The staff of the SEC’s Division of Investment Management granted no-action relief to permit a registered closed-end fund (the “Fund”) to enter into an interim sub-advisory contract that otherwise complies with the requirements of Rule 15a-4 under the Investment Company Act of 1940, as amended (the “1940 Act”), even though the resignation of the Fund’s sub-adviser that created the need for an interim agreement is not one of the circumstances in which the Rule would be available. Rule 15a-4 allows a 150 day grace period following the termination of a fund advisory/subadvisory contract to secure the shareholder approval of a successor advisory/subadvisory contract required under Section 15 of the 1940 Act. By its terms, Rule 15a-4 is available only when the predecessor contract was terminated (a) by the fund’s board of directors or by its shareholders, (b) by a failure to renew the predecessor contract or (c) by an assignment of the predecessor contract within the meaning of the 1940 Act. The circumstances prompting the request for relief in this instance were that on June 2, 2008 the Fund’s sub-adviser tendered its resignation effective July 31, 2008. Neither the Fund nor its investment adviser anticipated this development which was prompted by the sub‑adviser’s determination following an internal review of its personnel and resources that it was in the sub-adviser’s and the Fund’s best interests that it resign. Rule 15a-4 imposes one set of conditions if the engagement of a successor adviser involves any money or other benefit being received by the predecessor adviser or any of its controlling persons, and another if the successor adviser’s engagement does not. Under the no-action relief, the Fund, its investment adviser and the successor sub-adviser must determine based on their particular facts and circumstances which set of conditions would apply under Rule 15a-4 and comply with those conditions.
Alert August 05, 2008