
[Federal Register Volume 79, Number 208 (Tuesday, October 28, 2014)]
[Notices]
[Pages 64235-64237]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-25549]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31302; 812-14332]


Angel Oak Funds Trust and Angel Oak Capital Advisors, LLC; Notice 
of Application

October 22, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application 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 Application: Applicants request an order that would permit 
them to enter into and materially amend sub-advisory agreements (``Sub-
Advisory Agreements'') without shareholder approval and that would 
grant relief from certain disclosure requirements.
Applicants: Angel Oak Funds Trust (the ``Trust'') and Angel Oak Capital 
Advisors, LLC (the ``Adviser'').
Filing Dates: The application was filed July 15, 2014.
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 November 17, 2014, and should be accompanied by proof of 
service on the 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: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090. Applicants, One Buckhead Plaza, 
3060 Peachtree Road NW., Suite 500, Atlanta, GA 30305.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812, or David P. Bartels, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

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, is registered under the 
Act as an open-end management investment company. The Trust is 
organized as a series trust and currently consists of one series.\1\
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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 Adviser or its 
successor or by a person controlling, controlled by, or under common 
control with the Adviser or its successor (each, also an 
``Adviser''); (b) uses the manager of managers structure described 
in the application (``Manager of Managers Structure''); 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 the only series that currently intends to rely on the 
requested order as a Fund is the Angel Oak Flexible Income Fund 
(``Initial Fund''). For purposes of the requested order, 
``successor'' is limited to an entity that results 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 Sub-Adviser (as defined below), that name will be preceded by the 
name of the Adviser.
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    2. The Adviser is a limited liability company organized under 
Delaware law. The Adviser is, and any future Adviser will be, 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (``Advisers Act''). The Adviser will serve as the investment 
adviser to the Initial Fund pursuant to an investment advisory 
agreement with the Trust (the ``Advisory Agreement'').\2\ The Advisory 
Agreement was or will have been approved by a Fund's board of trustees 
(the ``Board''), including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, of 
the Trust, the Fund, or the Adviser (``Independent Trustees''), and by 
the Fund's shareholders in the manner required by sections 15(a) and 
15(c) of the Act and rule 18f-2 under the Act. The terms of the 
Advisory Agreement will comply with section 15(a) of the Act. 
Applicants are not seeking any exemption from the provisions of the Act 
with respect to the Advisory Agreement.
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    \2\ ``Advisory Agreement'' includes advisory agreements with an 
Adviser for the Initial Fund and any future Funds.
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    3. Under the terms of the Advisory Agreement, the Adviser will 
provide a Fund with overall investment management services and will 
continuously review, supervise and administer each Fund's investment 
program, subject to the supervision of, and policies established by the 
Board. For the investment management services it will provide to a 
Fund, the Adviser will receive the fee specified in the Advisory 
Agreement from that Fund based on the average daily net assets of the 
Fund.
    4. The Advisory Agreement will permit the Adviser, subject to the 
approval of the Board, to delegate certain responsibilities to one or 
more sub-advisers (``Sub-Advisers'').\3\ The Adviser currently intends 
to delegate certain day-to-day portfolio management responsibilities 
for all or a portion of the assets of a Fund to one or more Sub-
Advisers, subject to the approval of the Board. The Adviser will 
evaluate, allocate assets to, and oversee the Sub-Advisers, and will 
make recommendations about their hiring, termination and replacement to 
the Board, at all times subject to the authority of the Board. The 
Adviser will compensate the Sub-Advisers out of the advisory fee paid 
by the Funds to the Adviser under the Advisory Agreement.
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    \3\ Each Sub-Adviser will be an investment adviser as defined in 
section 2(a)(20) of the Act and registered, or not subject to 
registration, under the Advisers Act.
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    5. Applicants request an order to permit the Adviser, subject to 
Board approval, to select certain Sub-Advisers to manage all or a 
portion of the assets of a Fund or Funds pursuant to a Sub-Advisory 
Agreement, and materially amend existing Sub-Advisory Agreements 
without obtaining shareholder approval. The requested relief will not 
extend to any Sub-Adviser that is an affiliated person, as defined in 
section 2(a)(3) of the Act, of the Trust, a Fund, or the Adviser, other 
than by reason of serving as a sub-adviser to one or more of the Funds 
(``Affiliated Sub-Adviser'').

