e40vappza
File
No. 812-13860
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
In the Matter of
RidgeWorth Funds
and
RidgeWorth Capital Management, Inc.
Amended Application for an Order under Section 6(c) of the Investment Company Act of 1940 for an
Exemption from Section 15(a) of the Act and Rule 18f-2 under the Act
All communications and orders to:
|
|
|
Julia Short
RidgeWorth Funds
3333 Piedmont Road, Suite 1500
Atlanta, GA 30305
|
|
W. John McGuire, Esq.
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004 |
Page 1 of 25 sequentially numbered pages (including exhibits)
I. INTRODUCTION
RidgeWorth Funds (the Trust) and RidgeWorth Capital Management, Inc. (the Adviser;
together with the Trust, the Applicants) hereby apply for an order from the U.S. Securities and
Exchange Commission (the Commission) on behalf of (i) the Trust and all existing and future
series of the Trust (Funds); (ii) all other existing or future open-end management investment
companies or series thereof that (a) are advised by the Adviser or any entity controlling,
controlled by or under common control with the Adviser or its successors1 (each such
entity included in the term Adviser), (b) are registered under the Investment Company Act of 1940
(the 1940 Act), (c) use the manager of managers structure (as described in this Application), and
(d) comply with the terms and conditions in this Application (such companies or series included in
the term Funds); and (iii) the Adviser.2
Applicants hereby file this Application pursuant to Section 6(c) of the 1940 Act for an order
exempting Applicants from Section 15(a) of the 1940 Act and Rule 18f-2 thereunder to permit the
Adviser, subject to the approval of the Board of Trustees of the Trust (the Board), including a
majority of the trustees who are not interested persons as defined in Section 2(a)(19) of the
1940 Act (the Independent Trustees) of the Trust, the Adviser, or any Subadviser (as defined
below), to do the following without obtaining shareholder approval: (a) select certain unaffiliated
investment subadvisers (each, a Subadviser)3 to manage all or a
|
|
|
1 |
|
For the purposes of the requested order,
successor is limited to an entity or entities that result from a
reorganization into another jurisdiction or a change in the type of business
organization. |
|
2 |
|
Every existing entity that currently intends
to rely on the requested order is named as an Applicant. Any existing or
future entity that relies on the order in the future will do so only in
accordance with the terms and conditions in this Application. |
|
3 |
|
The Adviser has entered into subadvisory
agreements with subadvisers that are affiliated persons (as defined in
Section 2(a)(3) of the 1940 Act) of the Trust, a Fund or of the Adviser (other
than by reason of serving as a subadviser to one or more of the Funds)
(Affiliated Subadvisers) to assist with monitoring and/or management of
certain markets with which the Affiliated Subadvisers have expertise. The
requested relief does not apply with respect to existing or future Affiliated
Subadvisers. |
- 2 -
portion of the assets of any of the Funds pursuant to an investment subadvisory agreement with
a Subadviser (Subadvisory Agreement), and (b) materially amend Subadvisory Agreements with the
Subadvisers.
Applicants are seeking this exemption to enable the Adviser and the Board to obtain for the
Funds the services of one or more Subadvisers believed by the Board and the Adviser to be
particularly well-suited to manage a Fund without the delay and expense of convening a special
meeting of shareholders. Under the manager of managers investment management approach, the Adviser
will evaluate and oversee the Subadvisers, and make recommendations about their hiring, termination
and replacement to the Board, at all times subject to the authority of the Board.4
The requested exemptions will also permit the Adviser to make material amendments to
Subadvisory Agreements believed by the Adviser and the Board to be appropriate without the delay
and expense of convening a special meeting of shareholders for that purpose. Applicants believe
that without this relief, the Trust may be precluded from promptly and timely materially amending,
or may be subject to the delays and additional expense of proxy solicitation when materially
amending, Subadvisory Agreements considered appropriate by the Adviser and the Board.
If the name of any Fund relying on the requested relief contains the name of a Subadviser, the
name RidgeWorth or other name being used by the Adviser will precede the name of the Subadviser.
|
|
|
4 |
|
The Board is also the board of each
individual Fund. |
- 3 -
II. BACKGROUND
A. The Trust
The Trust is a Massachusetts business trust registered under the 1940 Act as an open-end
management investment company. The Trust is currently composed of 41 Funds, which are offered and
sold pursuant to its registration statement on Form N-1A. Each Fund has its own investment
objective, investment policies, and investment restrictions.
B. The Adviser
RidgeWorth Capital Management, Inc., a Georgia corporation with its principal office in
Atlanta, serves as investment adviser to the Funds and is registered under the Investment Advisers
Act of 1940 (the Advisers Act).5 The Adviser is a wholly owned subsidiary of SunTrust
Banks, Inc.
