund maintains a non-
diversified portfolio that is expected to consist of stocks of 25-35 companies at any given time.
The Fund generally seeks to invest in companies with under-recognized operational strengths that produce meaningful cash flows in relation to the total capitalizations of the firms themselves. Within the universe of smaller capitalization companies, the sub-adviser assesses multiple fundamental criteria to identify what it believes are the more attractive companies for investment. When selecting investments, the sub-adviser seeks companies with some or all of the following attributes:
•
Substantial discretionary cash flow
•
Competitive advantage
•
Unrecognized operational strengths
•
Effective management teams
•
Strong balance sheet
•
Increasing returns on capital
•
Favorable price to book ratio
•
Discount to private market value
Under normal circumstances, the Fund invests at least 80% of its assets in equity securities of companies with a stock market capitalization (share price multiplied by the number of shares outstanding) between $100 million and $2 billion at time of purchase. This 80% market capitalization policy can be changed without shareholder approval, however, shareholders would be given at least 60 days’ notice prior to any such change.
The Fund generally seeks to buy and hold stocks for the long -
term, but will sell holdings that the sub-adviser believes have exceeded their intrinsic market value, become too large a position, experienced a change in fundamentals or are subject to other factors that may contribute to relative under performance. The Fund generally seeks to hold positions in companies as they increase in market capitalization as long as the sub-adviser considers the company to remain an attractive investment with capital appreciation potential. The Fund ma