IronBridge Capital Management LP; The Hirtle Callaghan Trust; Notice of Application, 57613-57615 [E7-19913]
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Federal Register / Vol. 72, No. 195 / Wednesday, October 10, 2007 / Notices
advisory fee will be negotiated on an
arm’s-length basis between Franklin and
the investment company or its primary
investment adviser; (ii) the fee structure
will contain a performance hurdle that
is, at all times, no lower than the base
fee; and should the base fee change, the
hurdle also will be changed to match
the base fee and to ensure that the
investment advisory fee continues to
have the potential to increase and
decrease proportionally; (iii) neither
Franklin nor any of its affiliates will
serve as distributor or sponsor of the
investment company; (iv) no member of
the board of the investment company
will be affiliated with Franklin or its
affiliates; (v) neither Franklin nor any of
its affiliates will organize the
investment company; (vi) neither
Franklin nor any of its affiliates will be
an affiliated person of any primary
adviser to the investment company or of
any other person who provides advice
with respect to the investment
company’s advisory relationships
(except to the extent that Franklin and/
or its affiliates may be affiliated with
another portfolio manager by virtue of
the fact that Franklin or the affiliate
serves as a portfolio manager to the
investment company or to another
investment company); and (vii) other
than described in this application, the
Applicants will comply with section
205 and rules 205–1 and 205–2 under
the Advisers Act.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E7–19912 Filed 10–9–07; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IA–2667; 803–186]
IronBridge Capital Management LP;
The Hirtle Callaghan Trust; Notice of
Application
October 3, 2007.
Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’).
ACTION: Notice of Application for
Exemption under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’).
AGENCY:
IronBridge Capital
Management LP (‘‘IronBridge’’); The
Hirtle Callaghan Trust (‘‘Trust’’);
together (‘‘Applicants’’).
RELEVANT ADVISERS ACT SECTIONS:
Exemption requested under section
206A of the Advisers Act from section
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APPLICANTS:
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205 of the Advisers Act and Advisers
Act rule 205–1.
SUMMARY OF APPLICATION: Applicants
request an order permitting IronBridge
to charge a performance fee based on the
performance of that portion of a Trust
portfolio managed by IronBridge
(‘‘IronBridge Account’’). Applicants
further request that the order permit
them to compute the performancerelated portion of the fee using changes
in the IronBridge Account’s gross asset
value rather than net asset value.
FILING DATES: The application was filed
on July 7, 2005, and amended and
restated on August 3, 2006 and October
1, 2007.
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 copies of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on October 29, 2007, and
should be accompanied by proof of
service on 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 may request
notification of a hearing by writing to
the Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090.
Applicants, IronBridge Capital
Management LP, c/o Samuel T. Eddins,
One Parkview Plaza, Suite 600,
Oakbrook Terrace, Illinois 60181; The
Hirtle Callaghan Trust, c/o Rhonda Fell,
Five Tower Bridge, 300 Barr Harbor
Drive, Suite 500, West Conshohocken,
PA 19428.
FOR FURTHER INFORMATION CONTACT:
David W. Blass, Assistant Director, or
Vivien Liu, Senior Counsel, at (202)
551–6787 (Office of Investment Adviser
Regulation, Division of Investment
Management).
The
following is a summary of the
application. The complete application
may be obtained for a fee at the
Commission’s Public Reference Branch,
100 F Street, NE., Washington, DC
20549–0102 (telephone (202) 551–5850).
SUPPLEMENTARY INFORMATION:
Applicant’s Representations
1. IronBridge is an investment adviser
registered under the Advisers Act. The
Trust is an open-end management
investment company registered under
the Investment Company Act of 1940.
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57613
The Trust was organized in 1994 by
Hirtle, Callaghan & Co. (‘‘Hirtle
Callaghan’’), an investment adviser
registered under the Advisers Act. The
Trust is a series company that currently
consists of several separate investment
portfolios. Shares of the Trust are
available only to clients of Hirtle
Callaghan or clients of financial
intermediaries, such as investment
advisers that are acting in a fiduciary
capacity with investment discretion and
that have established relationships with
Hirtle Callaghan.
