UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE
SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box: | ||
¨ | Preliminary Information Statement | |
¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) | |
| þ | Definitive Information Statement | |
Laudus Trust
(Name of Registrant as Specified in its Charter)
| Payment of Filing Fee (Check the appropriate box) | ||||
þ | 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:
| |||
| ||||
INFORMATION STATEMENT
Laudus Trust
Laudus U.S. Large Cap Growth Fund
211 Main Street
San Francisco, California 94105
December 13, 2013
Dear Shareholder,
We are pleased to inform you that Charles Schwab Investment Management, Inc. (“CSIM”) has entered into a new investment sub-advisory agreement on behalf of the Laudus U.S. Large Cap Growth Fund (formerly the Laudus Growth Investors U.S. Large Cap Growth Fund) (the “Fund”), a series of Laudus Trust (the “Trust”), with BlackRock Investment Management, LLC (“BlackRock”).
At the recommendation of CSIM, during a meeting held on September 24, 2013, the Trust’s Board of Trustees (the “Board” or “Trustees”) approved the appointment of BlackRock as a new investment manager to manage the Fund’s assets. BlackRock began managing the Fund’s assets on or around October 4, 2013.
This Information Statement is being provided to shareholders of the Fund in lieu of a proxy statement, pursuant to the terms of an exemptive order that the Fund received from the Securities and Exchange Commission (“SEC”). Please take a moment to read the enclosed Information Statement that describes the changes discussed above.
This Information Statement is for informational purposes only and no action is required on your part.
We Are Not Asking You for a Proxy and You Are Requested Not To Send Us a Proxy.
Background of Transaction
Subject to oversight by the Board, CSIM acts as “manager-of-managers” for the Fund and has overall responsibility for the management of the Fund. In connection with its duties as the manager-of-managers, CSIM may allocate portions of the Fund’s assets to several investment managers, who then manage their respective portions under the general supervision of CSIM. CSIM reviews and evaluates the Trust’s investment managers on an ongoing basis. Currently, the Fund operates with a single investment manager.
As described in more detail under the “Additional Information about SEC Exemptive Order” section below, the Trust and CSIM have received exemptive relief from the SEC permitting CSIM to hire or terminate investment managers without shareholder approval, subject to certain conditions. At a meeting held on September 24, 2013, and pursuant to CSIM’s recommendation, the Board approved BlackRock as a new investment manager for the Fund and approved a corresponding investment sub-advisory agreement between CSIM and BlackRock (the “New Sub-Advisory Agreement”).
Currently, BlackRock manages 100% of the assets of the Fund.
Investment Strategies of BlackRock
Using a bottom up, fundamental research, BlackRock seeks to identify exceptional growth businesses which can thrive in any economic climate. In selecting securities, BlackRock seeks to invest in companies that possess dominant market positioning or franchises, a major technological edge or a unique competitive advantage.
New Sub-Advisory Agreement
The Trustees approved the New Sub-Advisory Agreement after a thorough analysis of the proposed services to be provided by BlackRock. The material factors considered by the Trustees in approving the New Sub-Advisory Agreement are set forth below under the “Trustees’ Considerations” section. The terms of the New Sub-Advisory Agreement are substantially similar to those of the prior sub-advisory agreement with the Fund’s previous investment manager. Some of the terms and conditions of the New Sub-Advisory Agreement are summarized below.
Duties of BlackRock. Subject to the supervision of the Trust, the Trustees and CSIM, BlackRock is responsible for managing the investment and reinvestment of the Managed Assets and for determining, in its discretion, the securities and other property to be purchased or sold and the portion of the Managed Assets to be retained in cash. For purposes of the New Sub-Advisory Agreement, “Managed Assets” refers to the portion of the Fund’s assets that may be allocated by CSIM for management by BlackRock from time to time, together with all income earned on those assets and all realized and unrealized capital appreciation related to those assets.
