Investment Company Act of 1940 — Section 15(a)
RS Global Natural Resources Fund

March 6, 2014

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT
IM Ref. No. 201436114

Your letter dated March 4, 2014 requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission ("Commission") under section 15(a) of the Investment Company Act of 1940 ("1940 Act") against the RS Global Natural Resources Fund ("Fund"), SailingStone Capital Partners LLC ("SailingStone") or RS Investment Management Co. LLC. ("Adviser") if, under the circumstances described below, the Adviser enters into an interim sub-advisory agreement with SailingStone that has not been approved by the vote of a majority of the outstanding voting securities of the Fund. 

BACKGROUND

You state the following: The Fund, a series of a Massachusetts business trust, is registered as an open-end investment company under the 1940 Act. The Adviser, an investment adviser registered under the Investment Advisers Act of 1940 ("Advisers Act"), serves as the Fund's investment adviser pursuant to an amended and restated investment advisory agreement that complies with section 15 of the 1940 Act. Although the Adviser does not currently utilize sub-advisers to manage the Fund, the investment management agreement authorizes the Adviser to retain one or more sub-advisers at its own cost to provide advisory services to the Fund. The Fund currently is team-managed by members of the Adviser's "Global Natural Resources Team" ("GNR Team") who seek to invest in commodity-producing companies that create value for investors independent of changes in commodity prices ("GNR Strategies").[1]

On January 7, 2014, the Adviser and certain members of the GNR Team entered into a separation agreement that provides for the separation of the investment management business of the GNR Team from that of the Adviser ("Separation"). The GNR Team and the Adviser are diligently working towards completion of the Separation by April 30, 2014 ("Closing Date").[2] In order to meet that deadline, the GNR Team has formed a new legal entity, SailingStone, which is registered as an investment adviser with the Commission in accordance with the Advisers Act. The Adviser and the GNR Team believe that it is in the best interests of the Fund and its shareholders for (i) the GNR Team to continue to advise the Fund and (ii) there to be no interruption of those advisory services after the Closing Date. In this regard, the Adviser and the GNR Team think that the best and most practical solution for the Fund would be to engage SailingStone to serve as an investment sub-adviser to the Adviser with respect to the Fund after the Closing Date, but before the date when a definitive sub-advisory agreement is approved by Fund shareholders. 

ANALYSIS

Section 15(a) of the 1940 Act prohibits a person from serving 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 outstanding voting securities of the registered investment company. Rule 15a-4 under the 1940 Act provides a temporary exemption from the shareholder approval requirement in section 15(a) in circumstances in which the previous advisory contract was terminated by the board of directors or by the vote of a majority of the outstanding voting securities of the registered investment company, by a failure to renew the previous advisory contract, or by an assignment of the previous advisory contract, as defined in section 2(a)(4) of the 1940 Act ("Rule 15a-4 Events"). Rule 15a-4 permits a person to act as an investment adviser to a registered investment company under an interim advisory agreement that has not been approved by the company's shareholders for a period of 150 days following the date on which the previous contract terminated, subject to the requirements set forth in the rule.[3]
Rule 15a-4 was designed to prevent registered investment companies from being harmed by losing investment advisory services before shareholders can approve a new investment advisory contract.[4]

Under section 15(a) of the 1940 Act, an investment sub-advisory agreement with SailingStone ("New Sub-Advisory Agreement") will require approval by a majority of the Fund's outstanding voting securities. You state that the Separation and related resignation of the GNR Team do not involve a Rule 15a-4 Event and that the Fund, the Adviser, and SailingStone may not rely on the temporary exemption provided by rule 15a-4, pending shareholder approval of the New Sub-Advisory Agreement.

You state that, to ensure continuity of portfolio management services to the Fund pending shareholder approval of the New Sub-Advisory Agreement, the Fund and the Adviser would like to enter into an interim sub-advisory agreement with SailingStone without a shareholder vote for a period of not more than 150 days following the Effective Date (the period, "Interim Period," and the sub-advisory agreement, "Interim Sub-Advisory Agreement"). You state that the Interim Sub-Advisory Agreement will comply with the provisions of rule 15a-4(b)(2) under the 1940 Act. You base this determination on the fact that SailingStone, or a controlling person of SailingStone (and, indirectly, the GNR Team), will directly or indirectly receive a benefit from its engagement as sub-adviser because the Adviser will pay fees to SailingStone for providing management services to the Fund. You note that the Fund and the Adviser do not currently utilize sub-advisers to manage the Fund, and thus there is no previous compensation or sub-advisory contract against which to compare the compensation proposed to be paid to SailingStone or the proposed Interim Sub-Advisory Agreement. You state however, that pursuant to the Interim Sub-Advisory Agreement, SailingStone will be compensated and supervised by the Adviser and the fees paid by the Fund to the Adviser under the Advisory Agreement will remain unchanged. You also state that a shareholder meeting to approve the New Sub-Advisory Agreement will be held during the Interim Period.

You request assurance that we would not recommend enforcement action to the Commission under section 15(a) of the 1940 Act against the Fund, the Adviser or SailingStone if SailingStone serves as investment adviser to the Fund pursuant to an Interim Sub-Advisory Agreement that has not been approved by the vote of a majority of the Fund's outstanding voting securities. You state that your request is within the spirit of rule 15a-4.[5] You state that the Adviser believes that it is the best interests of the Fund to have SailingStone provide the continuing investment advisory services of the GNR Team as sub-adviser to the Fund until shareholder approval for the New Sub-Advisory Agreement is obtained. You state that the Fund and the Adviser needed a reasonable period of time to perform sufficient due diligence regarding SailingStone and to provide the Fund's board with sufficient information and opportunity to consider approval of the New Sub-Advisory Agreement. Under these circumstances, the Adviser and the Fund do not have a sufficient opportunity prior to the Closing Date to obtain shareholder approval of a New Sub-Advisory Agreement for the Fund. You state that service by the SailingStone under the Interim Sub-Advisory Agreement would facilitate the orderly and reasonable consideration of the New Sub-Advisory Agreement by the Fund's shareholders while minimizing disruption of the Fund's operations. 

Based on the facts and representations set forth in your letter, we would not recommend enforcement action to the Commission under section 15(a) of the 1940 Act against the Fund, the Adviser, or SailingStone if the Fund and the Adviser enter into an Interim Sub-Advisory Agreement that has not been approved by the vote of a majority of the outstanding voting securities of the Fund. Because our position is based upon the facts and representations in your letter, any different facts and representations may require a different conclusion.

Holly Hunter-Ceci
Acting Branch Chief

Incoming Letter

---

The Incoming Letter is in Acrobat format.