The Adviser, subject to the oversight and authority of the Board, is responsible for
furnishing the overall investment program for each Fund and providing continuous investment
management for each Funds assets pursuant to an investment advisory agreement with the Trust
(Advisory Agreement). The Adviser oversees the implementation of the investment program,
arranges and oversees the provision of other necessary services for the Funds (including custodial,
transfer agency and administration services) and furnishes office facilities, equipment, services
and executive and administrative personnel necessary for managing the investment program of each
Fund. In addition, pursuant to the Advisory Agreement, the Adviser may retain one or more
Subadvisers, at the Advisers own expense, subject to the approval of the Funds Board, including
approval by a majority of its Independent Trustees (as defined below), for the purpose of managing
the investment of the assets of one or more Funds of the Trust.
|
|
|
5 |
|
Any Adviser will be registered under the
Advisers Act. |
- 4 -
For the investment management services that it provides to each Fund, the Adviser receives the
fee specified in the Advisory Agreement from each Fund based on the Funds average daily net
assets. In the interest of limiting the expenses of the Funds, the Adviser may from time to time
waive some or all of its investment advisory fees or reimburse other fees for any of the Funds.
The terms of the Advisory Agreement comply with Section 15(a) of the 1940 Act. The Advisory
Agreement was approved by the Board, including a majority of the Independent Trustees, and was
approved by the initial shareholder of each Fund in the manner required by Sections 15(a) and (c)
of the 1940 Act and Rule 18f-2 thereunder. With respect to new Funds offered in the future, the
Advisory Agreement will be approved by the initial shareholder of the Fund in the manner required
by Sections 15(a) and (c) of the 1940 Act and Rule 18f-2 thereunder. Applicants are not seeking
any exemptions from the provisions of the 1940 Act with respect to the requirement that the
Advisory Agreement be approved by the Board and by the shareholders of the relevant Funds.
C. The Subadvisers and the Manager of Managers Structure
Pursuant to its authority under the Advisory Agreement, the Adviser has entered into
subadvisory agreements with Affiliated Subadvisers to provide investment advisory services to the
Funds, and may, in the future, enter into Subadvisory Agreements with Subadvisers for one or more
of the Funds. Each Subadviser employed by the Adviser will be an investment adviser, as defined
in Section 2(a)(20)(B) of the 1940 Act, to the Fund the Subadviser serves, and each Subadviser will
be registered as an investment adviser under the Advisers Act.
The Adviser will select Subadvisers based on the Advisers evaluation of the Subadvisers
skills in managing assets, and recommend their hiring to the Board. The Adviser will engage in an
on-going analysis of the continued advisability of retaining these Subadvisers
- 5 -
and make recommendations to the Board as needed. The Adviser will also negotiate and
renegotiate the terms of Subadvisory Agreements, including the subadvisory fees, with the
Subadvisers, and will make recommendations to the Board as needed. Although the Adviser may
recommend, from time to time, that the services of a Subadviser be terminated, the Adviser, in
general, does not expect to make frequent changes in Subadvisers.
With respect to Funds utilizing the manager of managers structure, subject to the approval of
this Application, and subject to approval by the Board and a majority of each Funds outstanding
voting securities, as that term is defined in Section 2(a)(42) of the 1940 Act, the primary
responsibility for management of the Funds including, in particular, the selection and
supervision of the Subadvisers will be vested in the Adviser, subject to general oversight and
approval by the Board. Thus, the Adviser will (1) set each Funds overall investment strategies;
(2) evaluate, select, and recommend to the Board Subadvisers needed to manage all or part of the
assets within the Funds; (3) monitor and evaluate each Subadvisers investment programs and results
as well as the performance of Subadvisers relative to the applicable benchmark indices; and (4)
review each Funds compliance with its investment objective, policies and restrictions. The
Adviser will also recommend to the Board whether Subadvisory Agreements should be renewed, modified
or terminated.
Each Subadviser will be responsible, subject to the general supervision of the Adviser and the
Board, for the purchase, retention and sale of securities for the applicable Fund. Neither the
Adviser nor the Board will evaluate the investment merits of each individual investment decision
made by a Subadviser on behalf of a Fund. With the Boards approval, the Adviser may terminate any
Subadvisory Agreement and, pursuant to the Advisory Agreement, assume
- 6 -
responsibility for determining what investments shall be purchased, held, sold or exchanged
and all other investment management functions for any Fund.
The Adviser, under the Advisory Agreement and Subadvisory Agreements, may employ multiple
Subadvisers for certain of the Funds. In such cases, the Adviser will allocate and, when
appropriate, reallocate the Funds assets among Subadvisers. Each Subadviser will have
discretionary authority to invest that portion of a Funds assets assigned to it. The Adviser will
seek to achieve each Funds objective by selecting one or more Subadvisers who have particular
skill and experience in managing that type of Fund.
