
[Federal Register Volume 77, Number 82 (Friday, April 27, 2012)]
[Notices]
[Pages 25210-25212]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-10157]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30043; 812-13889]


Advisors Series Trust and Orinda Asset Management, LLC; Notice of 
Application

April 23, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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SUMMARY OF THE APPLICATION:  Applicants request an order that would 
permit them to enter into and materially amend subadvisory agreements 
without shareholder approval and would grant relief from certain 
disclosure requirements.

APPLICANTS: Advisors Series Trust (the ``Trust'') and Orinda Asset 
Management, LLC (the ``Advisor'').

FILING DATES: The application was filed on April 7, 2011, and amended 
on August 10, 2011, February 29, 2012, and April 20, 2012.

HEARING OR NOTIFICATION OF HEARING:  An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on May 18, 2012 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 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants, 
Advisors Series Trust, 615 East Michigan Street, Milwaukee, WI 53202 
and Orinda Asset Management, LLC, 4 Orinda Way, Suite 100B, Orinda, CA 
94563.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or Jennifer L. Sawin, Branch Chief, at (202) 551-6821 
(Office of Investment Company Regulation, Division of Investment 
Management).

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

Applicants' Representations

    1. The Trust, a Delaware statutory trust organized as a series 
investment company, is registered under the Act as an open-end 
management investment company and currently offers forty series, one of 
which is advised by the Advisor.\1\ The Advisor, a Delaware limited 
liability company, is principally owned by Orinda Investment Partners, 
LLC, a limited liability company organized under Delaware law, and the 
four managing partners of the Advisor each have a minority interest in 
the Advisor. The Advisor is, and any future Advisor will be, registered 
as an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). The Advisor will serve as investment adviser to the 
Funds under an investment advisory agreement with the Trust (``Advisory 
Agreement'') \2\ that will have been approved by each respective Fund's 
initial shareholder and the Trust's Board of Trustees (``Board''), 
including a majority of the trustees who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, of either the 
Trust or the Advisor (``Independent Trustees'') in the manner required 
by sections 15(a) and (c) of the Act and rule 18f-2 under the Act.
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    \1\ Applicants request relief with respect to any existing and 
any future series of the Trust or any other registered open-end 
management company that: (a) Is advised by the Advisor or a person 
controlling, controlled by, or under common control with the Advisor 
or its successor (each, also an ``Advisor''); (b) uses the manager 
of managers structure described in the application; and (c) complies 
with the terms and conditions of the requested order (any such 
series, a ``Fund'' and collectively, the ``Funds''). The only 
existing registered open-end management investment company that 
currently intends to rely on the requested order is named as an 
applicant and each series that currently intends to be a Fund is 
identified in the application. For purposes of the requested order, 
``successor'' is limited to an entity or entities that result from a 
reorganization into another jurisdiction or a change in the type of 
business organization. If the name of any Fund contains the name of 
a Subadvisor (as defined below), that name will be preceded by the 
name of the Advisor.
    \2\ ``Advisory Agreement'' includes advisory agreements with an 
Advisor for future Funds.
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    2. Under the terms of the Advisory Agreement, the Advisor, subject 
to oversight of the Board, and in consultation with the lead subadvisor 
``(Lead Subadvisor''), if any, furnishes a continuous investment 
program for each Fund. The Advisor will provide the Funds with overall 
management services and, in consultation with the Lead Subadvisor, if 
any, as it deems appropriate, continuously review, supervise and 
administer each Fund's investment program, subject to the supervision 
of, and policies established by the Board.\3\ For the investment

