[Federal Register: November 26, 2002 (Volume 67, Number 228)]
[Notices]
[Page 70783-70785]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26no02-93]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 25805 /812-12562]
AB Funds Trust and SBC Financial Services, Inc.; Notice of
Application
November 19, 2002.
AGENCY: Securities and Exchange Commission (the ``Commission'')
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (the ``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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Applicants: AB Funds Trust (the ``Trust'') and SBC Financial Services,
Inc. (the ``Adviser'').
Summary of Application: Applicants request an order that would permit
applicants to enter into and materially amend sub-advisory agreements
without shareholder approval and would grant relief from certain
disclosure requirements.
Filing Dates: The application was filed on June 22, 2001, and amended
on November, 8, 2002.
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 December 16, 2002, 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, Securities and Exchange Commission, 450 Fifth
Street, NW., Washington, DC 20549-0609. Applicants, c/o Rodney R.
Miller, Esq.,
[[Page 70784]]
AB Funds Trust, 2401 Cedar Springs Road, Dallas, Texas 75201-1407.
FOR FURTHER INFORMATION CONTACT: Karen L. Goldstein, Senior Counsel, at
(202) 942-0646, or Janet M. Grossnickle, Branch Chief, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Branch, 450 Fifth Street, NW.,
Washington, DC 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. The Trust is a Delaware business trust registered under the Act
as an open-end management investment company. The Trust is organized as
a series investment company and has thirteen series (each a ``Fund''
and collectively, the ``Funds''). Each Fund has its own investment
objective, policies and restrictions. Four of the Funds will operate as
funds of funds pursuant to section 12(d)(1)(G) under the Act (the
``Blended Funds'') and will allocate their investments among the nine
other series of the Trust (the ``Select Funds''). Investors may also
purchase shares of the Select Funds directly. The Adviser, a Texas non-
profit, non-stock corporation, serves as investment adviser to the
Trust, and is registered as an investment adviser under the Investment
Advisers Act of 1940 (``Advisers Act'').\1\
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\1\ The Applicants request that any relief granted pursuant to
the application also apply to any future series of the Trust and any
other registered open-end management investment companies and their
series that: (1) Are advised by the Adviser or any entity
controlling, controlled by, or under common control with the
Adviser; (ii) use the multi-manager structure described in the
application, and (iii) comply with the terms and conditions in the
application (together ``Future Funds,'' included in the term
``Funds''). The Trust is the only existing investment company that
currently intends to rely on the order. The Blended Funds do not
currently intend to rely on the requested relief. If the name of any
Fund should, at any time, contain the name of a Subadviser, it will
also contain the name of the Adviser, which will appear before the
name of the Subadviser.
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2. The Trust, on behalf of each Fund, has entered into an
investment advisory agreement with the Adviser (``Advisory
Agreement''). The Advisory 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 (``Disinterested Trustees''), as well as by each
Fund's initial shareholder. Under the terms of the Advisory Agreement,
the Adviser manages the investment of assets of each Fund and, subject
to oversight by the Board, may delegate its investment advisory
responsibilities to one or more subadvisers (``Subadvisers''). The
Trust and the Adviser have entered into investment subadvisory
agreements (``Subadvisory Agreements'') with Subadvisers for all but
two of the Select Funds. Under the Subadvisory Agreements, each
Subadviser has discretionary authority to invest a portion of a Select
Fund's assets subject to supervision by the Adviser, the Fund's
investment objectives, policies and restrictions, and instructions of
the Board. Each of the Subadvisers is, or will be, an investment
adviser registered or exempt from registration under the Advisers Act.
The Trust pays the Adviser a fee computed separately for each Select
Fund based on the Fund's net asset value.
3. The Adviser monitors the Funds and the Subadvisers and makes
recommendations to the Board regarding allocation of assets between
Subadvisers and is responsible for recommending the hiring, termination
and replacement of Subadvisers. The Adviser recommends Subadvisers
based on a number of factors listed in the application used to evaluate
their skills in managing assets pursuant to particular investment
objectives. Each Subadviser will be paid by the Select Fund at a rate
that has been negotiated with each Subadviser by the Adviser and
approved by the Board.
4. Applicants request an order to permit the Adviser, subject to
the oversight of the Board, to enter into and materially amend
Subadvisory Agreements without obtaining shareholder approval. The
requested relief will not extend to a Subadviser that is an affiliated
person, as defined in section 2(a)(3) of the Act, of the Trust or the
Adviser, other than by reason of serving as a Subadviser to one or more
of the Funds (``Affiliated Subadviser'').
5. Applicants also request an exemption from the various disclosure
provisions described below that may require each Fund to disclose fees
paid to the Subadvisers. The Trust will disclose for each Fund (both as
a dollar amount and as a percentage of a Select Fund's net assets): (i)
The aggregate fees paid to the Adviser and Affiliated Subadvisers; and
(ii) aggregate fees paid to Subadvisers other than Affiliated
Subadvisers (``Aggregate Fee Disclosure''). For any Fund that employs
an Affiliated Subadviser, the Fund will provide separate disclosure of
any fees paid to the Affiliated Subadviser.
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 under a written contract that has been
approved by the vote of the company's outstanding voting securities.
Rule 18f-2 under the Act provides that each series or class of stock in
a series company affected by a matter must approve such matter if the
Act requires shareholder approval.