Under the manager of managers structure, Subadviser evaluation on both a quantitative and
qualitative basis will be an ongoing process. The Adviser periodically will gather and analyze
certain performance information regarding the Funds. If a particular Fund fails to track its
relevant index or underperforms over time, or if the Adviser has other concerns about a Fund or its
Subadviser (such as a departure from the Funds disclosed investment style, a change in management
of the Subadviser, or concerns about compliance and operational capabilities), the Adviser will
assess the continued ability of the Subadviser to meet the Funds investment objective. The
Adviser will monitor possible replacement Subadvisers for a Fund so that any transition can be
recommended to the Funds Board and, if approved, is effected on a timely basis should a Subadviser
change be warranted. Absent exemptive relief, however, replacing a Subadviser would necessitate a
proxy solicitation, which would involve additional expenses and may delay the implementation of the
change.
The Subadvisory Agreement with each Subadviser will be initially approved by the Board,
including a majority of the Independent Trustees, in the manner required by Sections 15(a) and (c)
of the 1940 Act and, where applicable, Rule 18f-2 thereunder. In addition, the
- 7 -
terms of each Subadvisory Agreement will comply fully with the requirements of Section 15(a).
A Fund will not rely on the requested order if the operation of the Fund in the manner described in
this Application has not been approved as provided in condition 1 set out in Section IV
below.6 The prospectus for each subadvised Fund whose shareholders have approved the
manager of managers structure will contain the disclosure required by condition 2 set out in
Section IV below at all times subsequent to such approval.
For the investment advisory services they provide to the Funds, each Subadviser will receive
annual fees from the Adviser, calculated at an annual rate based on the average daily net assets of
the applicable Fund. Each Subadviser will bear its own expenses for providing subadvisory services
to the applicable Fund. Neither the Trust nor any Fund will be responsible for paying subadvisory
fees to any Subadviser. The Adviser will compensate each Subadviser out of the fee paid to the
Adviser under the relevant Funds Advisory Agreement.
D. The Requested Relief
Applicants seek relief from the requirements of Section 15(a) of the 1940 Act and, where
applicable, Rule 18f-2 thereunder to facilitate the selection and retention of, and making material
changes in Subadvisory Agreements with, Subadvisers in connection with operating the Funds. Under
the requested relief, Applicants will obtain the approval of the Board, including a majority of the
Independent Trustees, when Subadviser changes are made or when material changes in a Subadvisory
Agreements are made, but approval by shareholders of the affected Fund will not be sought or
obtained.7
|
|
|
6 |
|
Each Fund will be required to obtain
shareholder approval before relying on the order requested in this Application. |
|
7 |
|
The Adviser acknowledges that the use of
Affiliated Subadvisers and amendments to subadvisory agreements with them would
be subject to shareholder approval. |
- 8 -
If the requested order is granted, each Subadvisory Agreement will comply with the following
requirements of Section 15(a) of the 1940 Act: (1) it will precisely describe all compensation to
be paid by the Adviser to the Subadviser thereunder; (2) it will continue in effect for more than
two years from the date of its original approval only so long as such continuance is specifically
approved at least annually by the Board at the times and in the manner required by Section 15(c) of
the 1940 Act and, where applicable, Rule 18f-2 thereunder; (3) it will provide for termination at
any time, without the payment of any penalty, by the Adviser, the Board or by shareholders of the
affected Fund on not more than sixty days written notice to the Subadviser; and (4) it will
provide for its automatic termination in the event of its assignment.
The Funds offer shares, and with respect to new Funds offered in the future, will offer
shares, pursuant to a prospectus that is intended to satisfy the requirements of the Securities Act
of 1933, as amended (the 1933 Act) and that describes the advisory services provided to the
Funds. The prospectus contains information concerning the management and operation of the Funds,
including, if applicable to a particular Fund, a description of any Subadviser and the services it
provides. In addition, each Fund utilizing the manager of managers structure will hold itself out
to investors as employing such structure and will prominently disclose in its prospectus that the
Adviser has the ultimate responsibility (subject to oversight by the Board) to oversee Subadvisers
and to recommend their hiring, termination and replacement.
Each Fund utilizing the manager of managers structure will disclose that it operates pursuant
to the terms and conditions of this Application. Thus, all shareholders of the Funds will be
informed of: (a) the means by which the Funds obtain advisory services, including a
- 9 -
description of the Adviser, the Subadvisers, and their agreements with respect to the Trust;
and (b) that new Subadvisers can be employed without shareholder approval.
III. EXEMPTIVE RELIEF REQUESTED AND APPLICABLE LAW
A. Shareholder Voting
1. Applicable Law
Section 15(a) of the 1940 Act provides in relevant part that:
It shall be unlawful for any person to serve or act as investment adviser of a
registered investment company, except pursuant to a written contract, which
contract, whether with such registered company or with an investment adviser of such
registered company, has been approved by the vote of a majority of the outstanding
voting securities of such registered company....
Rule 18f-2 under the 1940 Act provides in relevant part that:
(c)(1) With respect to the submission of an investment advisory contract to the
holders of the outstanding voting securities of a series company for the approval
required by Section 15(a) of the [1940] Act, such matter shall be deemed to be
effectively acted upon with respect to any class or series of securities of such
company if a majority of the outstanding voting securities of such class or series
vote for the approval of such matter....
