[Federal Register Volume 80, Number 87 (Wednesday, May 6, 2015)]
[Notices]
[Pages 26121-26124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10511]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31587; 812-14170]


Starboard Investment Trust and Foliometrix, LLC; Notice of 
Application

April 30, 2015.
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: Applicants request an order that would permit them to enter 
into and materially amend sub-advisory agreements (each, a ``Sub-
Advisory Agreement'' and collectively, the ``Sub-Advisory Agreements'') 
without shareholder approval and that would grant relief from certain 
disclosure requirements.
    Applicants: Starboard Investment Trust (the ``Trust'') and 
Foliometrix, LLC (the ``Adviser'').

DATES:  Filing Dates: The application was filed June 21, 2013, and 
amended on February 27, 2014, July 3, 2014, November 26, 2014, and 
March 11, 2015.

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    Hearing or Notification of Hearing: An order granting the requested 
relief 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 26, 2015, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, 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: Brent J. Fields, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants: 
the Trust, 116 South Franklin Street, Rocky Mount, NC 27804; the 
Adviser, 821 Pacific Street, Omaha, NE 68108.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior 
Counsel, at (202) 551-6879, 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 for 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 currently 
consists of twenty-three series (each, a ``Series'').\1\
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    \1\ Applicants request that the relief apply to the named 
applicants, as well as to any future Series and any other existing 
or future registered open-end management investment company or 
series thereof that intends to rely on the requested order in the 
future and that (i) is advised by the Adviser or by an entity 
controlling, controlled by, or under common control with the Adviser 
or its successor (each, also an ``Adviser''), (ii) uses the multi-
manager structure described in the application, and (iii) complies 
with the terms and conditions set forth in the application (each, a 
``Subadvised Series''). All registered open-end investment companies 
that currently intend to rely on the requested order are named as 
applicants. Any entity that relies on the requested order will do so 
only in accordance with the terms and conditions contained in the 
application. For the purpose of the requested order, ``successor'' 
is limited to an entity resulting from a reorganization into another 
jurisdiction or a change in the type of business organization. If 
the name of any Subadvised Series contains the name of a Sub-Adviser 
(as defined below), the name of the Adviser that serves as the 
primary adviser to the Subadvised Series, or a trademark or trade 
name that is owned by or publicly used to identify that Adviser, 
will precede the name of the Sub-Adviser.
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    2. The Adviser is a limited liability company organized under 
Oregon law. Each Adviser is or will be registered as an investment 
adviser under the Investment Advisers Act of 1940 (``Advisers Act''). 
The Adviser serves as the investment adviser to the Series pursuant to 
an investment advisory agreement with the Trust (the ``Investment 
Management Agreement''). The Investment Management Agreement has been 
approved by the Trust'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 Series, or the 
Adviser (``Independent Board Members''), and by the shareholders of the 
relevant Series 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 Investment 
Management Agreement comply with section 15(a) of the Act. Applicants 
are not seeking any exemption from the provisions of the Act with 
respect to the Investment Management Agreement.
    3. Under the terms of the Investment Management Agreement, the 
Adviser, subject to the supervision of the Board, provides continuous 
investment management of the assets of each Series. The Adviser 
periodically reviews a Series' investment policies and strategies and 
based on the need of a particular Series may recommend changes to the 
investment policies and strategies of the Series for consideration by 
the Board. For its services to each Series under the Investment 
Management Agreement, the Adviser receives an investment management fee 
from that Series.
    4. The Investment Management Agreement provides that the Adviser 
may, subject to the approval of the Board, delegate portfolio 
management responsibilities of all or a portion of the assets of a 
Subadvised Series to one or more sub-advisers (each, a ``Sub-Adviser'' 
and collectively, the ``Sub-Advisers'').\2\ If the Adviser determines 
to delegate portfolio management responsibilities to one or more Sub-
Advisers, the Adviser will evaluate, select and recommend Sub-Advisers 
to manage the assets (or portion thereof) of a Subadvised Series, 
oversee, monitor and review the Sub-Advisers and their performance and 
their compliance with the Subadvised Series' investment policies and 
restrictions.
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    \2\ 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 
the approval of the Board, including a majority of the Independent 
Board Members, to, without obtaining shareholder approval: (i) Select 
certain non-affiliated Sub-Advisers to manage all or a portion of the 
assets of a Series and enter into Sub-Advisory Agreements with the Sub-
Advisers, and (ii) materially amend Sub-Advisory Agreements with the 
Sub-Advisers.\3\ 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 Subadvised Series, or the Adviser, other than 
by reason of serving as a sub-adviser to one or more of the Subadvised 
Series (``Affiliated Sub-Adviser'').
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    \3\ Shareholder approval will continue to be required for any 
other sub-adviser changes and material amendments to an existing 
Sub-Advisory Agreement with any affiliated sub-adviser (all such 
changes requiring shareholder approval referred to as ``Ineligible 
Sub-Adviser Changes''), except as otherwise permitted by applicable 
law or by rule.
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    6. The terms of each Sub-Advisory Agreement comply or will comply 
fully with the requirements of section 15(a) of the Act and have been 
or will be approved by the Board, including a majority of the 
Independent Board Members and the initial shareholder of the applicable 
Subadvised Series, in accordance with sections 15(a) and 15(c) of the 
Act and rule 18f-2 thereunder. The Sub-Advisers, subject to the 
supervision of the Adviser and oversight of the Board, will determine 
the securities and other investments to be purchased or sold by a 
Subadvised Series and place orders with brokers or dealers that they 
select.
    7. Subadvised Series will inform 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 any Subadvised Series, that Subadvised Series will send its 
shareholders either a Multi-manager Notice or a Multi-manager Notice 
and Multi-manager Information Statement; \4\ and (b) the

