[Federal Register Volume 67, Number 228 (Tuesday, November 26, 2002)]
[Notices]
[Pages 70783-70785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29948]


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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