Alert March 25, 2014

SEC Staff Grants No-Action Relief to Permit Fund to Implement Subadvisory Arrangement Prior to Shareholder Approval

The staff of the SEC’s Division of Investment Management granted no-action relief from Section 15(a) of the Investment Company Act of 1940, as amended (the “1940 Act”), that will permit a registered fund (the “Fund”) to enter into a subadvisory agreement without securing prior shareholder approval, on terms otherwise consistent with Rule 15a-4 under the 1940 Act even though the circumstances that created the need for the agreement are not among those for which the Rule provides relief.

Background.  The Global Natural Resources Team (the “GNR Team”) of the Fund’s investment adviser (the “Adviser”) currently manages the Fund.  The Adviser and certain members of the GNR Team entered into a separation agreement under which the GNR Team will separate from the Adviser (the “Separation”).  The GNR Team formed a new entity (the “Subadviser”) that is intended to serve as an investment subadviser to the Adviser with respect to the Fund following the Separation in order to secure the continuing services of the GNR team in managing the Fund.  The investment advisory agreement (the “Advisory Agreement”) between the Fund and the Adviser authorizes the Adviser to retain one or more subadvisers at its own cost to provide advisory services to the Fund.  The Adviser proposes to enter into a subadvisory agreement with the Subadviser (the “Subadvisory Agreement”) under which the Subadviser will be compensated and supervised by the Adviser.  The fees paid by the Fund to the Adviser under the Advisory Agreement will remain unchanged.  Because of the imminent consummation of the Separation and the benefits to the Fund of avoiding any interruption in the provision of portfolio management services by the GNR Team, the Adviser proposes to enter into the Subadvisory Agreement upon the consummation of the Separation (the “Closing Date”), which will occur prior to securing the shareholder approval required under Section 15(a) of the 1940 Act.  The Fund’s board has approved the Subadvisory Agreement, and a shareholder meeting for the purpose of approving the Subadvisory Agreement has been scheduled.

Unavailability of Rule 15a-4.  Rule 15a-4 permits a person to act as an adviser to a registered investment company under an interim advisory agreement that has not been approved by the fund’s shareholders for a period of 150 days following the date on which the previous contract terminated, subject to the Rule’s conditions.  This temporary exemption is available when the previous advisory contract was terminated by (a) the board of directors, (b) the vote of a majority of the fund’s outstanding voting securities, (c) a failure to renew the previous advisory contract, or (d) an assignment of the previous advisory contract, as defined in Section 2(a)(4) of the 1940 Act (each, a “Rule 15a-4 Event”).  The request for relief notes that the circumstances of the Separation do not fall within any of the Rule 15a-4 Event categories.

Staff Response.  In granting the request for relief, the Staff noted that the Sub-Advisory Agreement would comply with the conditions in Rule 15a-4(b)(2) under the 1940 Act and would not continue beyond 150 days if Fund shareholders did not approve the agreement as required under Section 15(a) of the 1940 Act.  The Staff also noted the representations in the request for relief that the Fund and the Adviser needed a reasonable period of time to perform sufficient due diligence regarding the Subadviser and to provide the Fund's board with sufficient information and opportunity to consider approval of the Subadvisory Agreement and that those circumstances prevented the Adviser and the Fund from having sufficient opportunity prior to the Closing Date to obtain shareholder approval of the Subadvisory Agreement.

RS Global Natural Resources Fund, SEC No-Action Letter (pub. avail. Mar. 6, 2014).