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Subadvised Series 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 in the circumstances described in the application, a proxy 
solicitation to approve the appointment of new Sub-Advisers provides no 
more meaningful information to shareholders than the proposed Multi-
manager Information Statement. Applicants state that each 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 Securities 
Exchange Act of 1934 (``Exchange Act''), and specifically will, 
among other things: (a) Summarize the relevant information regarding 
the new Sub-Adviser (except as modified to permit Aggregate Fee 
Disclosure (as defined below); (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 Subadvised Series.
    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 order to permit Aggregate Fee Disclosure. Multi-
manager Information Statements will be filed with the Commission via 
the EDGAR system.
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    8. Applicants also request an order exempting the Subadvised Series 
from certain disclosure provisions described below that may require the 
Subadvised Series to disclose fees paid by the Adviser to each Sub-
Adviser. Applicants seek an order to permit a Subadvised Series to 
disclose (as both a dollar amount and a percentage of the Subadvised 
Series' net assets): (a) The aggregate fees paid to the Adviser and any 
Affiliated Sub-Advisers; and (b) the aggregate fees paid to Sub-
Advisers (collectively, ``Aggregate Fee Disclosure''). Any Subadvised 
Series 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 it 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 of computing 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 in the best position to achieve the Subadvised Series' 
investment objective. Applicants assert that, from the perspective of 
the shareholder, the role of the Sub-Advisers is substantially 
equivalent to the role of the individual portfolio managers employed by 
an investment adviser to a traditional investment company. Applicants 
believe that permitting the Adviser to perform the duties for which the 
shareholders of the Subadvised Series are paying the Adviser--the 
selection, supervision and evaluation of the Sub-Advisers--without 
incurring unnecessary delays or expenses is appropriate in the interest 
of the Subadvised Series' shareholders and will allow such Subadvised 
Series to operate more efficiently. Applicants note that the Investment 
Management 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. Applicants assert that disclosure of the individual fees that 
the Adviser would pay to the Sub-Advisers of Subadvised Series that 
operate under the multi-manager structure described in the application 
would not serve any meaningful purpose. Applicants contend that the 
primary reasons for requiring disclosure of individual fees paid to 
Sub-Advisers are to inform shareholders of expenses to be charged by a 
particular Subadvised Series and to enable shareholders to compare the 
fees to those of other comparable investment companies. Applicants 
believe that the requested relief satisfies these objectives because 
the advisory fee paid to the Adviser will be fully disclosed and, 
therefore, shareholders will know what the Subadvised Series' fees and 
expenses are and will be able to compare the advisory fees a Subadvised 
Series is charged to those of other investment companies. Applicants 
assert that the requested disclosure relief will benefit shareholders 
of the Subadvised Series 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.
    8. For the reasons discussed above, applicants submit that the 
requested relief meets the standards for relief under section 6(c) of 
the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions: \5\
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    \5\ Applicants will only comply with conditions 7, 8, 9 and 12 
if they rely on the relief that would allow them to provide 
Aggregate Fee Disclosure.
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    1. Before a Subadvised Series may rely on the order requested in 
the application, the operation of the Subadvised Series in the manner 
described in the application will be approved by a majority of the 
Subadvised Series' outstanding voting