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management services it will provide to each Fund, the Advisor will 
receive the fee specified in the Advisory Agreement from such Fund 
based on the average daily net assets of the Fund. The Advisory 
Agreement permits the Advisor, subject to the approval of the Board, to 
delegate certain responsibilities to one or more subadvisers 
(``Subadvisors''). The Advisor expects to enter into subadvisory 
agreements with various Subadvisors (``Subadvisory Agreements'') to 
provide investment advisory services to the Funds.\4\ Each Subadvisor 
is, and any future Subadvisor will be, an investment adviser as defined 
in section 2(a)(20) of the Act as well as registered with the 
Commission as an ``investment adviser'' under the Advisers Act. The 
Advisor evaluates, allocates assets to and oversees the Subadvisors, 
and makes recommendations about their hiring, termination and 
replacement to the Board, at all times subject to the authority of the 
Board. In performing these functions, the Advisor may consult with a 
Lead Subadvisor.\5\ The Advisor will compensate the Subadvisors out of 
the advisory fee paid by a Fund to the Advisor under the Advisory 
Agreement.
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    \3\ In performing these functions, the Advisor may consult with 
a ``Lead Subadvisor,'' which will be registered as an investment 
adviser under the Advisers Act. The Advisor will enter into an 
agreement with a Lead Subadvisor, (the ``Lead Subadvisory 
Agreement''), to assist the Advisor in the identification and 
selection of Subadvisors and in the portfolio construction process. 
However, the responsibility for the evaluation, selection and 
recommendation of the Subadvisors to manage all or a portion of the 
assets of a Fund, as well as the monitoring and review of each 
Subadvisor, ultimately rests with the Advisor. For purposes of the 
application, no Lead Subadvisor, or future Lead Subadvisor, is an 
applicant or a ``Subadvisor'' and relief will not extend to any 
advisory agreement with a Lead Subadvisor.
    \4\ The Advisor expects to initially enter into Subadvisory 
Agreements with Aria Partners GP, LLC, GRT Capital Partners, LLC, 
OMT Capital Management, LLC and M.A. Weatherbie & Co., Inc.
    \5\ With respect to the first Fund to be managed by the Advisor 
in the Trust, the Orinda Multi-Manager Hedged Equity Fund, the 
Advisor has entered into a Lead Subadvisory Agreement with SkyView 
Investment Advisors, LLC.
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    3. Applicants request an order to permit the Advisor, subject to 
Board approval, to select certain Subadvisors to manage all or a 
portion of the assets of a Fund or Funds pursuant to a Subadvisory 
Agreement and materially amend Subadvisory Agreements without obtaining 
shareholder approval. The requested relief will not extend to any 
Subadvisor that is an affiliated person, as defined in section 2(a)(3) 
of the Act, of the Trust or of the Advisor, other than by reason of 
serving as a subadviser to one or more of the Funds (``Affiliated 
Subadvisor''). In addition, the requested relief will not extend to any 
Lead Subadvisor.
    4. Applicants also request an order exempting the Funds from 
certain disclosure provisions described below that may require a Fund 
to disclose fees paid by the Advisor to each Subadvisor. Applicants 
seek an order to permit the Trust to disclose for a Fund (as both a 
dollar amount and as a percentage of the Fund's net assets): (a) the 
aggregate fees paid to the Advisor and any Affiliated Subadvisor; and 
(b) the aggregate fees paid to Subadvisors other than Affiliated 
Subadvisors (collectively, ``Aggregate Fee Disclosure''). Any Fund that 
employs an Affiliated Subadvisor will provide separate disclosure of 
any fees paid to the Affiliated Subadvisor. Each Fund will also provide 
separate disclosure of fees paid to the Lead Subadvisor, if any.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by a vote of a majority of the company's outstanding voting 
securities. Rule 18f-2 under the Act provides that each series or class 
of stock in a series investment company affected by a matter must 
approve that matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(a)(3) of Form N-1A requires disclosure of 
the method and amount of the investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``1934 Act''). Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fees,'' a description of the ``terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.
    4. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of a registered investment 
company's registration statement and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
a registered investment company to include in its financial statement 
information about investment advisory fees.
    5. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities, or transactions from any provisions of the Act, or 
from any rule thereunder, if such exemption is necessary or appropriate 
in the public interest and consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
Act. Applicants state that the requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that the shareholders expect the Advisor 
subject to the review and approval of the Board, to select the 
Subadvisors who are best suited to achieve the Fund's investment 
objectives. Applicants assert that, from the perspective of the 
shareholder, the role of the Subadvisors is substantially equivalent to 
that of the individual portfolio managers employed by traditional 
investment company advisory firms. Applicants state that requiring 
shareholder approval of each Subadvisory Agreement would impose 
unnecessary delays and expenses on the Funds and may preclude the Funds 
from acting promptly when the Advisor and Board consider it appropriate 
to hire Subadvisors or amend Subadvisory Agreements. Applicants note 
that the Advisory Agreements, any Lead Subadvisory Agreement, and 
Subadvisory Agreements with Affiliated Subadvisors will remain subject 
to the shareholder approval requirements of section 15(a) of the Act 
and rule 18f-2 under the Act.
    7. If a new Subadvisor is retained in reliance on the requested 
order, the Funds will inform shareholders of the hiring of a new 
Subadvisor pursuant to the following procedures (``Modified Notice and 
Access Procedures''): (a) within 90 days after a new Subadvisor is 
hired for any Fund, that Fund will send its shareholders either a 
Multi-manager Notice or a Multi-manager Notice and Multi-manager 
Information Statement; \6\ and (b) the Fund will make