Rule 18f-2 further provides that:
(c)(2) If any class or series of securities of a series company fails to approve an
investment advisory contract in the manner required by subparagraph (1) of this
paragraph, the investment adviser of such company may continue to serve or act in
such capacity for the period of time pending such required approval of such
contract, of a new contract with the same or different adviser, or other definitive
action; provided that the compensation received by such investment adviser during
such period is equal to no more than its actual costs incurred in furnishing
investment advisory services to such class or series or the amount it would have
received under the advisory contract, whichever is less.
Section 2(a)(20) defines an investment adviser as the following:
Investment adviser of an investment company means (A) any person ... who pursuant
to contract with such company regularly furnishes advice to such company with
respect to the desirability of investing in, purchasing or selling securities ...
and (B) any other person who pursuant to contract with a person described in clause
(A) regularly performs substantially all of the duties undertaken by such person
described in clause (A)....
- 10 -
Section 15 of the 1940 Act applies to situations where, as here, a subadviser contracts with
an investment adviser of an investment company. Accordingly, the Subadvisers are deemed to be
within the statutory definition of an investment adviser, and the Subadvisory Agreements between
the Adviser and each Subadviser are subject to Sections 15(a) and (c) of the 1940 Act and, where
applicable, Rule 18f-2 thereunder to the same extent as each Advisory Agreement. Therefore,
without the exemption applied for herein, the Funds: (a) would be prohibited from entering promptly
into a new Subadvisory Agreement or amending materially an existing contract with a Subadviser; and
(b) would be prohibited from continuing the employment of an existing Subadviser whose contract had
been assigned as a result of a change in control unless the Adviser and the particular Fund
involved were to incur the costs of convening a special meeting of Fund shareholders to approve the
Subadvisers selection and/or the change in the Subadvisory Agreement.
Section 6(c) of the 1940 Act provides that the Commission may exempt any person, security, or
transaction or any class or classes of persons, securities, or transactions from any provisions of
the 1940 Act, or from any rule thereunder, if such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the purposes fairly intended by
the policy and provisions of the 1940 Act. For the reasons and subject to the conditions set forth
below, Applicants seek an exemption under Section 6(c) of the 1940 Act from the requirements of
Section 15(a) of the 1940 Act and, where applicable, Rule 18f-2 thereunder to eliminate the need
for the Adviser, the Trust, and any Fund, to submit Subadvisory Agreements to the affected
shareholders for approval prior to selecting a Subadviser or materially amending a Subadvisory
Agreement. Applicants believe that the requested
- 11 -
exemptions are appropriate in the public interest and consistent with the protection of
investors, and the purposes fairly intended by the policy and provisions of the 1940 Act.
2. Discussion
a. Necessary or Appropriate in the Public
Interest
Applicants believe that the requested relief is necessary or appropriate in the public
interest. The Funds utilizing the manager of managers structure will be different from those of
traditional investment companies. Under the traditional structure, a funds investment adviser is
a single entity that employs one or more individuals internally as portfolio managers to make
investment decisions. The adviser is free to retain or terminate those portfolio managers without
board or shareholder approval. In the case of the Funds utilizing the manager of managers
structure, the Adviser will use one or more Subadvisers, and the Adviser typically will not make
the day-to-day investment decisions. Instead, the Adviser establishes an investment program for a
Fund and selects, supervises and evaluates the Subadvisers who make the day-to-day investment
decisions for the respective Fund.8 This is a service that the Adviser believes can add
value to the investments of the Funds shareholders because the Adviser will be able to select
those Subadvisers that have distinguished themselves through successful performance in the market
sectors in which the respective Fund will invest.
The Funds utilizing the manager of managers structure will hold themselves out as investment
vehicles whereby investors look to the Adviser as a professional organization to evaluate, select
and recommend to the Board the hiring of Subadvisers. The Adviser will select those Subadvisers
that are most likely to provide investment advisory services that will achieve the investors
defined objectives given their investment needs and tolerance for risk. Those
|
|
|
8 |
|
While the Adviser typically will not make
day-to-day investment decisions for a Fund utilizing the manager of managers
structure, the Adviser may do so under the terms of the Advisory Agreement. |
- 12 -
Subadvisers will, in turn, select and oversee the selection of portfolio investments. Under
the manager of managers structure, the selection or change in a Subadviser will not be an event
that significantly alters the nature of the shareholders investment and thus does not implicate
1940 Act policy concerns regarding shareholder approval.9
From the perspective of the investor, the role of the Subadvisers with respect to the Funds
utilizing the manager of managers structure is substantially equivalent to the role of the
individual portfolio managers employed by the traditional investment company advisory firms. Both
the portfolio managers and the Subadvisers are concerned principally with the selection of
portfolio investments in accordance with a Funds investment objectives and policies and have no
significant supervisory, management or administrative responsibilities with respect to that Fund or
the Trust. Applicants believe that shareholders look to the Adviser when they have questions or
concerns about the Funds management or about the Funds investment performance. Shareholders
expect the Adviser and the Board to select the portfolio managers or Subadviser for a Fund that is
best suited to achieve the Funds investment objective. Shareholders of traditionally managed
mutual funds expect the investment adviser to compensate the portfolio manager out of the
investment advisers own assets, just as the Adviser will compensate the Subadvisers out of the
advisory fees that the Adviser receives from the Funds. Under the conventional investment company
structure, shareholders do not vote on the selection of the individual portfolio manager or change
in his or her compensation. There is no compelling policy reason why the Funds investors should
be required to approve the Subadvisers relationships with the Funds, any more than shareholders of
a conventional
|
|
|
9 |
|
Protecting Investors: A Half-Century of
Investment Company Regulation, Division of Investment Management, SEC, May
1992, Ch. 7, Part III(D)(2). |
- 13 -
investment company should approve its managers change of a portfolio manager or revision of
that portfolio managers employment contract.
