Document ID: SEC-2011-0958-0001
Agency: sec
Document Type: Notice
Title: Applications: Sterling Capital Funds and Sterling Capital Management LLC
Posted Date: 2011-07-08T04:00Z

[Federal Register Volume 76, Number 131 (Friday, July 8, 2011)]
[Notices]
[Pages 40407-40409]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17188]

[[Page 40407]]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29713; 812-13834]

Sterling Capital Funds and Sterling Capital Management LLC; 
Notice of Application

July 1, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act and rule 18f-2 under the Act, as well as from certain 
disclosure requirements.

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Summary of Application: Applicants request an order that would permit 
them to enter into and materially amend subadvisory agreements without 
shareholder approval and would grant relief from certain disclosure 
requirements.

Applicants: Sterling Capital Funds (the ``Trust'') and Sterling Capital 
Management LLC (``Sterling'' and collectively, ``Applicants'').

DATES:  Filing Dates: The application was filed on October 15, 2010, 
and amended on February 18, 2011. Applicants have agreed to file an 
amendment during the notice period, the substance of which is reflected 
in this notice.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on July 25, 2011, and should be accompanied by proof of service on 
the applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants: The Trust, 434 
Fayetteville Street Mall, Fifth Floor, Raleigh, NC 27601; Sterling, Two 
Morrocroft Centre, 4064 Colony Road, Suite 300, Charlotte, NC 28211.

FOR FURTHER INFORMATION CONTACT: Lewis B. Reich, Senior Counsel, at 
(202) 551-6919, or Jennifer L. Sawin, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Trust, a Massachusetts business trust, is registered under 
the Act as an open-end management investment company and currently 
offers 23 series (each a ``Series''), each of which has its own 
distinct investment objectives, policies and restrictions.\1\ Sterling 
is, and each other Adviser will be, registered as an investment adviser 
under the Investment Advisers Act of 1940 (``Advisers Act''). Sterling 
or another Adviser serves or will serve as the investment adviser to 
each Subadvised Series pursuant to an investment advisory agreement 
(each an ``Advisory Agreement''). The Advisory Agreement for each 
existing Series was approved by the Trust's board of trustees (the 
``Board''),\2\ including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, of 
the Trust or the Adviser (``Independent Trustees'') and by the 
shareholders of that Series in the manner required by sections 15(a) 
and 15(c) of the Act and rule 18f-2 under the Act.
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    \1\ Applicants also request relief with respect to future Series 
and any other existing or future registered open-end management 
investment company or series thereof that: (a) Is advised by 
Sterling or any entity controlling, controlled by, or under common 
control with Sterling or its successors (any such entity, along with 
Sterling, an ``Adviser''); (b) uses the multi-manager structure 
described in the application; and (c) complies with the terms and 
conditions set forth in the application (together with any Series 
that currently uses a multi-manager structure, each a ``Subadvised 
Series'' and collectively the ``Subadvised Series''). For 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. All entities that 
currently intend to rely on the requested order are named as 
applicants. All Series that are or currently intend to be Subadvised 
Series are identified in the application. If the name of any 
Subadvised Series contains the name of a Sub-Adviser (as defined 
below), the name of the Adviser, or a trademark or trade name that 
is owned by the Adviser, will precede the name of the Sub-Adviser.
    \2\ The term ``Board'' also includes the board of trustees of 
any future Subadvised Series.
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    2. Under the terms of the Advisory Agreement, the Adviser, subject 
to the oversight of the Board, provides continuous investment 
management of the assets of each Subadvised Series. The Adviser 
periodically reviews investment policies and strategies of each 
Subadvised Series and based on the need of a particular Subadvised 
Series may recommend changes to the investment policies and strategies 
of the Subadvised Series for consideration by its Board. For its 
services to each Subadvised Series, the Adviser receives an investment 
advisory fee from that Subadvised Series based on the average daily net 
assets of that Subadvised Series. The terms of the Advisory Agreement 
also permit the Adviser, subject to the approval of the Board, 
including a majority of the Independent Trustees, and the shareholders 
of the applicable Subadvised Series (if required by applicable law), to 
delegate portfolio management responsibilities of all or a portion of 
the Subadvised Series to one or more subadvisers (``Sub-Advisers''). 
Sterling has entered into subadvisory agreements (``Sub-Advisory 
Agreements'') with various Sub-Advisers to provide investment advisory 
services to various Subadvised Series.\3\ Each Sub-Adviser is, and each 
future Sub-Adviser will be, an investment adviser as defined in section 
2(a)(20) of the Act as well as registered with the Commission as an 
``investment adviser'' under the Advisers Act. The Adviser evaluates, 
allocates assets to and oversees the Sub-Advisers, and makes 
recommendations about their hiring, termination and replacement to the 
Board, at all times subject to the authority of the Board. The Adviser 
will compensate each Sub-Adviser out of the fee paid to the Adviser 
under the Advisory Agreement.
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    \3\ Sterling has entered into Sub-Advisory Agreements with the 
following Sub-Advisers on behalf of the named Subadvised Series. 
Artio Global Management LLC serves as a Sub-Adviser of Sterling 
Capital International Fund; and Federated Investment Management 
Company serves as a Sub-Adviser of Sterling Capital National Tax-
Free Money Market Fund and Sterling Capital Prime Money Market Fund. 
Sterling has also entered into a Sub-Advisory Agreement with Scott & 
Stringfellow LLC, which is under common control with Sterling, to 
serve as Sub-Adviser of Sterling Capital Equity Income Fund and 
Sterling Capital Special Opportunities Fund. The requested relief 
will not extend to Scott & Stringfellow LLC or any other Affiliated 
Sub-Adviser, as defined below.
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    3. Applicants request an order to permit the Adviser, subject to 
Board approval, to select certain Sub-Advisers to manage all or a 
portion of the assets of a Series pursuant to a Sub-Advisory Agreement 
and materially amend Sub-Advisory Agreements without obtaining 
shareholder approval. The requested relief will not extend to any Sub-
Adviser that is an affiliated person, as