2. Hirtle Callaghan serves as a
‘‘manager of managers’’ for the Trust.
Hirtle Callaghan is responsible for
monitoring the overall investment
performance of the Trust’s portfolios
and the performance of the portfolio
managers that manage the Trust’s
portfolios. Hirtle Callaghan may also
from time to time recommend that the
Trust’s Board of Trustees (the ‘‘Board’’)
retain additional portfolio managers or
terminate existing portfolio managers.
Authority to select new portfolio
managers and reallocate assets among
the portfolio managers, however, resides
with the Trust’s Board.
3. IronBridge is one of five investment
advisers that provide portfolio
management services to the Small
Capitalization Equity Portfolio
(‘‘Portfolio’’) of the Trust. Each of these
advisers is responsible for the
management of a discrete portion of the
Portfolio’s assets on a day-to-day basis.
In doing so each acts as though it were
advising a separate investment
company. Percentage limitations on
investments are applied to each portion
of the Portfolio without regard to the
investments in the other advisers’
portions of the Portfolio. When each
adviser receives information about
portfolio positions from the Trust or its
custodian, the adviser generally receives
only information about the portion of
the Portfolio assigned to it, and not
information about the positions held by
the Portfolio as a whole. Each adviser
generally is responsible for preparing
reports to the Trust and the Board only
with respect to its discrete portion of the
Portfolio.
4. IronBridge is not affiliated with
Hirtle Callaghan, the Trust or any other
investment advisory organization that
provides portfolio management and
services to the Trust.1 Services provided
to the Trust by IronBridge are limited to
investment selection for the IronBridge
Account, placement of transactions for
1 IronBridge does not have any affiliates at this
time. Future affiliates, if any, will comply with the
terms of any order issued by the Commission in
connection with this application.
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Federal Register / Vol. 72, No. 195 / Wednesday, October 10, 2007 / Notices
execution, and certain compliance
functions directly related to such
services. IronBridge and its affiliates do
not act as a distributor or sponsor for the
Trust or Portfolio. No member of the
Trust’s Board is affiliated with
IronBridge.
5. IronBridge currently receives a fee
at the annual rate of 0.60 percent of the
average daily net assets of the
IronBridge Account, payable monthly.
On August 26, 2004 the Trust’s Board
approved an amendment to the portfolio
management agreement between
IronBridge and the Trust under which
the existing fee structure would be
replaced with a fee structure that
includes a performance component
(‘‘Proposed Amendment’’). On October
25, 2004 the shareholders of the
Portfolio approved the Proposed
Amendment. The Proposed Amendment
would become effective on the first day
of the month following receipt of an
order from the SEC approving the
application. IronBridge’s fee would be
adjusted to reflect the performance of
the IronBridge Account only after the
Proposed Amendment has been in effect
for 12 months (the ‘‘Initial Period’’).
6. Under the proposed fee
arrangement, at the end of each of the
first three quarters of the Initial Period,
IronBridge would receive a base fee at
the annual rate of 0.60 percent of the
average daily net assets of the
IronBridge Account (‘‘Base Fee’’).2 At
the end of the fourth quarter of the
Initial Period, IronBridge would receive
the Base Fee adjusted by a factor
referred to as the performance
component. The performance
component would equal 25 percent of
the difference between (i) the total
return of the IronBridge Account during
the preceding 12 months calculated
without regard to the expenses incurred
in the operation of the IronBridge
Account (‘‘Gross Total Return’’) and (ii)
the sum of the total return of the Russell
2000 Index (‘‘Index Return’’) during the
same 12-month period plus a
performance hurdle of 60 basis points
(‘‘Performance Component’’).