In the absence of exemptive relief from Section 15(a) of the 1940 Act, when a new Subadviser
is proposed for retention by a Fund or the Trust on behalf of one or more of the Funds,
shareholders would be required to approve the Subadvisory Agreement with that Subadviser.
Similarly, if an existing Subadvisory Agreement were to be amended in any material respect (e.g.,
an increase in the subadvisory fee), approval by the shareholders of the affected Fund would be
required. In addition, a Fund would be prohibited from continuing to retain an existing Subadviser
whose Subadvisory Agreement had been assigned as a result of a change of control of the
Subadviser unless shareholder approval had been obtained. In all of these cases, the need for
shareholder approval would require the Trust or a Fund to call and hold a shareholder meeting,
create and distribute proxy materials, and solicit votes from shareholders on behalf of the Fund.
This process would be time-intensive, costly and slow and, in the case of a poorly performing
Subadviser or one whose management team had left, potentially harmful to a Fund and its
shareholders.
Applicants believe that permitting the Adviser to perform those duties for which the
shareholders of the Funds are paying the Adviser (i.e., the selection, supervision and evaluation
of Subadvisers) without incurring unnecessary delay or expense will be appropriate in the interests
of Fund shareholders and will allow each Fund to operate more efficiently. Without the delay
inherent in holding shareholder meetings (and the attendant difficulty of obtaining the necessary
quorum), the Funds will be able to act more quickly and with less expense to replace Subadvisers
when the Board and the Adviser feel that a change would benefit the Fund. Without the requested
relief, a Fund may, for example, be left in the hands of a Subadviser who would be
- 14 -
unable to manage the Funds assets diligently because of diminished capabilities resulting
from a loss of personnel or decreased motivation resulting from an impending termination of the
Subadvisory Agreement. Also, in that situation, or where there has been an unexpected Subadviser
resignation or change in control-event beyond the control of the Adviser, the Trust and the Funds,
the affected Fund may be forced to operate without a Subadviser or with less than the optimum
number of Subadvisers. The sudden loss of the Subadviser could be highly disruptive to the
operations of a Fund.
b. Consistent with the Protection of
Investors
Applicants believe that the requested relief is consistent with the protection of investors.
Primary responsibility for management of the Funds, including the selection and supervision of the
Subadvisers, is vested in the Adviser, subject to the oversight of the Board. The Advisory
Agreement is and will remain fully subject to the requirements of Section 15(a) of the 1940 Act
and, where applicable, Rule 18f-2 thereunder, including the requirement for shareholder voting. In
addition, the manager of managers structure will not be implemented with respect to any Fund unless
the initial Subadvisory Agreement is approved by the Funds shareholders as required by Section
15(a) of the 1940 Act. Applicants believe that it is consistent with the protection of investors
to vest the selection and supervision of the Subadvisers in the Adviser in light of the management
structure of the Funds, as well as the shareholders expectation that the Adviser will use its
expertise to select the most able Subadvisers. Within this structure, the Adviser is in a better
position to make an informed selection of a Subadviser than are individual shareholders.
In evaluating the services that a Subadviser will provide to a Fund, the Adviser considers
certain information, including, but not limited to, the following:
- 15 -
(1) the advisory services provided by the Subadviser, including the Subadvisers investment
management philosophy and technique and the Subadvisers methods, to ensure compliance with the
investment objective, policies and restrictions of the Fund;
(2) a description of the various personnel furnishing such services, including their duties
and qualifications, the amount of time and attention they will devote to the Fund, and the ability
of the Subadviser to attract and retain capable personnel;
(3) reports setting forth the financial condition and stability of the Subadviser; and
(4) reports setting forth the Subadvisers investment performance during recent periods in
light of its stated objectives and current market conditions, including to the extent relevant,
comparisons with broadly-based unmanaged indices and other accounts managed by the Subadviser and
having similar investment objectives, and other funds having similar investment objectives and
asset sizes.
In obtaining this information, the Adviser will typically: (i) review the Subadvisers current
Form ADV; (ii) conduct a due diligence review of the Subadviser; and (iii) conduct an interview of
the Subadviser.