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the Multi-manager Information Statement available on the Web site 
identified in the Multi-manager Notice no later than when the Multi-
manager Notice (or Multi-manager Notice and Multi-manager Information 
Statement) is first sent to shareholders, and will maintain it on that 
Web site for at least 90 days. In the circumstances described in the 
application, a proxy solicitation to approve the appointment of new 
Subadvisors provides no more meaningful information to shareholders 
than the proposed Multi-manager Information Statement. Moreover, as 
indicated above, the applicable Board would comply with the 
requirements of sections 15(a) and 15(c) of the 1940 Act before 
entering into or amending Subadvisory Agreements.
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    \6\ A ``Multi-manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the Exchange 
Act, and specifically will, among other things: (a) Summarize the 
relevant information regarding the new Subadvisor; (b) inform 
shareholders that the Multi-manager Information Statement is 
available on a Web site; (c) provide the Web site address; (d) state 
the time period during which the Multi-manager Information Statement 
will remain available on that Web site; (e) provide instructions for 
accessing and printing the Multi-manager Information Statement; and 
(f) instruct the shareholder that a paper or email copy of the 
Multi-manager Information Statement may be obtained, without charge, 
by contacting the Funds.
    A ``Multi-manager Information Statement'' will meet the 
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 
14A under the Exchange Act for an information statement, except as 
modified by the requested order to permit Aggregate Fee Disclosure. 
Multi-manager Information Statements will be filed electronically 
with the Commission via the EDGAR system.
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    8. Applicants assert that the requested disclosure relief would 
benefit shareholders of the Funds because it would improve the 
Advisor's ability to negotiate the fees paid to Subadvisors. Applicants 
state that the Advisor may be able to negotiate rates that are below a 
Subadvisor's ``posted'' amounts if the Advisor is not required to 
disclose the Subadvisors' fees to the public. Applicants submit that 
the requested relief will also encourage Subadvisors to negotiate lower 
advisory fees with the Advisor if the lower fees are not required to be 
made public.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Fund may rely on the order requested in the 
application, the operation of the Fund in the manner described in the 
application will be approved by a majority of the Fund's outstanding 
voting securities, as defined in the Act, or, in the case of a Fund 
whose public shareholders purchase shares on the basis of a prospectus 
containing the disclosure contemplated by condition 2 below, by the 
sole initial shareholder before offering the Fund's shares to the 
public.
    2. The prospectus for each Fund will disclose the existence, 
substance, and effect of any order granted pursuant to the application. 
Each Fund will hold itself out to the public as employing the manager 
of managers structure described in the application. The prospectus will 
prominently disclose that the Advisor has ultimate responsibility 
(subject to oversight by the Board) to oversee the Subadvisors and 
recommend their hiring, termination, and replacement.
    3. Funds will inform shareholders of the hiring of a new Subadvisor 
within 90 days after the hiring of the new Subadvisor pursuant to the 
Modified Notice and Access Procedures.
    4. The Advisor will not enter into a Subadvisory Agreement with any 
Affiliated Subadvisor without that agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the applicable Fund.
    5. At all times, at least a majority of the Board will be 
Independent Trustees, and the nomination and selection of new or 
additional Independent Trustees will be placed within the discretion of 
the then-existing Independent Trustees.
    6. When a Subadvisor change is proposed for a Fund with an 
Affiliated Subadvisor, the Board, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
applicable Board minutes, that such change is in the best interests of 
the Fund and its shareholders and does not involve a conflict of 
interest from which the Advisor or the Affiliated Subadvisor derives an 
inappropriate advantage.
    7. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Trustees. The 
selection of such counsel will be within the discretion of the then 
existing Independent Trustees.
    8. The Advisor will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Advisor on a 
per-Fund basis. The information will reflect the impact on 
profitability of the hiring or termination of any Subadvisor during the 
applicable quarter.
    9. Whenever a Subadvisor is hired or terminated, the Advisor will 
provide the Board with information showing the expected impact on the 
profitability of the Advisor.
    10. The Advisor will provide general management services to each 
Fund, including overall supervisory responsibility for the general 
management and investment of the Fund's assets and, subject to review 
and approval of the Board, will (i) Set each Fund's overall investment 
strategies; (ii) evaluate, select and recommend Subadvisors to manage 
all or part of a Fund's assets; (iii) when appropriate, allocate and 
reallocate a Fund's assets among multiple Subadvisors; (iv) monitor and 
evaluate the performance of Subadvisors; and (v) implement procedures 
reasonably designed to ensure that the Subadvisors comply with each 
Fund's investment objective, policies and restrictions.
    11. No director or officer of the Trust, or of a Fund, or director 
or officer of the Advisor, will own directly or indirectly (other than 
through a pooled investment vehicle that is not controlled by such 
person) any interest in a Subadvisor, except for (a) ownership of 
interests in the Advisor or any entity that controls, is controlled by, 
or is under common control with the Advisor; or (b) ownership of less 
than 1% of the outstanding securities of any class of equity or debt of 
a publicly traded company that is either a Subadvisor or an entity that 
controls, is controlled by, or is under common control with a 
Subadvisor.
    12. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    13. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that in the order requested 
in the application, the requested order will expire on the effective 
date of that rule.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2012-10157 Filed 4-26-12; 8:45 am]
BILLING CODE 8011-01-P