7. None of the expenses of the
Portfolio, including IronBridge’s
advisory fee, would be deducted from
the performance of the IronBridge
Account for purposes of calculating the
Gross Total Return. However, the Gross
Total Return would reflect the effect
(i.e., reducing performance) of all
applicable brokerage and transaction
costs.
2 The Base Fee is calculated as follows:
{[(.60%)(average daily net assets)] /X} x N, where
‘‘X’’ = the number of days in the preceding 12
month period and ‘‘N’’ = the number of days in the
quarter.
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8. Because no performance
adjustment will be paid until the end of
the Initial Period, it is possible that
payments of the Base Fee made to
IronBridge during the first nine months
may exceed the appropriate
performance-adjusted fee if the
Performance Component has been
negative. In the event of such an
occurrence, the Proposed Amendment
provides a ‘‘recoupment feature’’
pursuant to which the advisory fees
payable to IronBridge will be reduced
until the difference between the
aggregate quarterly fees received by
IronBridge with respect to the Initial
Period and the performance adjusted fee
is fully recouped by the Trust. However,
if the portfolio management agreement
with IronBridge is terminated before any
recoupment has been fully accounted
for, the Trust would not be able to
recoup any outstanding excess that had
been paid in previous quarters.
9. For each quarter following the
fourth quarter of the Initial Period,
IronBridge would receive the quarterly
payments of the Base Fee
(approximately 15 percent (15 basis
points) of the average daily net assets of
the IronBridge Account), plus or minus
25 percent of the Performance
Component multiplied by the average
daily net assets of the IronBridge
Account for the immediately preceding
12-month period, on a ‘‘rolling basis.’’ 3
10. The maximum annual fee payable
for any 12-month period would not
exceed 1.20 percent (120 basis points),
or 0.30 percent (30 basis points) with
respect to any quarter. IronBridge is not
guaranteed any minimum annual fee.
Therefore, it is possible that
IronBridge’s annual fee may fall to zero.
Applicants’ Legal Analysis
1. Section 205(a)(1) of the Advisers
Act generally prohibits an investment
adviser from entering into any
investment advisory agreement that
provides for compensation to the
adviser on the basis of a share of capital
gains or capital appreciation of a client’s
account.
2. Section 205(b) of the Advisers Act
provides a limited exception to this
prohibition, permitting an adviser to
charge a registered investment company
and certain other persons a fee that is
based on asset value of the company or
3 ‘‘Rolling Basis’’ means that, at each quarterly fee
calculation, the Gross Total Return of the
IronBridge Account, the Index Return and the
average daily net assets of the IronBridge Account
for the most recent quarter will be substituted for
the corresponding values of the earliest quarter
included in the prior fee calculation. Both the Base
Fee and the Performance Component are calculated
based on the same rolling period as described in
this footnote and the accompanying text.
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Sfmt 4703
fund under management averaged over
a specified period and increases and
decreases ‘‘proportionately with the
investment performance of the company
or fund over a specified period in
relation to the investment record of an
appropriate index of securities prices or
such other measure of investment
performance as the Commission by rule,
regulation or order may specify.’’
3. Rule 205–1 under the Advisers Act
requires that the investment
performance of an investment company
be computed based on the change in the
net (of all expenses and fees) asset value
per share of the investment company.
4. Applicants request exemptive relief
from section 205 of the Advisers Act
and rule 205–1 thereunder to permit
them to (i) apply the proposed fee only
to the IronBridge Account and not to the
Portfolio as a whole, and (ii) compute
the Performance Component measured
by the change in the IronBridge
Account’s gross asset value, rather than
the change in its net asset value.
5. Applicants state that Congress, in
adopting and amending section 205 of
the Advisers Act, and the SEC, in
adopting rule 205–1, put into place
safeguards designed to ensure that
investment advisers would not take
advantage of advisory clients.
6. Applicants assert that the
Commission required that performance
fees be calculated based on the net asset
value of the investment company’s
shares to prevent a situation where an
adviser could earn a performance fee
even though investment company
shareholders did not derive any benefit
from the adviser’s performance after the
deduction of fees and expenses.