In addition, the Adviser and the Board will consider the reasonableness of the Subadvisers
compensation with respect to each Fund for which the Subadviser will provide portfolio management
services. Although only the Advisers fee is payable directly by a Fund, and the Subadvisers fee
will be payable by the Adviser, the Subadvisers fee directly bears on the amount and
reasonableness of the Advisers fee payable by the Fund. Accordingly, the Adviser and the Board
will analyze the fees paid to Subadvisers in evaluating the reasonableness of the overall
arrangements. In conducting this analysis, the Adviser and the Board will consider certain
information, including, but not limited to, the following:
- 16 -
(1) a description of the proposed method of computing the fees;
(2) comparisons of the proposed subadvisory fees with fees charged by the Subadviser for
managing comparable accounts and with fees charged by other organizations for managing similar
funds, especially funds and accounts having similar investment objectives; and
(3) data with respect to the projected expense ratios of each Fund and comparisons with
similar funds.
If the relief is granted, shareholders of each Fund utilizing the manager of managers
structure will receive adequate information about the Subadvisers. Moreover, as indicated above,
the Board will comply with the requirements of Sections 15(a) and (c) of the 1940 Act before
entering into or amending a Subadvisory Agreement.
Applicants include a standard condition in this Application that each Fund would disclose in
its prospectus the existence, substance and effect of the requested order. Applicants acknowledge
that this is a qualitative change in the disclosure required in a Funds prospectus under the order
and will ensure that each such Funds disclosures satisfy this requirement.
The prospectus and statement of additional information (SAI) for each Fund will include all
information required by Form N-1A concerning each applicable Subadviser. In addition to a Fund
prospectus and SAI, shareholders of the Funds will be provided with other information about any
then-current Subadviser(s). If a new Subadviser is retained, or an existing Subadvisory Agreement
is materially amended, the Trust will supplement each affected Funds prospectus pursuant to Rule
497(e) under the 1933 Act or file a post-effective amendment to its registration statement to the
extent necessary to reflect changes in Subadvisers. Furthermore, the Funds will furnish to
shareholders, within 90 days of the date that a Subadviser is appointed, all of the information
that would have been provided in a proxy statement (Information
- 17 -
Statement). The information provided in the Information Statement will satisfy the relevant
requirements of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the Securities
Exchange Act of 1934, as amended (1934 Act).
c. Consistent with the Policy and Provisions
of the 1940 Act
Applicants believe the requested relief is consistent with the policy and provisions of the
1940 Act. The purpose of the requirement that shareholders approve new advisory agreements may be
inferred from the 1940 Act. The identity of a registered investment companys investment adviser,
together with the companys investment objective, policies and restrictions, are the features that
distinguish one investment company from another. The framers of the 1940 Act believed that if an
investment company is to be managed by an adviser different from the adviser shareholders selected
at the time of investment, the successor adviser should be approved by shareholders. The exemptive
relief being requested would be fully consistent with this public policy.
Each Funds Advisory Agreement, as well any subadvisory agreements with Affiliated
Subadvisers, will continue to be subject to the shareholder approval requirements of the 1940 Act.
The prospectus of each Fund utilizing the manager of managers structure will disclose that the
Adviser is the primary provider of investment advisory services to the Fund, and that the Adviser
may hire or change Subadvisers for the Fund, as appropriate, and that the Adviser has the ultimate
responsibility (subject to oversight by the Board) to oversee Subadvisers and recommend to the
Board their hiring, termination and replacement. In a traditionally structured investment company,
no shareholder approval is required for the investment adviser to change a portfolio manager or
revise the portfolio managers salary or conditions of employment, because shareholders of the
investment company are relying on the investment adviser for the investment companys investment
results and overall management services. For those same reasons,
- 18 -
shareholder approval should not be required in the circumstances described herein with respect
to a change of Subadviser by the Adviser and the Board. Eliminating the requirement of shareholder
approval in such a case would be consistent with the policies and provisions of the 1940 Act and
would eliminate unnecessary expenses and delays associated with conducting a formal proxy
solicitation. In the circumstances described in this Application, a proxy solicitation provides no
more meaningful information to investors than the proposed use of the Information Statement. A
Fund also will promptly supplement its registration statement if a new Subadviser is appointed or a
material amendment is made to a Subadvisory Agreement. If a shareholder of a particular Fund is
dissatisfied with the Advisers selection of a Subadviser or a material change in a Subadvisory
Agreement, the shareholder may redeem his or her shares.
