SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. _______)
Check the appropriate box:
[ ] Preliminary information statement
X Definitive information statement
[ ] Confidential, for use of the Commission only (as permitted by Rule 14c-5(d) (2)).
Optimum Fund Trust
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (check the appropriate box):
X No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
OPTIMUM FUND TRUST
OPTIMUM LARGE CAP VALUE FUND
2005 Market Street
Philadelphia, PA 19103-7094
INFORMATION STATEMENT
This Information Statement is being furnished on behalf of the Board of Trustees (“Trustees” or “Board”) of the Optimum Fund Trust (the “Trust”) to inform shareholders of the Optimum Large Cap Value Fund (the “Fund”) about a recent change related to the Fund’s sub-advisory arrangements. The change was approved by the Board of the Trust on the recommendation of the Fund’s investment manager, Delaware Management Company (the “Manager”), without shareholder approval as is permitted by an order of the U.S. Securities and Exchange Commission (“SEC”). WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement is being mailed on or about December 21, 2010 to shareholders of record of the Fund as of December 10, 2010.
INTRODUCTION
The Manager is the investment manager to each series of the Trust, including the Fund. The Manager employs a “manager of managers” arrangement in managing the assets of the Trust. This permits the Manager, subject to approval by the Board, to hire, terminate, or replace sub-advisers unaffiliated with the Trust or the Manager (“unaffiliated sub-advisers”), and to modify material terms and conditions of sub-advisory agreements with unaffiliated sub-advisers, without shareholder approval. Section 15(a) of the Investment Company Act of 1940 (the “1940 Act”) generally requires that the shareholders of a mutual fund approve an agreement pursuant to which a person serves as investment adviser or sub-adviser of the fund. In order to use the “manager of managers ” authority discussed above, the Manager, the Trust, and certain Delaware Investments affiliates requested and received an exemptive order from the SEC on November 7, 2006 (the “SEC Order”). The SEC Order exempts the Manager, the Trust and other Delaware Investments affiliates from certain of the shareholder approval requirements of Section 15(a) of the 1940 Act and allows the Trust’s Board, subject to certain conditions, to appoint new, unaffiliated sub-advisers and approve new sub-advisory agreements on behalf of the Trust without shareholder approval. The Manager has ultimate responsibility (subject to oversight by the Board) to supervise the sub-advisers and recommend the hiring, termination, and replacement of the sub-advisers to the Board.
Consistent with the terms of the SEC Order, the Board, including a majority of the Trustees who are not “interested persons” of the Trust or of the Manager (the “Independent Trustees”), at a Board meeting held on September 23, 2010 (the “Meeting”), approved a sub-advisory agreement (the “Sub-advisory Agreement”) between the Manager and Herndon Capital Management, LLC (“Herndon”), under which Herndon would serve as the sub-adviser to the Fund, replacing TCW Investment Management Company (“TCW”).
The sub-advisory agreement between TCW and the Manager, on behalf of the Fund, was terminated on November 1, 2010. The decision to terminate the sub-advisory agreement was based upon certain factors, including but not limited to the desire to replace TCW with a sub-adviser who may be more compatible from an investment perspective with the Fund’s other sub-adviser, Massachusetts Financial Services Company (“MFS”).
The Trust and the Manager have agreed to comply with certain conditions when acting in reliance on the relief granted in the SEC Order. These conditions require, among other things, that within ninety (90) days of hiring a new sub-adviser, the affected fund will notify the shareholders of the fund of the changes. This Information Statement provides such notice of the changes and presents details regarding Herndon and the Sub-advisory Agreement.
THE INVESTMENT MANAGER
The Manager is located at 2005 Market Street, Philadelphia, Pennsylvania 19103-7094, and is a series of Delaware Management Business Trust, which is an indirect subsidiary of Delaware Management Holdings, Inc. (“DMH”), which in turn is an indirect subsidiary, and subject to the ultimate control, of Macquarie Group Limited (“Macquarie”). The Manager is registered as an investment adviser with the SEC under the Investment Advisers Act of 1940 (the “Advisers Act”).
The Manager provides investment advisory services to the Fund pursuant to the Investment Management Agreement dated January 4, 2010 between the Trust and the Manager (the “Management Agreement”). The Trust employs the Manager to generally manage the investment and reinvestment of the assets of the Fund. In so doing, the Manager may hire one or more sub-advisers to carry out the investment program of the Fund, subject to the approval of the Board. The Manager continuously reviews and supervises the investment program of the Fund. The Manager furnishes periodic reports to the Board regarding the investment program and performance of the Fund. The Manager has hired LPL Financial Corporation (“LPL”), a registered broker/dealer and investment adviser, as a consulta nt to assist with this process.