7. Applicants state that, unlike
traditional performance fee
arrangements, IronBridge would not
receive the Performance Component of
its fee unless its management of the
IronBridge Account has resulted in
performance in excess of the Index
performance plus a ‘‘performance
hurdle’’ equal to the 0.60 percent of the
average daily net asset value of the
IronBridge Account. Applicants assert
that increasing the performance of the
Index by the 0.60 percent hurdle would
have an effect similar to deducting
IronBridge’s fees. In the event the Base
Fee changes, the performance hurdle
also would be changed to match the
Base Fee. Applicants state that since the
fee structure contains a performance
hurdle, the Portfolio’s shareholders will
have protections similar to those
contemplated by the net asset value
requirement of rule 205–1.
8. Applicants suggest that Congress’
concern, in enacting the safeguards of
section 205, came about because the
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rwilkins on PROD1PC63 with NOTICES
vast majority of investment advisers
exercised a high level of control over the
structuring of the advisory relationship.
Applicants state that the proposed fee,
however, was negotiated actively at
arm’s length between the Trust and
IronBridge. Applicants state that
IronBridge has little, if any, influence
over the overall management of the
Trust or the Portfolio beyond stock
selection, and does not control the
Portfolio or the Trust. Management
functions of the Trust and the Portfolio
reside in the Trust’s Board. The Trust is
directly and fully responsible for
supervising the Trust’s service providers
and monitoring expenses of each of the
Trust’s portfolios. The Trust’s Board is
responsible for allocating the assets of
the several portfolios among the
portfolio managers. Neither IronBridge
nor any of its affiliates sponsored or
organized the Trust, or serves as a
distributor or principal underwriter of
the Trust. IronBridge and its affiliates do
not own any shares issued by the Trust.
No officer, director or employee of
IronBridge, nor any of its affiliates,
serves as an executive officer or director
of the Trust. Neither IronBridge nor any
of its affiliates is an affiliated person of
Hirtle Callaghan or any other person
who provides investment advice with
respect to the Trust’s advisory
relationships (except to the extent that
such affiliation may exist by reason of
IronBridge or any of its affiliates serving
as investment adviser to the Trust). No
member of the Trust’s Board is affiliated
with IronBridge.
9. Applicants state that the proposed
fee arrangement satisfies the purpose of
rule 205–1 because it was negotiated at
arms-length and the Trust, for the
reasons stated in the previous
paragraphs, does not need the
protections afforded by calculating a
performance fee based on net assets.
Applicants argue that the proposed fee
arrangement is therefore consistent with
the underlying policies of section 205
and rule 205–1 under the Advisers Act
and that the exemption would be
consistent with the protection of
investors.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. If the Base Fee changes, the
performance hurdle will be changed to
match the Base Fee and to ensure that
the investment advisory fee continue to
have the potential to increase and
decrease proportionately.
2. To the extent IronBridge relies on
the requested order with respect to
advisory arrangements with other
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investment companies that it advises,
those arrangements will meet the
following requirements: (i) The
investment advisory fee will be
negotiated on an arm’s-length basis
between IronBridge and the investment
company or its primary investment
adviser; (ii) the fee structure will
contain a performance hurdle that is, at
all times, no lower than the base fee;
and should the base fee change, the
hurdle also will be changed to match
the base fee and to ensure that the
investment advisory fee continue to
have the potential to increase and
decrease proportionally; (iii) neither
IronBridge nor any of its affiliates will
serve as distributor or sponsor of the
investment company; (iv) no member of
the board of the investment company
will be affiliated with IronBridge or its
affiliates; (v) neither IronBridge nor any
of its affiliates will organize the
investment company; (vi) neither
IronBridge nor any of its affiliates will
be an affiliated person of any primary
adviser to the investment company or of
any other person who provides advice
with respect to the investment
company’s advisory relationships
(except to the extent that IronBridge
and/or its affiliates may be affiliated
with another portfolio manager by
virtue of the fact that IronBridge or the
affiliate serves as a portfolio manager to
the investment company or to another
investment company); and (vii) other
than described in this application,
Applicants will comply with section
205 and rules 205–1 and 205–2 under
the Advisers Act.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E7–19913 Filed 10–9–07; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Pub. L. 94–409, that the
Securities and Exchange Commission
will hold the following meeting during
the week of October 9, 2007:
A Closed Meeting will be held on
Thursday, October 11, 2007 at 1:30 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters may also be present.