B. Precedent
Applicants note that substantially the same exemptions requested herein with respect to relief
from Section 15(a) and Rule 18f-2 have been granted previously by the Commission. See, e.g., The
Integrity Funds, et al, Investment Company Act Release Nos. 29399 (August 25, 2010) (notice) and
29418 (September 21, 2010) (order); e.g., WisdomTree Asset Management, Inc. and WisdomTree Trust,
Investment Company Act Release Nos. 29380 (August 13, 2010) (notice) and 29412 (September 8, 2010)
(order); e.g., Members Mutual Funds, et al, Investment Company Act Release Nos. 29062 (November 23,
2009) (notice) and 29096 (December 22, 2009) (order); e.g., AdvisorOne Funds and CLS Investments,
LLC, Investment Company Act Release Nos. 28894 (August 31, 2009) (notice) and 28932 (September 28,
2009) (order); e.g., Forward Funds and Forward Management, LLC, Investment Company Act Release
Nos. 28420 (September 29, 2008) (notice) and 28469 (October 27, 2008) (order); e.g., Phoenix Equity
Trust, et al, Investment Company Act Release Nos. 28375 (September 3, 2008) (notice) and 28410
(September 29, 2008) (order); e.g., AARP Funds, et al, Investment Company Act Release Nos.
- 19 -
27918 (July 31, 2007) (notice) and 27956 (August 28, 2007) (order); e.g., First Investors Equity
Funds, et al, Investment Company Act Release Nos. 27826 (May 23, 2007) (notice) and 27868 (June 20,
2007) (order); e.g., Allegiant Funds, et al, Investment Company Act Release Nos. 27551 (November
13, 2006) (notice) and 27596 (December 11, 2006) (order); e.g., State Farm Mutual Fund Trust, et
al, Investment Company Act Release Nos. 27482 (September 15, 2006) (notice) and 27514 (October 11,
2006) (order); e.g., AdvisorOne Funds and Dunham & Associates Investment Counsel, Inc., Investment
Company Act Release Nos. 27472 (August 29, 2006) (notice) and 27501 (September 26, 2006) (order);
e.g., WT Mutual Fund, et al, Investment Company Act Release Nos. 27321 (May 15, 2006) (notice) and
27397 (June 13, 2006) (order); e.g., Tactical Allocation Services, LLC and Agile Funds, Inc.,
Investment Company Act Release Nos. 27260 (March 13, 2006) and 27284 (April 10, 2006) (order).
IV. CONDITIONS FOR RELIEF
Applicants agree that any order granting the requested relief will be subject to the following
conditions:
1. |
|
Before a Fund may rely on the order requested in the Application, the operation of the Fund
in the manner described in the Application will be approved by a majority of the Funds
outstanding voting securities, as defined in the 1940 Act or, in the case of a Fund whose
public shareholders purchase shares on the basis of a prospectus containing the disclosure
contemplated by condition 2 below, by the initial shareholder(s) before offering shares of
that Fund to the public. |
|
2. |
|
Each Fund that relies on the order requested in this Application will disclose in its
prospectus the existence, substance, and effect of any order granted pursuant to this
Application. Each Fund relying on the order requested in this Application will hold itself
out to the public as utilizing the manager of managers structure described in this |
- 20 -
|
|
Application. The prospectus will prominently disclose that the Adviser has ultimate
responsibility (subject to oversight by the Board) to oversee the Subadvisers and recommend
their hiring, termination, and replacement. |
|
3. |
|
Within 90 days of the hiring of a new Subadviser, the affected Fund shareholders will be
furnished all information about the new Subadviser that would be included in a proxy
statement. To meet this obligation, the Fund will provide shareholders of the affected Fund
within 90 days of hiring a new Subadviser with an information statement meeting the
requirements of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the 1934 Act. |
|
4. |
|
The Adviser will not enter into a subadvisory agreement with any Affiliated Subadviser
without such agreement, including the compensation to be paid thereunder, being approved by
the shareholders of the applicable Fund. |
|
5. |
|
At all times, at least a majority of the Board will be Independent Trustees, and the
nomination of new or additional Independent Trustees will be placed within the discretion of
the then-existing Independent Trustees. |
|
6. |
|
Whenever a subadviser change is proposed for a Fund with an Affiliated Subadviser, the Board,
including a majority of the Independent Trustees, will make a separate finding, reflected in
the applicable Board minutes, that such change is in the best interests of the Fund and its
shareholders, and does not involve a conflict of interest from which the Adviser or the
Affiliated Subadviser derives an inappropriate advantage. |
|
7. |
|
The Adviser will provide general management services to each Fund that is subadvised,
including overall supervisory responsibility for the general management and investment of the
Funds assets, and, subject to review and approval of the Board, will: (i) set each |
- 21 -
|
|
Funds overall investment strategies; (ii) evaluate, select and recommend Subadvisers to
manage all or a part of a Funds assets; (iii) allocate and, when appropriate, reallocate a
Funds assets among one or more Subadvisers; (iv) monitor and evaluate the performance of
Subadvisers; and (v) implement procedures reasonably designed to ensure that the Subadvisers
comply with the relevant Funds investment objective, policies, and restrictions. |
|
8. |
|
No trustee or officer of the Trust or a Fund, or director, manager or officer of the Adviser,
will own, directly or indirectly (other than through a pooled investment vehicle that is not
controlled by such person), any interest in a Subadviser, except for (a) ownership of
interests in the Adviser or any entity that controls, is controlled by, or is under common
control with the Adviser, or (b) ownership of less than 1% of the outstanding securities of
any class of equity or debt of any publicly traded company that is either a Subadviser or an
entity that controls, is controlled by or is under common control with a Subadviser. |
|
9. |
|
In the event the Commission adopts a rule under the 1940 Act providing substantially similar
relief to that in the order requested in the Application, the requested order will expire on
the effective date of that rule. |
V. CONCLUSION
For the foregoing reasons, Applicants request that the Commission issue an order under Section
6(c) of the 1940 Act granting the relief sought in this Application. Applicants submit that the
exemption is necessary or appropriate in the public interest, consistent with the protection of
investors, and consistent with the purposes fairly intended by the policy and provisions of the