In performing its duties and obligations under the New Sub-Advisory Agreement, BlackRock is not permitted to consult with any other investment manager to the Fund concerning the Managed Assets, except to the extent permitted under the Investment Company Act of 1940, as amended (the “1940 Act”), or any rule, regulation or order thereunder. BlackRock is required to use the same reasonable skill and care in providing investment advisory services to the Fund as it utilizes in providing investment advisory services to other fiduciary accounts for which it has investment responsibilities.
BlackRock is not responsible for providing investment advice to any other portion of the Fund’s assets not allocated to BlackRock for management, or, unless CSIM provides written instructions to the contrary, for reviewing the proxy solicitation materials and exercising voting rights associated with securities comprising the Managed Assets.
BlackRock is required to assist the Trust, the Fund’s distributor and CSIM, as may be reasonably requested by such parties, in connection with the offering, sale and marketing of Fund shares. Such assistance may include, but is not limited to, attendance and participation in meetings, conferences and educational events; review of materials relating to BlackRock included in Fund materials; and providing certain other materials or data to CSIM.
2
BlackRock will provide appropriate assistance for determining, in good faith, the fair value of securities of the Managed Assets, when requested by CSIM. However, the Fund is responsible for any fair value pricing determinations.
BlackRock must fulfill its duties pursuant to the New Sub-Advisory Agreement in compliance with (i) such policies as the Trust, the Trustees and CSIM may from time to time establish; (ii) the Fund’s prospectus and statement of additional information (“SAI”); (iii) the Trust’s Declaration of Trust and By-Laws; (iv) the provisions of the 1940 Act applicable to BlackRock; (v) the Investment Advisers Act of 1940, as amended (the “Advisers Act”); (vi) to the extent CSIM notifies BlackRock, any exemptive or other relief granted by the SEC; and (vii) certain other U.S. federal laws applicable to BlackRock.
BlackRock will perform these duties at its own expense, and will furnish all the office space, furnishings and equipment and the personnel that BlackRock requires to perform its duties under the New Sub-Advisory Agreement. BlackRock is not required to pay for the cost of securities, commodities, and other investments (including brokerage commissions and other transaction charges, if any) purchased or sold for the Fund.
Portfolio Transactions. Subject to certain conditions, BlackRock is authorized to select brokers or dealers to execute the purchases and sales of portfolio securities and other property for the Fund and to utilize the services of a broker or dealer that provides brokerage or research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended). In effecting transactions for the Fund and selecting brokers or dealers, BlackRock is required to use its best efforts to seek, on behalf of the Fund, the best overall terms available. BlackRock is permitted to aggregate orders for purchase or sale of Managed Assets with similar orders being made concurrently for other accounts managed by BlackRock.
Compensation of BlackRock. As compensation for its services to the Fund under the New Sub-Advisory Agreement and expenses incurred in performing such services, BlackRock is entitled to receive fees from CSIM (not the Fund), based on a percentage of the average daily value of the portion of Fund’s assets allocated to BlackRock. Accordingly, the appointment of BlackRock to the Fund does not affect the management fees paid by the Fund or its shareholders.
The following table shows the aggregate sub-advisory fees paid by CSIM to the Fund’s unaffiliated investment managers, in the aggregate, during the Fund’s most recent fiscal year ended March 31, 2013.
Fund | Aggregate Sub-Advisory Fees Paid by CSIM to the Investment Managers in Dollars | Aggregate Sub-Advisory Fees Paid by CSIM to the Investment Managers as a % of Average Net Assets of the Fund | ||||||
| Laudus U.S. Large Cap Growth Fund | $ | 3,614,289 | 0.27 | % | ||||
Limitation of Liability of BlackRock. The New Sub-Advisory Agreement provides that BlackRock will not be liable for any claims, liabilities, damages, costs or losses (collectively, “Claims”) arising out of the New Sub-Advisory Agreement, except to the extent such Claims arise out of: (i) BlackRock’s negligence, bad faith or willful misfeasance; or (ii) BlackRock’s material breach of the New Sub-Advisory Agreement.