Pursuant to the Management Agreement, the Manager has full discretion and responsibility, subject to the overall supervision of the Trust’s Board, to select and contract with one or more investment sub-advisers, to manage the investment operations and composition of the Fund, and to render investment advice for the Fund, including the purchase, retention, and dispositions of investments, securities and cash contained in the Fund. The Management Agreement obligates the Manager to implement decisions with respect to the allocation or reallocation of the Fund’s assets among one or more current or additional sub-advisers, and to monitor the sub-advisers’ compliance with the Fund’s investment objective, policies and restrictions. Under the Management Agreement, the Trust will bear the expenses of conducting its business. In addition, the Manager pays the salaries of all officers and Trustees of the Trust who are officers, directors or employees of the Manager or its affiliates.
For these services, the Fund pays the Manager a fee calculated at an annual rate of 0.80% on average daily net assets up to $100 million; 0.7375% on average daily net assets from $100 million to $250 million; 0.7125% of average daily net assets from $250 million to $500 million; 0.6875% of average daily net assets from $500 million to $1 billion; 0.6675% of average daily net assets from $1 billion to $1.5 billion; and 0.6475% of average daily net assets over $1.5 billion. The Manager has agreed to waive a portion of its fees and/or to reimburse expenses of the Fund to the extent that the Fund’s expenses (excluding any 12b-1 plan expenses, taxes, interest, inverse floater program expenses, brokerage fees, certain insurance costs, and non-routine expenses or costs, including, but not limited to, those relating to reorganiz ations, litigation, conducting shareholder meetings, and liquidations) exceed certain levels. After giving effect to the fee waiver and expense reimbursements, the Manager received advisory fees of $4,034,979 from the Fund for the fiscal year ended March 31, 2010.
The key executives and each trustee of the Manager and their principal occupations are: Patrick P. Coyne, Trustee and President; See Yeng Quek, Trustee and Executive Vice President/Managing Director/Chief Investment Officer, Fixed Income; David P. O’Connor, Trustee and Senior Vice
President/Strategic Investment Relationships and Initiatives/General Counsel; Michael J. Hogan, Executive Vice President/Head of Equity Investments; and Philip N. Russo, Executive Vice President/Chief Administrative Officer. The address of each person listed is 2005 Market Street, Philadelphia, Pennsylvania 19103-7094.
THE SUB-ADVISER
Herndon is located at Herndon Plaza, 100 Auburn Avenue, Suite 300, Atlanta, GA 30303. Herndon is an affiliate of Atlanta Life Financial Group (ALFG) which currently owns 55% of Herndon. The three principals of Herndon listed below own the remaining 45% of Herndon. Herndon is an institutional investment management firm specializing in large capitalization equity strategies. Herndon was founded and registered as an investment adviser in 2001. As of September 30, 2010, Herndon had approximately $1.69 billion in assets under management. The Sub-advisory Agreement between Herndon and the Manager is dated September 24, 2010.
Herndon was approved by the Board to serve as a sub-adviser to the Fund at the Meeting. Herndon is not affiliated with the Manager, and Herndon discharges its responsibilities subject to the oversight and supervision of the Manager. Herndon is compensated out of the fees that the Manager receives from the Fund. There will be no increase in the advisory fees paid by the Fund to the Manager as a consequence of the replacement of TCW by Herndon and the implementation of the Sub-advisory Agreement. The fees paid by the Manager to Her ndon depend upon the fee rates negotiated by the Manager and on the percentage of the Fund’s assets allocated to Herndon by the Manager. In accordance with procedures adopted by the Board, Herndon may effect Fund portfolio transactions through an affiliated broker-dealer and the affiliated broker-dealer may receive brokerage commissions in connection therewith as permitted by applicable law.
Herndon serves as an investment sub-adviser to the registered investment company listed below, which has an investment objective similar to the Fund’s investment objective:
| Fund | | Assets as of September 30, 2010 | | | Annual Sub-Advisory Fee Rate (as a percentage of average daily net assets) | |
| Aston/Herndon Large Cap Value Fund | | $ | 1,042,144 | | | | 0.40 | %* |
*Aston and Herndon share equally in expenses.