Frm 00103
Fmt 4703
Sfmt 4703
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(5), (7), (9)(B), and (10)
and 17 CFR 200.402(a)(5), (7), 9(ii) and
(10), permit consideration of the
scheduled matters at the Closed
Meeting.
Commissioner Casey, as duty officer,
voted to consider the items listed for the
closed meeting in closed session.
The subject matter of the Closed
Meeting scheduled for Thursday,
October 11, 2007 will be:
Formal order of investigation;
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings of an
enforcement nature;
Resolution of litigation claims;
An adjudicatory matter; and
Other matters related to enforcement
actions.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact:
The Office of the Secretary at (202)
551–5400.
Dated: October 4, 2007.
Nancy M. Morris,
Secretary.
[FR Doc. E7–19923 Filed 10–9–07; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56598; File No. SR–Amex–
2007–48]
Self-Regulatory Organizations;
American Stock Exchange LLC; Order
Approving Proposed Rule Change
Modifying the Options Listing Criteria
for Underlying Securities
October 2, 2007.
Sunshine Act Meeting
PO 00000
57615
On May 17, 2007, the American Stock
Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend Amex’s options listing
criteria to allow Amex to list and trade
equity options that do not meet Amex’s
initial listing standards if such options
are listed and traded on another
1 15
2 17
E:\FR\FM\10OCN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
10OCN1
Agencies
[Federal Register Volume 72, Number 195 (Wednesday, October 10, 2007)]
[Notices]
[Pages 57613-57615]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-19913]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-2667; 803-186]
IronBridge Capital Management LP; The Hirtle Callaghan Trust;
Notice of Application
October 3, 2007.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Advisers Act of 1940 (``Advisers Act'').
-----------------------------------------------------------------------
Applicants: IronBridge Capital Management LP (``IronBridge''); The
Hirtle Callaghan Trust (``Trust''); together (``Applicants'').
Relevant Advisers Act Sections: Exemption requested under section 206A
of the Advisers Act from section 205 of the Advisers Act and Advisers
Act rule 205-1.
Summary of Application: Applicants request an order permitting
IronBridge to charge a performance fee based on the performance of that
portion of a Trust portfolio managed by IronBridge (``IronBridge
Account''). Applicants further request that the order permit them to
compute the performance-related portion of the fee using changes in the
IronBridge Account's gross asset value rather than net asset value.
Filing Dates: The application was filed on July 7, 2005, and amended
and restated on August 3, 2006 and October 1, 2007.
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 copies of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on October 29, 2007, and should be accompanied by proof of service
on 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 may request notification of a hearing by writing to
the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090. Applicants, IronBridge Capital
Management LP, c/o Samuel T. Eddins, One Parkview Plaza, Suite 600,
Oakbrook Terrace, Illinois 60181; The Hirtle Callaghan Trust, c/o
Rhonda Fell, Five Tower Bridge, 300 Barr Harbor Drive, Suite 500, West
Conshohocken, PA 19428.
FOR FURTHER INFORMATION CONTACT: David W. Blass, Assistant Director, or
Vivien Liu, Senior Counsel, at (202) 551-6787 (Office of Investment
Adviser Regulation, Division of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC
20549-0102 (telephone (202) 551-5850).