Indemnification. The New Sub-Advisory Agreement provides that BlackRock will indemnify and hold harmless the Trust, the Trustees and CSIM, their affiliates and their respective employees, officers and directors from and against all Claims arising out of the New Sub-Advisory Agreement to the extent such Claims arise out of: (i) BlackRock’s negligence, bad faith or willful misfeasance; or (ii) BlackRock’s material breach of the New Sub-Advisory Agreement.
The New Sub-Advisory Agreement also provides that CSIM will indemnify and hold harmless BlackRock, its affiliates and their respective employees, officers and directors from and against all Claims arising out of the New Sub-Advisory Agreement, except to the extent such Claims arise out of: (i) BlackRock’s negligence, bad faith or willful misfeasance; or (ii) BlackRock’s material breach of the New Sub-Advisory Agreement.
Duration and Termination. The New Sub-Advisory Agreement initially continues in effect for a period of two years after its effective date and will continue thereafter for successive one-year periods, provided that its continuance is approved at least annually (i) by a vote of a majority of the Trustees who are not “interested
3
persons” (as defined in the 1940 Act) of the Trust (“Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Trustees or by vote of a majority of the outstanding voting securities of the Fund; provided, however, that in the event that the shareholders of the Fund fail to so approve the New Sub-Advisory Agreement, BlackRock may continue to serve in the manner and to the extent permitted by the 1940 Act.
The New Sub-Advisory Agreement provides for termination, without cause and without payment of any penalty by the Trust, the Trustees or CSIM, by vote of a majority of the Trustees or by vote of a majority of the outstanding voting securities of the Fund on not more than 60 days’ written notice to BlackRock, or by CSIM upon 90 days’ written notice to BlackRock. In addition, the New Sub-Advisory Agreement may be terminated, with cause, by CSIM at any time, without payment of any penalty by the Trust, the Trustees and CSIM, upon written notice to BlackRock. The New Sub-Advisory Agreement provides that it may not be terminated by BlackRock prior to October 4, 2015. Thereafter, the New Sub-Advisory Agreement may be terminated by BlackRock at any time, without cause and without payment of any penalty, upon 90 days’ written notice to CSIM.
The New Sub-Advisory Agreement terminates automatically in the event of its “assignment,” as defined in the 1940 Act, or in the event of the termination of the Investment Advisory and Administration Agreement between CSIM and the Trust (the “Management Agreement”).
Trustees’ Considerations
At a meeting of the Board of Trustees of Laudus U.S. Large Cap Growth Fund held on September 24, 2013, CSIM recommended, and a majority of the trustees who are not “interested persons” as that term is defined in the Investment Company Act of 1940 (the “Independent Trustees”), approved (1) the termination of UBS Global Asset Management (Americas) Inc. (“UBS”); and (2) a new investment sub-advisory agreement between CSIM and BlackRock, pursuant to which BlackRock was appointed as sub-advisor to the Fund.
The Board was provided with detailed materials related to BlackRock in advance of and at the meeting. The materials included, but were not limited to, information about BlackRock’s (a) quality of investment management and other services; (b) investment management personnel; (c) operations and financial condition; (d) brokerage practices (including any soft dollar arrangements) and other investment strategies; (e) compliance systems; (f) policies on, and compliance procedures for, personal securities transactions; (g) reputation, expertise and resources; (h) performance compared with similar advisers; and (i) performance with respect to similar accounts managed by BlackRock. In addition, the Board was provided with information about the level of the sub-advisory fees to be paid to BlackRock, and comparable fees paid to BlackRock for managing similar accounts. The Independent Trustees received advice from independent counsel to the Independent Trustees. The proposed appointment of BlackRock was first reviewed and discussed in the Investment Oversight Committee of the Board (the “Committee”) on September 23, 2013. Following such discussion, the Committee recommended the new sub-advisory agreement with BlackRock to the Board for approval.