The names and principal occupations of the principal executive officers of Herndon and the Herndon portfolio manager primarily responsible for this Fund are listed below. The address of each principal executive officer listed below, as it relates to the person’s position with Herndon, is Herndon Plaza, 100 Auburn Avenue, Suite 300, Atlanta, GA 30303:
| Name | Position |
| Randell Cain, CFA | Principal, Portfolio Manager for Optimum Large Cap Value Fund |
| Kenneth Holley, CFA | Principal, Chief Investment Officer, Portfolio Manager |
| Drake Craig, CFA | Principal, Chief Operating Officer, Portfolio Manager |
| Mellissa D. Craig | Director of Marketing and Operations |
| Marc O. Sydnor | Director of Client Services |
| Annette Marshall | Chief Compliance Officer |
THE SUB-ADVISORY AGREEMENT
The Sub-advisory Agreement was approved by the Board at the Meeting, which was called for the purpose of approving the Sub-advisory Agreement for an initial term of two years. Thereafter, continuance of the Sub-advisory Agreement will require the annual approval of the Board, including a majority of the Independent Trustees. The Sub-advisory Agreement provides that it will terminate automatically in the event of its assignment, except as otherwise provided by applicable law or the SEC Order.
The terms of the Sub-advisory Agreement, other than the rate of compensation paid by the Manager to Herndon, are substantially similar to the sub-advisory agreement between the Manager and TCW, the Fund’s prior sub-adviser.
The Sub-advisory Agreement provides that Herndon, among other duties, will make all investment decisions for its allocated portion of the Fund’s investment portfolio. Herndon, subject to the supervision of the Board and the Manager, will conduct an ongoing program of investment, evaluation, and, if appropriate, sale and reinvestment of its allocated portion of the Fund’s assets. Herndon also will perform certain other administrative and compliance-related functions in connection with the management of its allocated portion of the Fund’s investment portfolio.
The Sub-advisory Agreement provides for Herndon to be compensated based on the average daily net assets of the Fund allocated to Herndon. Herndon is compensated from the fees that the Manager receives from the Fund. Herndon generally will pay all expenses it incurs in connection with its activities under the Sub-advisory Agreement, other than the costs of the Fund’s portfolio securities and other investments.
The Sub-advisory Agreement may be terminated without the payment of any penalty, by: (i) the Manager or the Trust at any time on written notice to Herndon, or (ii) Herndon, on not less than sixty (60) days’ written notice to the Manager and the Trust.
THE MANAGER’S RECOMMENDATION AND
THE BOARD OF TRUSTEES’ CONSIDERATIONS
The Manager recommended the approval of the Sub-advisory Agreement among the Trust, the Manager and Herndon. The Board considered and reviewed information about Herndon, including its personnel, operations and financial condition, which had been provided by Herndon. The Board also reviewed material furnished by the Manager (with the assistance of LPL), including: a memorandum from Manager reviewing the Sub-advisory Agreement and the various services proposed to be rendered by Herndon; research and analysis concerning Manager’s proposal of Herndon; a description of Herndon’s proposed sub-advisory fees under the Sub-advisory Agreement; information concerning Herndon’s organizational structure and the experience of its investment management personnel; a “due diligence” report describing various mater ial items in relation to Herndon’s personnel, organization and policies, copies of Herndon’s compliance policies and procedures and Code of Ethics; and a copy of the Sub-advisory Agreement.
In considering such information and materials, the Independent Trustees received assistance from and met separately with independent counsel. The materials prepared by Fund management specifically in connection with the approval of the Sub-advisory Agreement were sent to the Independent Trustees in advance of the Meeting. While attention was given to all information furnished, the following discusses
under separate headings the primary factors taken into account by the Board in its consideration of the Sub-advisory Agreement.
Nature, Extent and Quality of Services. In considering the nature, extent and quality of the services to be provided by Herndon, the Board specifically considered that the Sub-advisory Agreement contains substantially similar provisions to those in the prior TCW sub-advisory agreement except for the provisions relating to the fees. The Board reviewed materials provided by Herndon regarding the experience and qualifications of personnel who will be responsible for managing Herndon’s portion of the Fund, and placed weight on Herndon’s performance in managing an existing account (the “Herndon Account”) in a similar investment strategy to the one they would employ for the Fund. The Board also considered that Herndon would co-manage the Fund with another advis er, MFS. The Board considered the compatibility of the two advisers’ investment philosophies and methodologies. Based upon these considerations, the Board determined that the nature, extent and quality of the services to be provided by Herndon under the Sub-advisory Agreement were satisfactory.