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securities as defined in the 1940 Act, or, in the case of a new 
Subadvised Series 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 
Subadvised Series' shares to the public.
    2. The prospectus for each Subadvised Series will disclose the 
existence, substance, and effect of any order granted pursuant to the 
application. Each Subadvised Series will hold itself out to the public 
as employing the multi-manager structure described in the application. 
Each prospectus will prominently disclose that the Adviser has the 
ultimate responsibility, subject to oversight by the Board, to oversee 
the Sub-Advisers and recommend their hiring, termination and 
replacement.
    3. The Adviser will provide general management services to a 
Subadvised Series, including overall supervisory responsibility for the 
general management and investment of the Subadvised Series' assets. 
Subject to review and approval of the Board, the Adviser will (a) set a 
Subadvised Series' overall investment strategies, (b) evaluate, select, 
and recommend Sub-Advisers to manage all or a portion of a Subadvised 
Series' assets, and (c) implement procedures reasonably designed to 
ensure that Sub-Advisers comply with a Subadvised Series' investment 
objective, policies and restrictions. Subject to review by the Board, 
the Adviser will (a) when appropriate, allocate and reallocate a 
Subadvised Series' assets among multiple Sub-Advisers; and (b) monitor 
and evaluate the performance of Sub-Advisers.
    4. A Subadvised Series will not make any Ineligible Sub-Adviser 
Changes without such agreement, including the compensation to be paid 
thereunder, being approved by the shareholders of the applicable 
Subadvised Series.
    5. Subadvised Series will inform shareholders of the hiring of a 
new Sub-Adviser within 90 days after the hiring of the new Sub-Adviser 
pursuant to the Modified Notice and Access Procedures.
    6. At all times, at least a majority of the Board will be 
Independent Board Members, and the selection and nomination of new or 
additional Independent Board Members will be placed within the 
discretion of the then-existing Independent Board Members.
    7. Independent Legal Counsel, as defined in Rule 0-1(a)(6) under 
the 1940 Act, will be engaged to represent the Independent Board 
Members. The selection of such counsel will be within the discretion of 
the then- existing Independent Board Members.
    8. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per Subadvised Series 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. Whenever a sub-adviser change is proposed for a Subadvised 
Series with an Affiliated Sub-Advisor, the Board, including a majority 
of the Independent Board Members, will make a separate finding, 
reflected in the Board minutes, that such change is in the best 
interests of the Subadvised Series and its shareholders, and does not 
involve a conflict of interest from which the Advisor or the Affiliated 
Sub-Advisor derives an inappropriate advantage.
    11. No trustee or officer of the Trust or a Subadvised Series, or 
partner, director, manager 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 (a) ownership of interests in the Adviser or any entity that 
controls, is controlled by, or is under common control with the 
Adviser; 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 Sub-Adviser or an entity that controls, is controlled by, or 
is under common control with a Sub-Adviser.
    12. Each Subadvised Series will disclose the Aggregate Fee 
Disclosure in its registration statement.
    13. Any new Sub-Advisory Agreement or any amendment to a Subadvised 
Series' existing Investment Management Agreement or Sub-Advisory 
Agreement that directly or indirectly results in an increase in the 
aggregate advisory fee rate payable by the Subadvised Series will be 
submitted to the Subadvised Series' shareholders for approval.
    14. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that 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.
Brent J. Fields,
Secretary.
[FR Doc. 2015-10511 Filed 5-5-15; 8:45 am]
 BILLING CODE 8011-01-P