Applicant's Representations
1. IronBridge is an investment adviser registered under the
Advisers Act. The Trust is an open-end management investment company
registered under the Investment Company Act of 1940. The Trust was
organized in 1994 by Hirtle, Callaghan & Co. (``Hirtle Callaghan''), an
investment adviser registered under the Advisers Act. The Trust is a
series company that currently consists of several separate investment
portfolios. Shares of the Trust are available only to clients of Hirtle
Callaghan or clients of financial intermediaries, such as investment
advisers that are acting in a fiduciary capacity with investment
discretion and that have established relationships with Hirtle
Callaghan.
2. Hirtle Callaghan serves as a ``manager of managers'' for the
Trust. Hirtle Callaghan is responsible for monitoring the overall
investment performance of the Trust's portfolios and the performance of
the portfolio managers that manage the Trust's portfolios. Hirtle
Callaghan may also from time to time recommend that the Trust's Board
of Trustees (the ``Board'') retain additional portfolio managers or
terminate existing portfolio managers. Authority to select new
portfolio managers and reallocate assets among the portfolio managers,
however, resides with the Trust's Board.
3. IronBridge is one of five investment advisers that provide
portfolio management services to the Small Capitalization Equity
Portfolio (``Portfolio'') of the Trust. Each of these advisers is
responsible for the management of a discrete portion of the Portfolio's
assets on a day-to-day basis. In doing so each acts as though it were
advising a separate investment company. Percentage limitations on
investments are applied to each portion of the Portfolio without regard
to the investments in the other advisers' portions of the Portfolio.
When each adviser receives information about portfolio positions from
the Trust or its custodian, the adviser generally receives only
information about the portion of the Portfolio assigned to it, and not
information about the positions held by the Portfolio as a whole. Each
adviser generally is responsible for preparing reports to the Trust and
the Board only with respect to its discrete portion of the Portfolio.
4. IronBridge is not affiliated with Hirtle Callaghan, the Trust or
any other investment advisory organization that provides portfolio
management and services to the Trust.\1\ Services provided to the Trust
by IronBridge are limited to investment selection for the IronBridge
Account, placement of transactions for
[[Page 57614]]
execution, and certain compliance functions directly related to such
services. IronBridge and its affiliates do not act as a distributor or
sponsor for the Trust or Portfolio. No member of the Trust's Board is
affiliated with IronBridge.
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\1\ IronBridge does not have any affiliates at this time. Future
affiliates, if any, will comply with the terms of any order issued
by the Commission in connection with this application.
---------------------------------------------------------------------------
5. IronBridge currently receives a fee at the annual rate of 0.60
percent of the average daily net assets of the IronBridge Account,
payable monthly. On August 26, 2004 the Trust's Board approved an
amendment to the portfolio management agreement between IronBridge and
the Trust under which the existing fee structure would be replaced with
a fee structure that includes a performance component (``Proposed
Amendment''). On October 25, 2004 the shareholders of the Portfolio
approved the Proposed Amendment. The Proposed Amendment would become
effective on the first day of the month following receipt of an order
from the SEC approving the application. IronBridge's fee would be
adjusted to reflect the performance of the IronBridge Account only
after the Proposed Amendment has been in effect for 12 months (the
``Initial Period'').
6. Under the proposed fee arrangement, at the end of each of the
first three quarters of the Initial Period, IronBridge would receive a
base fee at the annual rate of 0.60 percent of the average daily net
assets of the IronBridge Account (``Base Fee'').\2\ At the end of the
fourth quarter of the Initial Period, IronBridge would receive the Base
Fee adjusted by a factor referred to as the performance component. The
performance component would equal 25 percent of the difference between
(i) the total return of the IronBridge Account during the preceding 12
months calculated without regard to the expenses incurred in the
operation of the IronBridge Account (``Gross Total Return'') and (ii)
the sum of the total return of the Russell 2000 Index (``Index
Return'') during the same 12-month period plus a performance hurdle of
60 basis points (``Performance Component'').