Investment Performance. The Board reviewed information on the performance of the Herndon Account over various time periods. The Board also reviewed an analysis showing the projected composite investment performance of the Fund that would have resulted from combining the performance of Herndon in managing the Herndon Account with the performance of MFS in managing its portion of the Fund over various time periods measured in several different ways. In respect to such analysis, the Board noted that Herndon’s investment style seemed a good complement to that followed by MFS, and Herndon’s investment strategy seemed to provide a better ability to offset MFS’s investment biases. The Board believed such information and analysis evidenced the benefits to the Fund and high quality of portfolio management services expected to be provided by Herndon under the Sub-advisory Agreement.
Sub-Advisory Fee; Profitability; and Economies of Scale. The Board was provided with a description of fees to be charged by Herndon under the Sub-advisory Agreement for the Fund, which showed them to be lower than the sub-advisory fees charged by TCW under its sub-advisory agreement. The Board also was provided with information showing that Herndon’s fees were competitive with those charged by Herndon to other comparable investment companies or accounts, and was informed by Fund management that Herndon’s fees were competitive with fees of other investment managers being considered as possible sub-advisers to the Fund. The Board was informed that Herndon may receive certain fall-out benefits in connection with its relationship with the Fund, such as soft-dollar arrangements. The Board also noted that the management fee paid by the Fund to DMC would stay the same at current asset levels. Information about Herndon’s estimated profitability from its relationship with the Fund was not available because it had not begun to provide services to the Fund. The investment management fees for the Fund contained breakpoints with the Fund’s asset size being at a high enough level to benefit from such breakpoints and to the extent economies of scale may be realized in the management of the Fund, the Trustees believed such schedule of fees provided a sharing of benefits with the Fund and its shareholders. Based upon such facts, the Board believed that the fees to be charged by Herndon under the Sub-advisory Agreement were fair and reasonable in relation to the services being provided.
GENERAL INFORMATION
Distributor
The Fund’s distributor, Delaware Distributors, L.P. (“Distributor”), located at 2005 Market Street, Philadelphia, PA 19103-7094, serves as the national distributor of the Trust’s shares under a Distribution Agreement dated January 4, 2010. The Distributor is an affiliate of the Manager and bears all of the costs of promotion and distribution, except for payments by the Class A, Class B and Class C
shares under their respective Rule 12b-1 Plans. The Distributor is an indirect subsidiary of DMH, and, therefore, of Macquarie. The Distributor has agreed to use its best efforts to sell shares of the Fund. Shares of the Fund are offered on a continuous basis by the Distributor and may be purchased through authorized investment dealers. The Board annually reviews fees paid to the Distributor.
Transfer Agent, Administrator and Fund Accountant
Delaware Service Company, Inc. (“DSC”), located at 2005 Market Street, Philadelphia, PA 19103-7094, serves as the Trust’s shareholder servicing, dividend disbursing and transfer agent. DSC provides fund accounting and financial administration oversight services to the Fund. Those services include overseeing the Fund’s pricing process, the calculation and payment of Fund expenses, and financial reporting in shareholder reports, registration statements, and other regulatory filings. Additionally, DSC manages the process for the payment of dividends and distributions and the dissemination of Fund net asset values and performance data. DSC is an affiliate of the Manager, and is an indirect subsidiary of DMH and, therefore, of Macquarie.
The Bank of New York Mellon, One Wall Street, New York, NY 10286, provides fund accounting and financial administration services to the Fund. Those services include performing functions related to calculating the Fund’s net asset value and providing financial reporting information, regulatory compliance testing and other related accounting services.
Payments to Affiliated Brokers
The Fund did not make any payments to an affiliated broker for the fiscal year ended March 31, 2010.
Record of Beneficial Ownership
As of December 10, 2010, the Fund believes that there were no accounts holding 5% or more of the outstanding shares of any Class of the Fund. As of December 10, 2010, the Fund’s officers and Trustees owned less than 1% of the outstanding shares of each Class of the Fund.
Householding
Only one copy of this Information Statement may be mailed to households, even if more than one person in a household is a Fund shareholder of record; unless the Trust has received instructions to the contrary. If you need additional copies of this Information Statement, please contact your participating securities dealer or other financial intermediary. If you do not want the mailing of an Information Statement to be combined with those for other members of your household in the future, or if you are receiving multiple copies and would rather receive just one copy for the household, please contact your participating securities dealer or other financial intermediary.
Financial Information
Shareholders can obtain a copy of the Trust’s most recent Annual Report and any Semi-Annual Report following the Annual Report, without charge, by contacting their participating securities dealer or other financial intermediary, or if a shareholder owns Trust shares directly through the Trust's service agent, by calling toll free at 800-914-0278.