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defined in section 2(a)(3) of the Act, of a Subadvised Series or the 
Adviser, other than by reason of serving as a Sub-Adviser to a 
Subadvised Series (``Affiliated Sub-Adviser'').
    4. Applicants also request an order exempting the Subadvised Series 
from certain disclosure provisions described below that may require the 
Subadvised Series to disclose fees paid to each Sub-Adviser. Applicants 
seek an order to permit each Subadvised Series to disclose (as a dollar 
amount and a percentage of each Subadvised Series' net assets) only: 
(a) The aggregate fees paid to the Adviser and any Affiliated Sub-
Advisers; and (b) the aggregate fees paid to Sub-Advisers other than 
Affiliated Sub-Advisers (collectively, the ``Aggregate Fee 
Disclosure''). A Subadvised Series that employs an Affiliated Sub-
Adviser will provide separate disclosure of any fees paid to the 
Affiliated Sub-Adviser.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of a majority of the company's outstanding voting 
securities. Rule 18f-2 under the Act provides that each series or class 
of stock in a series investment company affected by a matter must 
approve that matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``1934 Act''). Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fees,'' a description of the ``terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.
    4. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of a registered investment 
company's registration statement and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require 
a registered investment company to include in its financial statement 
information about the investment advisory fees.
    5. Section 6(c) of the 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 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 
Act. Applicants state that the requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that the shareholders expect the Adviser, 
subject to the review and approval of the Board, to select the Sub-
Advisers who are best suited to achieve the Subadvised Series' 
investment objective. Applicants assert that, from the perspective of 
the shareholder, the role of the Sub-Adviser is substantially 
equivalent to the role of the individual portfolio managers employed by 
an investment adviser to a traditional investment company. Applicants 
state that requiring shareholder approval of each Sub-Advisory 
Agreement would impose unnecessary delays and expenses on the 
Subadvised Series, and enable the Subadvised Series to act more quickly 
when the Board and the Adviser believe that a change would benefit a 
Subadvised Series and its shareholders. Applicants note that the 
Advisory Agreement and any Sub-Advisory Agreement with an Affiliated 
Sub-Adviser will continue to be subject to the shareholder approval 
requirements of section 15(a) of the Act and rule 18f-2 under the Act.
    7. Applicants assert that the requested disclosure relief would 
benefit shareholders of the Subadvised Series because it would improve 
the Adviser's ability to negotiate the fees paid to Sub-Advisers. 
Applicants state that the Adviser may be able to negotiate rates that 
are below a Sub-Adviser's ``posted'' amounts, if the Adviser is not 
required to disclose the Sub-Advisers' fees to the public. Applicants 
submit that the requested relief will also encourage Sub-Advisers to 
negotiate lower subadvisory fees with the Adviser if the lower fees are 
not required to be made public.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Subadvised Series may rely on the order requested 
herein, the operation of the Subadvised Series in the manner described 
in this application will be approved by a majority of the Subadvised 
Series' outstanding voting securities as defined in the Act, or, in the 
case of a Subadvised Series whose public shareholders purchase shares 
on the basis of a prospectus containing the disclosure contemplated by 
condition 2 below, by the initial shareholder before such Subadvised 
Series' shares are offered to the public.
    2. The prospectus for each Subadvised Series will disclose the 
existence, substance, and effect of any order granted pursuant to the 
application. In addition, each Subadvised Series will hold itself out 
to the public as employing a multi-manager structure as described in 
the application. The prospectus will prominently disclose that the 
Adviser has the ultimate responsibility, subject to oversight by the 
Board, to oversee the Sub-Advisers and recommend their hiring, 
termination, and replacement.
    3. Within ninety (90) days of the hiring of a new Sub-Adviser, 
shareholders of the relevant Subadvised Series will be furnished all 
information about the new Sub-Adviser that would be included in a proxy 
statement, except as modified to permit Aggregate Fee Disclosure. This 
information will include Aggregate Fee Disclosure and any change in 
disclosure caused by the addition of the new Sub-Adviser. To meet this 
obligation, each Subadvised Series will provide its shareholders, 
within ninety (90) days of the hiring of a new Sub-Adviser, an 
information statement meeting the requirements of Regulation 14C, 
Schedule 14C and Item 22 of Schedule 14A under the 1934 Act, except as 
modified by the order to permit Aggregate Fee Disclosure.
    4. The Adviser will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser without that agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Subadvised Series.
    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. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Trustees. The 
selection of such counsel will be within the discretion of the then-
existing Independent Trustees.
    7. Whenever a Sub-Adviser change is proposed for a Subadvised 
Series with an Affiliated Sub-Adviser, the Board,