2. Form N-1A is the registration statement used by open-end
investment companies. Item 15(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 (``Exchange 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. Form N-SAR is the semi-annual report filed with the Commission
by registered investment companies. Item 48 of Form N-SAR requires
investment companies to disclose the rate schedule for fees paid to
their investment advisers, including the Subadvisers.
5. Regulation S-X sets forth the requirements for financial
statements required to be included as part of investment company
registration statements and shareholder reports filed with the
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require
that investment companies include in their financial statements
information about investment advisory fees.
6. 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 provision 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 their requested relief meets
[[Page 70785]]
this standard for the reasons discussed below.
7. Applicants assert that the shareholders will rely on the
Adviser's expertise to select one or more Subadvisers best suited to
achieve a Fund's investment objectives. Applicants assert that, from
the perspective of the shareholder, the role of the Subadvisers is
comparable to that of individual portfolio managers employed by
traditional investment advisory firms. Applicants contend that
requiring shareholder approval of each Subadvisory Agreement would
impose costs and unnecessary delays on the Select Funds, and may
preclude the Adviser from acting promptly in a manner considered
advisable by the Board. Applicants note that the Advisory Agreement
will remain fully subject to section 15(a) of the Act and rule 18f-2
under the Act.
8. Applicants assert that some Subadvisers use a ``posted'' rate
schedule to set their fees. Applicants state that the Adviser may not
be able to negotiate below the ``posted'' fee rates with Subadvisers if
each Subadviser's fees are required to be disclosed. Applicants submit
that the nondisclosure of the individual Subadvisers' fees is in the
best interest of the Select Funds and their shareholders, where the
disclosure of such fees would increase costs to shareholders without an
offsetting benefit to the Select Funds and their shareholders.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before any Fund may rely on the requested order, the operation
of the Fund in the manner described in the application will be approved
by a majority of the outstanding voting securities of the Fund, as
defined in the Act, or, in the case of a Fund whose public shareholders
purchased shares on the basis of a prospectus containing the disclosure
contemplated by condition 2 below, by the sole initial shareholder
before offering shares of the Fund to the public.
2. The Trust will disclose in its prospectus(es) the existence,
substance and effect of any order granted pursuant to the application.
In addition, each Fund relying on the requested order will hold itself
out to the public as employing the management structure described in
the application. The prospectus will prominently disclose that the
Adviser has the ultimate responsibility (subject to oversight by the
Board) to oversee the Subadvisers and to recommend their hiring,
termination, and replacement.
3. At all times, a majority of the Board will be Disinterested
Trustees, and the nomination of new or additional Disinterested
Trustees will be at the discretion of the then existing Disinterested
Trustees.
4. The Adviser and the Funds will not enter into a Subadvisory
Agreement with any Affiliated Subadviser without that agreement,
including the compensation to be paid thereunder, being approved by the
shareholders of the applicable Fund.
5. When a Subadviser change is proposed for a Fund with an
Affiliated Subadviser, the Board, including a majority of the
Disinterested Trustees, will make a separate finding, reflected in the
Board minutes, that the 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 Subadviser derives an inappropriate
advantage.
6. Within 90 days of the hiring of any new Subadviser, shareholders
will be furnished all information about the new Subadviser that would
be contained in a proxy statement, except as modified to permit
Aggregate Fee Disclosure. This information will include Aggregate Fee
Disclosure and any change in such disclosure caused by the addition of
the new Subadviser. The Trust or the Adviser will meet this condition
by providing shareholders, within 90 days of the hiring of a
Subadviser, an information statement meeting the requirements of
Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under the
Exchange Act, except as modified to permit Aggregate Fee Disclosure.
7. The Adviser will provide general investment advisory services to
the Funds, including overall supervisory responsibility for the general
management and investment of each Funds' assets, and, subject to review
and approval by the Board, will: (i) Set each Fund's overall investment
strategies, (ii) evaluate, select and recommend Subadvisers to manage
all or a part of each Fund's assets, (iii) when appropriate, allocate
and reallocate each Fund's assets among multiple Subadvisers; (iv)
monitor and evaluate the performance of the Subadvisers, and (v) ensure
that the Subadvisers comply with each Fund's investment objectives,
policies and restrictions by, among other things, implementing
procedures reasonably designed to ensure compliance.
8. No Trustee or officer of the Trust, 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 Subadviser, 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 Subadviser or an entity that controls,
is controlled by, or is under common control with a Subadviser.
9. The Trust will include in its registration statement the
Aggregate Fee Disclosure.
10. Independent counsel knowledgable about the Act and the duties
of Disinterested Trustees will be engaged to represent the
Disinterested Trustees of the Trust. The selection of such counsel will
remain within the discretion of the Disinterested Trustees.
11. Shareholders of a Fund will approve any change to a Subadvisory
Agreement if such change would result in an increase in the overall
management and advisory fees payable by the Fund that have been
approved by the shareholders of the Fund.
12. The Adviser will provide the Board, no less frequently than
quarterly, with information about the Adviser's profitability on a per-
Fund basis. The information will reflect the impact on profitability of
the hiring or termination of any Subadviser during the applicable
quarter.
13. Whenever a Subadviser is hired or terminated, the Adviser will
provide the Board with information showing the expected impact on the
Adviser's profitability.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-29948 Filed 11-25-02; 8:45 am]
BILLING CODE 8010-01-P