1940 Act.
- 22 -
VI. PROCEDURAL MATTERS
Applicants file this Application in accordance with Rule 0-2 under the 1940 Act, and state
that their address is printed on the Applications facing page and that they request that all
written communications concerning the Application be directed to the individuals and addresses
printed on the Applications facing page. Also, Applicants have attached as an exhibit to the
Application the required verification.
In accordance with Rule 0-2(c) under the Act, Applicants state that all actions necessary to
authorize the execution and filing of this Application have been taken, and the persons signing and
filing this document are authorized to do so on behalf of the Applicants.
Ashi Parikh is authorized to sign and file this document on behalf of the Adviser pursuant to
the general authority vested in him as Chairman and Chief Executive Officer. Julia Short is
authorized to sign and file this document on behalf of the Trust pursuant to the following
resolutions adopted by the Board of the Trust on October 14, 2010:
|
|
|
VOTED:
|
|
That the Board of RidgeWorth Funds (the Trust) hereby approves
the preparation, execution and filing, on behalf of the Trust, of
an exemptive application (the Application) with the Securities
and Exchange Commission for an order pursuant to Section 6(c) of
the Investment Company Act of 1940, as amended (the 1940 Act),
and any amendments or supplements thereto, which order shall exempt
the Trust, its series (the Funds), RidgeWorth Capital Management
(the Adviser), and other investment companies that may be managed
by the Adviser, from Section 15(a) of the 1940 Act and Rule 18f-2
thereunder so as to permit the Adviser to enter into and materially
amend subadvisory agreements without approval of the Funds
shareholders, with such changes thereto as the officer executing
the Application, with the advice of counsel, determines to be
necessary, desirable or appropriate. |
|
|
|
VOTED:
|
|
That the Board hereby authorizes the officers of the Trust to
execute any certificate, instruction, notice or other instrument
and take such action deemed necessary or appropriate to effectuate
the purpose or intent of the foregoing. |
Based on the facts, analysis, and conditions in this Application, Applicants respectfully
request that the Commission issue an order under Section 6(c) of the 1940 Act granting the relief
- 23 -
requested by this Application. In accordance with Rule 0-5 under the 1940 Act, Applicants
request that the Commission issue the requested order without holding a hearing.
Dated: June 29, 2011
|
|
|
|
|
RIDGEWORTH FUNDS
|
|
By: |
/s/ Julia Short
|
|
|
Name: |
Julia Short |
|
|
Title: |
President |
|
|
RIDGEWORTH CAPITAL MANAGEMENT, INC.
|
|
By: |
/s/ Ashi Parikh
|
|
|
Name: |
Ashi Parikh |
|
|
Title: |
Chairman and Chief Executive Officer |
|
- 24 -
EXHIBIT A
Verification of Application and Statement of Fact
In accordance with Rule 0-2(d) under the 1940 Act, the undersigned states that she has duly
executed the attached Application for an order, dated June 29, 2011, for and on behalf of
RidgeWorth Funds; that she is President of RidgeWorth Funds; and that all action taken by
shareholders, trustees and other persons necessary to authorize the undersigned to execute and file
such instrument has been taken. The undersigned further states that she is familiar with such
instrument, and the contents thereof, and that the facts therein set forth are true to the best of
her knowledge, information, and belief.
|
|
|
|
|
|
|
|
|
/s/ Julia Short
|
|
|
Name: |
Julia Short |
|
|
Date: June 29, 2011 |
|
In accordance with Rule 0-2(d) under the 1940 Act, the undersigned states that he has duly
executed the attached Application for an order, dated June 29, 2011, for and on behalf of
RidgeWorth Capital Management, Inc.; that he is Chairman and Chief Executive Officer of RidgeWorth
Capital Management Inc.; and that all action taken by shareholders, directors and other persons
necessary to authorize the undersigned to execute and file such instrument has been taken. The
undersigned further states that he is familiar with such instrument, and the contents thereof, and
that the facts therein set forth are true to the best of his knowledge, information, and belief.
|
|
|
|
|
|
|
|
|
/s/Ashi Parikh
|
|
|
Name: |
Ashi Parikh |
|
|
Date: June 29, 2011 |
|
- 25 -