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including a majority of the Independent Trustees, will make a separate 
finding, reflected in the Board minutes, that the change is in the best 
interests of the Subadvised Series and its shareholders, and does not 
involve a conflict of interest from which the Adviser or the Affiliated 
Sub-Adviser derives an inappropriate advantage.
    8. Whenever a Sub-Adviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.
    9. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per Subadvised Series basis. The information will reflect the impact on 
profitability of the hiring or termination of any Sub-Adviser during 
the applicable quarter.
    10. The Adviser will provide general management services to each 
Subadvised Series, including overall supervisory responsibility for the 
general management and investment of the Subadvised Series' assets and, 
subject to review and approval of the Board, will: (a) Set the 
Subadvised Series' overall investment strategies; (b) evaluate, select 
and recommend Sub-Advisers to manage all or a portion of the Subadvised 
Series' assets; (c) allocate and, when appropriate, reallocate the 
Subadvised Series' assets among Sub-Advisers; (d) monitor and evaluate 
the Sub-Advisers' performance; and (e) implement procedures reasonably 
designed to ensure that Sub-Advisers comply with the Subadvised Series' 
investment objective, policies and restrictions.
    11. No trustee or officer of the Trust or a Subadvised Series or 
director 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 Sub-Adviser 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 Sub-Adviser or an 
entity that controls, is controlled by or is under common control with 
a Sub-Adviser.
    12. Each Subadvised Series will disclose in its registration 
statement the Aggregate Fee Disclosure.
    13. In the event the Commission adopts a rule under the 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.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17188 Filed 7-7-11; 8:45 am]
BILLING CODE 8011-01-P