[[Page 64236]]

    6. Applicants also request an order exempting the Funds from 
certain disclosure provisions described below that may require the 
Funds to disclose fees paid by the Adviser to each Sub-Adviser. 
Applicants seek an order to permit a Fund to disclose (as both a dollar 
amount and a percentage of the Fund's net assets): (a) The aggregate 
fees paid to the Adviser and any Affiliated Sub-Adviser; and (b) the 
aggregate fees paid to Sub-Advisers other than Affiliated Sub-Advisers 
(collectively, ``Aggregate Fee Disclosure''). Any Fund that employs an 
Affiliated Sub-Adviser will provide separate disclosure of any fees 
paid to the Affiliated Sub-Adviser.

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 a registered 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 under the Securities Act of 1933 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 Adviser, 
subject to the review and approval of the Board, to select the Sub-
Advisers who are best suited to achieve each Fund's investment 
objectives. Applicants assert that, from the perspective of the 
shareholder, the role of the Sub-Advisers 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 Sub-Advisory Agreement would impose 
unnecessary delays and expenses on the Funds and may preclude the Funds 
from acting promptly when the Adviser and Board consider it appropriate 
to hire Sub-Advisers or amend Sub-Advisory Agreements. Applicants note 
that the Advisory Agreements and any Sub-Advisory Agreements with 
Affiliated Sub-Advisers 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 Sub-Adviser is retained in reliance on the requested 
order, the applicable Fund will inform its shareholders of the hiring 
of a new Sub-Adviser pursuant to the following procedures (``Modified 
Notice and Access Procedures''): (a) Within 90 days after a new Sub-
Adviser is hired for a Fund, the Fund will send its shareholders either 
a Multi-manager Notice or a Multi-manager Notice and Multi-manager 
Information Statement; \4\ and (b) the Fund will make 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. Applicants assert that a proxy solicitation to approve 
the appointment of new Sub-Advisers would provide 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 Act 
before entering into or amending Sub-Advisory Agreements.
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    \4\ A ``Multi-manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the 1934 Act, 
and specifically will, among other things: (a) Summarize the 
relevant information regarding the new Sub-Adviser; (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 Fund. A ``Multi-manager Information Statement'' 
will meet the requirements of Regulation 14C, Schedule 14C and Item 
22 of Schedule 14A under the 1934 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 will 
benefit shareholders of the Funds because it will improve the Adviser's 
ability to negotiate the fees paid to Sub-Advisers. Applicants state 
that the Adviser may be able to negotiate rates that are below a Sub-
Adviser's ``posted'' amounts if the Adviser is not required to disclose 
the Sub-Adviser's fees to the 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 Adviser has ultimate responsibility 
(subject to oversight by the Board) to oversee the Sub-Advisers and 
recommend their hiring, termination, and replacement.
    3. The Funds will inform shareholders of the hiring of a new Sub-
Adviser (other than an Affiliated Sub-

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Adviser) within 90 days after the hiring of that new Sub-Adviser 
pursuant to the Modified Notice and Access Procedures.
    4. The Adviser will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser 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 Sub-Adviser change is proposed for a Fund with an 
Affiliated Sub-Adviser, 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 Adviser or the Affiliated Sub-Adviser 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. Each Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per-Fund basis. The information will reflect the impact on 
profitability of the hiring or termination of any Sub-Adviser during 
the applicable quarter.
    9. Whenever a Sub-Adviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.
    10. The Adviser will provide general management services to a 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 a Fund's overall investment strategies; (ii) 
evaluate, select and recommend Sub-Advisers to manage all or part of a 
Fund's assets; (iii) when appropriate, allocate and reallocate a Fund's 
assets among multiple Sub-Advisers; (iv) monitor and evaluate the 
performance of Sub-Advisers; and (v) implement procedures reasonably 
designed to ensure that the Sub-Advisers comply with a Fund's 
investment objective, policies and restrictions.
    11. No trustee or officer of the Trust, or of a Fund, or director 
or officer of the Adviser, will own directly or indirectly (other than 
through a pooled investment vehicle that is not controlled by such 
person) any interest in a Sub-Adviser, except for (i) ownership of 
interests in the Adviser or any entity that controls, is controlled by, 
or is under common control with the Adviser; or (ii) 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 Sub-Adviser or an entity 
that controls, is controlled by, or is under common control with a Sub-
Adviser.
    12. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    13. Any new Sub-Advisory Agreement or any amendment to an existing 
Advisory Agreement or Sub-Advisory Agreement that directly or 
indirectly results in an increase in the aggregate advisory fee rate 
payable by the Fund will be submitted to the Fund's shareholders for 
approval.
    14. 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 M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25549 Filed 10-27-14; 8:45 am]
BILLING CODE 8011-01-P