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\2\ The Base Fee is calculated as follows: {[(.60%)(average
daily net assets)] /X{time} x N, where ``X'' = the number of days
in the preceding 12 month period and ``N'' = the number of days in
the quarter.
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7. None of the expenses of the Portfolio, including IronBridge's
advisory fee, would be deducted from the performance of the IronBridge
Account for purposes of calculating the Gross Total Return. However,
the Gross Total Return would reflect the effect (i.e., reducing
performance) of all applicable brokerage and transaction costs.
8. Because no performance adjustment will be paid until the end of
the Initial Period, it is possible that payments of the Base Fee made
to IronBridge during the first nine months may exceed the appropriate
performance-adjusted fee if the Performance Component has been
negative. In the event of such an occurrence, the Proposed Amendment
provides a ``recoupment feature'' pursuant to which the advisory fees
payable to IronBridge will be reduced until the difference between the
aggregate quarterly fees received by IronBridge with respect to the
Initial Period and the performance adjusted fee is fully recouped by
the Trust. However, if the portfolio management agreement with
IronBridge is terminated before any recoupment has been fully accounted
for, the Trust would not be able to recoup any outstanding excess that
had been paid in previous quarters.
9. For each quarter following the fourth quarter of the Initial
Period, IronBridge would receive the quarterly payments of the Base Fee
(approximately 15 percent (15 basis points) of the average daily net
assets of the IronBridge Account), plus or minus 25 percent of the
Performance Component multiplied by the average daily net assets of the
IronBridge Account for the immediately preceding 12-month period, on a
``rolling basis.'' \3\
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\3\ ``Rolling Basis'' means that, at each quarterly fee
calculation, the Gross Total Return of the IronBridge Account, the
Index Return and the average daily net assets of the IronBridge
Account for the most recent quarter will be substituted for the
corresponding values of the earliest quarter included in the prior
fee calculation. Both the Base Fee and the Performance Component are
calculated based on the same rolling period as described in this
footnote and the accompanying text.
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10. The maximum annual fee payable for any 12-month period would
not exceed 1.20 percent (120 basis points), or 0.30 percent (30 basis
points) with respect to any quarter. IronBridge is not guaranteed any
minimum annual fee. Therefore, it is possible that IronBridge's annual
fee may fall to zero.
Applicants' Legal Analysis
1. Section 205(a)(1) of the Advisers Act generally prohibits an
investment adviser from entering into any investment advisory agreement
that provides for compensation to the adviser on the basis of a share
of capital gains or capital appreciation of a client's account.
2. Section 205(b) of the Advisers Act provides a limited exception
to this prohibition, permitting an adviser to charge a registered
investment company and certain other persons a fee that is based on
asset value of the company or fund under management averaged over a
specified period and increases and decreases ``proportionately with the
investment performance of the company or fund over a specified period
in relation to the investment record of an appropriate index of
securities prices or such other measure of investment performance as
the Commission by rule, regulation or order may specify.''
3. Rule 205-1 under the Advisers Act requires that the investment
performance of an investment company be computed based on the change in
the net (of all expenses and fees) asset value per share of the
investment company.
4. Applicants request exemptive relief from section 205 of the
Advisers Act and rule 205-1 thereunder to permit them to (i) apply the
proposed fee only to the IronBridge Account and not to the Portfolio as
a whole, and (ii) compute the Performance Component measured by the
change in the IronBridge Account's gross asset value, rather than the
change in its net asset value.
5. Applicants state that Congress, in adopting and amending section
205 of the Advisers Act, and the SEC, in adopting rule 205-1, put into
place safeguards designed to ensure that investment advisers would not
take advantage of advisory clients.
6. Applicants assert that the Commission required that performance
fees be calculated based on the net asset value of the investment
company's shares to prevent a situation where an adviser could earn a
performance fee even though investment company shareholders did not
derive any benefit from the adviser's performance after the deduction
of fees and expenses.