In its consideration of the approval of the new sub-advisory agreement with BlackRock, the Board considered a variety of specific factors, including:
| 1. | the nature, extent and quality of the services to be provided to the Fund under the new sub-advisory agreement with BlackRock, including the resources of BlackRock to be dedicated to the Fund; |
| 2. | BlackRock’s investment performance in providing sub-advisory services with respect to similar accounts; |
| 3. | the Fund’s expenses and how those expenses would be impacted by the hiring of BlackRock; |
| 4. | the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and |
| 5. | the extent to which economies of scale may be realized as the Fund grows and whether fee levels in the new sub-advisory agreement with BlackRock reflect the economies of scale for the benefit of Fund investors. |
4
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the sub-advisory services to be provided by BlackRock to the Fund and the resources BlackRock will dedicate to the Fund. In this regard, the Trustees considered the information provided by BlackRock with respect to its history, reputation, expertise, qualifications of its personnel, and experience in managing the type of strategies for it was being engaged. The Board also considered reports regarding the search process undertaken by CSIM that led to the identification of BlackRock as a well-qualified sub-adviser to the Fund with an investment style consistent with the Fund’s investment objective and strategies, and CSIM’s desired risk/return profile. The Trustees also considered the Trust’s Chief Compliance Officer’s evaluation of BlackRock’s compliance program and the recommended compliance monitoring program. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services to be provided by BlackRock to the Fund and the resources of BlackRock to be dedicated to the Fund supported approval of the new sub-advisory agreement with BlackRock.
Investment Performance. The Board considered BlackRock’s investment performance in determining whether to approve the new sub-advisory agreement. Specifically, the Trustees considered BlackRock’s tracking error relative to appropriate benchmarks as well as its overall relative performance in providing investment advisory services to similar accounts. Following such evaluation, the Board concluded, within the context of its full deliberations, that the investment performance of BlackRock supported approval of the new sub-advisory agreement with BlackRock.
Fund Expenses. With respect to the Fund’s expenses, the Trustees considered the rate of compensation to be paid under the new sub-advisory agreement with BlackRock, and the Fund’s net operating expense ratio. When considering the fees to be paid to BlackRock, the Trustees took into account the fact that BlackRock will be compensated by CSIM, and not by the Fund directly, and that the fees paid to BlackRock would not impact the fees paid by the Fund to CSIM. The Trustees also considered that CSIM agreed to lower the operating expense ratio cap for the Fund by one basis point to account for the lower subadvisory fee to be paid to BlackRock as compared to UBS. The Trustees also considered fees charged by BlackRock to comparable accounts, such as separately managed accounts. Finally, the Board considered CSIM’s statements that the fees to be paid to BlackRock are reasonable in light of the anticipated quality of services to be provided by BlackRock. Following such evaluation, the Board concluded, within the context of its full deliberations, that the fees to be paid to BlackRock are reasonable and supported approval of the new sub-advisory agreement with BlackRock.
Profitability. With respect to the profitability of CSIM, the Trustees considered the projected profitability of CSIM before and after the appointment of BlackRock as a new sub-adviser. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the expected profitability of CSIM supported approval of the new sub-advisory agreement with BlackRock. With respect to BlackRock, no historical information regarding the profitability of its relationship to the Fund was available. The Trustees took into account, however, the fact that BlackRock will be compensated by CSIM, and not by the Fund directly, and that the compensation paid to BlackRock reflects an arms-length negotiation between CSIM and BlackRock, which are unaffiliated with each other. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM and BlackRock are reasonable and supported approval of the new sub-advisory agreement with BlackRock.
Economies of Scale. The Board considered the existence of any economies of scale and whether those are passed along to the Fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In connection with its evaluation, the Board took into account the fact that the existing contractual investment advisory fee schedules and the proposed sub-advisory fee schedules relating to the Fund include lower fees at higher graduated asset levels. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the Fund obtains reasonable benefit from economies of scale.
In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all Independent Trustees, approved the new sub-advisory agreement with BlackRock
5
for an initial two-year term and concluded that the compensation under the new sub-advisory agreement with BlackRock is fair and reasonable in light of such services, and such other matters as the Trustees considered to be relevant in the exercise of their reasonable judgment.
Additional Information about SEC Exemptive Order
The Trust and CSIM have received exemptive relief from the SEC to permit CSIM to hire or terminate investment managers without shareholder approval, subject to certain conditions. One of the conditions requires approval by the Board before any such hiring is implemented. In addition, within 90 days of the hiring of any new investment manager, shareholders of the Fund must be furnished with an information statement describing the new investment manager. The exemptive order currently prohibits CSIM from entering into sub-advisory agreements with affiliates of the investment adviser without shareholder approval.
Additional Information about the Trust and CSIM
The Trust is an open-end investment management company organized as a Massachusetts business trust on April 1, 1988.
CSIM, a wholly owned subsidiary of The Charles Schwab Corporation, located at 211 Main Street, San Francisco CA 94105, serves as the Fund’s investment adviser pursuant to the Management Agreement.
Additional Information about BlackRock
BlackRock is a registered investment adviser and a wholly-owned subsidiary of BlackRock, Inc., a financial services company headquartered in New York, New York. Its principal address is located at 1 University Square Drive, Princeton, NJ 08540.
The principal executive officers and directors of BlackRock, as of the date of this document, are set forth below. The address of each person below, as it relates to his or her duties with BlackRock, is the address of BlackRock listed above.
Name | Position and Principal Occupation with Blackrock and Principal | |
Laurence Fink | Chief Executive Officer | |
Robert Kapito | President | |
Paul Audet | Senior Managing Director | |
Matthew Mallow | General Counsel and Senior Managing Director | |
Amy Engel | Treasurer and Managing Director | |
Robert Fairbairn | Senior Managing Director | |
Peter Fisher | Senior Managing Director | |
Bennett Golub | Chief Risk Officer and Senior Managing Director | |
Charles Hallac | Chief Operating Officer and Senior Managing Director | |
Richard Kushel | Senior Managing Director | |
Mark McCombe | Senior Managing Director and Chairman ofAsia-Pacific | |
Barbara Novick | Senior Managing Director | |
Russell McGranahan | Secretary and Managing Director | |
Gary Shedlin | Chief Financial Officer and Senior Managing Director | |
Linda Gosden Robinson | Senior Managing Director and Head of Marketing and Communications | |
Kendrick Wilson | Vice Chairman | |
6
No officer or Trustee of the Fund is a director, officer or employee of BlackRock. No officer or Trustee of the Fund, through the ownership of securities or otherwise, has any other material direct or indirect interest in BlackRock or any other person controlling, controlled by or under common control with BlackRock.
Since the beginning of the most recently completed fiscal year, none of the Trustees of the Fund has had any material interest, direct or indirect, in any material transactions, or in any material proposed transactions, to which BlackRock or any of its affiliates was or is to be a party.
Additional Information about the Fund’s Affiliates
During the Fund’s fiscal year ended March 31, 2013, the Fund paid no commissions to brokers affiliated with CSIM or any investment manager.
The Fund has entered into arms’ length, commercial agreements with affiliated persons of certain investment managers to provide services to the Fund. These arrangements and the services provided thereunder will continue to be provided following the approval of the New Sub-Advisory Agreement.
Report to shareholders
For a free copy of the Fund’s annual or semi-annual report, call Schwab at 1-800-435-4000. In addition, you may visit Laudus Funds’ web site at www.laudus.com/prospectus for a free copy of the Fund’s prospectus, SAI or annual or semi-annual report.
7
Laudus Trust 811-05547
REG78509-00
00109399