7. Applicants state that, unlike traditional performance fee
arrangements, IronBridge would not receive the Performance Component of
its fee unless its management of the IronBridge Account has resulted in
performance in excess of the Index performance plus a ``performance
hurdle'' equal to the 0.60 percent of the average daily net asset value
of the IronBridge Account. Applicants assert that increasing the
performance of the Index by the 0.60 percent hurdle would have an
effect similar to deducting IronBridge's fees. In the event the Base
Fee changes, the performance hurdle also would be changed to match the
Base Fee. Applicants state that since the fee structure contains a
performance hurdle, the Portfolio's shareholders will have protections
similar to those contemplated by the net asset value requirement of
rule 205-1.
8. Applicants suggest that Congress' concern, in enacting the
safeguards of section 205, came about because the
[[Page 57615]]
vast majority of investment advisers exercised a high level of control
over the structuring of the advisory relationship. Applicants state
that the proposed fee, however, was negotiated actively at arm's length
between the Trust and IronBridge. Applicants state that IronBridge has
little, if any, influence over the overall management of the Trust or
the Portfolio beyond stock selection, and does not control the
Portfolio or the Trust. Management functions of the Trust and the
Portfolio reside in the Trust's Board. The Trust is directly and fully
responsible for supervising the Trust's service providers and
monitoring expenses of each of the Trust's portfolios. The Trust's
Board is responsible for allocating the assets of the several
portfolios among the portfolio managers. Neither IronBridge nor any of
its affiliates sponsored or organized the Trust, or serves as a
distributor or principal underwriter of the Trust. IronBridge and its
affiliates do not own any shares issued by the Trust. No officer,
director or employee of IronBridge, nor any of its affiliates, serves
as an executive officer or director of the Trust. Neither IronBridge
nor any of its affiliates is an affiliated person of Hirtle Callaghan
or any other person who provides investment advice with respect to the
Trust's advisory relationships (except to the extent that such
affiliation may exist by reason of IronBridge or any of its affiliates
serving as investment adviser to the Trust). No member of the Trust's
Board is affiliated with IronBridge.
9. Applicants state that the proposed fee arrangement satisfies the
purpose of rule 205-1 because it was negotiated at arms-length and the
Trust, for the reasons stated in the previous paragraphs, does not need
the protections afforded by calculating a performance fee based on net
assets. Applicants argue that the proposed fee arrangement is therefore
consistent with the underlying policies of section 205 and rule 205-1
under the Advisers Act and that the exemption would be consistent with
the protection of investors.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. If the Base Fee changes, the performance hurdle will be changed
to match the Base Fee and to ensure that the investment advisory fee
continue to have the potential to increase and decrease
proportionately.
2. To the extent IronBridge relies on the requested order with
respect to advisory arrangements with other investment companies that
it advises, those arrangements will meet the following requirements:
(i) The investment advisory fee will be negotiated on an arm's-length
basis between IronBridge and the investment company or its primary
investment adviser; (ii) the fee structure will contain a performance
hurdle that is, at all times, no lower than the base fee; and should
the base fee change, the hurdle also will be changed to match the base
fee and to ensure that the investment advisory fee continue to have the
potential to increase and decrease proportionally; (iii) neither
IronBridge nor any of its affiliates will serve as distributor or
sponsor of the investment company; (iv) no member of the board of the
investment company will be affiliated with IronBridge or its
affiliates; (v) neither IronBridge nor any of its affiliates will
organize the investment company; (vi) neither IronBridge nor any of its
affiliates will be an affiliated person of any primary adviser to the
investment company or of any other person who provides advice with
respect to the investment company's advisory relationships (except to
the extent that IronBridge and/or its affiliates may be affiliated with
another portfolio manager by virtue of the fact that IronBridge or the
affiliate serves as a portfolio manager to the investment company or to
another investment company); and (vii) other than described in this
application, Applicants will comply with section 205 and rules 205-1
and 205-2 under the Advisers Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E7-19913 Filed 10-9-07; 8:45 am]
BILLING CODE 8011-01-P