
[Federal Register: March 4, 2008 (Volume 73, Number 43)]
[Notices]               
[Page 11685-11687]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04mr08-109]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28175; 812-13473]

 
Advisors Series Trust, et al.; Notice of Application

February 27, 2008.
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 FundQuest 
Incorporated (the ``Adviser'').

Filing Dates:  The application was filed on December 31, 2007, and 
amended on January 28, 2008.

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 March 24, 2008 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 by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, c/o Julie Allecta, 
Esq., Paul Hastings, Janofsky and Walker, 55 Second Street, 24th Floor, 
San Francisco, CA 94105.

FOR FURTHER INFORMATION CONTACT: Lewis B. Reich, Senior Counsel, at 
(202) 551-6919, or Nadya B. Roytblat, Assistant Director, 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 for a fee at the 
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549-1520 (telephone (202) 551-5850).

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 thirty-three series, 
ten of which are advised by the Adviser (``Funds'').\1\ The Adviser, a 
Delaware corporation and a wholly-owned subsidiary of Paribas North 
America, is registered as an investment adviser under the Investment 
Advisers Act of 1940 (``Advisers Act''), and will serve as investment 
adviser to the Funds under an investment advisory agreement with the 
Trust (``Advisory Agreement'') that will have been approved by each 
respective Fund's shareholders 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 Adviser (``Independent Trustees'').
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    \1\ Applicants request relief with respect to any existing and 
any future series of the Trust that: (a) Is advised by the Adviser 
or a person controlling, controlled by, or under common control with 
the Adviser; (b) uses the management structure described in the 
application; and (c) complies with the terms and conditions of the 
requested order (included in the term ``Funds''). The only existing 
registered open-end management investment company that currently 
intends to rely on the requested order is named as an applicant. If 
the name of any Fund contains the name of a Subadviser (as defined 
below), the name of the Adviser will precede the name of the 
Subadviser.
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    2. Under the terms of the Advisory Agreement, the Adviser will 
provide each Fund with overall management services and 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 each Fund, 
the Adviser will receive the fee specified in the Advisory Agreement 
from such Fund. The Advisory Agreement will also permit the Adviser, 
subject to the approval of the Board and Fund shareholders, to enter 
into investment subadvisory agreements (``Subadvisory Agreements'') 
with one or more subadvisers (``Subadvisers''). The Adviser has entered 
into Subadvisory Agreements with various Subadvisers to provide 
investment advisory services to the Funds. Each Subadviser is, and 
every future Subadviser will be, registered as an investment adviser 
under the Advisers Act. The Adviser will monitor and evaluate the 
Subadvisers and recommend to the Board their hiring, retention or 
termination. Subadvisers recommended to the Board by the Adviser will 
be selected and approved by the Board, including a majority of the 
Independent Trustees. Each Subadviser will have discretionary authority 
to invest the assets or a portion of the assets of a particular Fund. 
The Adviser will compensate each Subadviser out of the fees paid to the 
Adviser under the Advisory Agreement.
    3. Applicants request an order to permit the Adviser, subject to 
Board approval, to enter into and materially amend Subadvisory 
Agreements without obtaining shareholder approval. The requested relief 
will not extend to any Subadviser that is an affiliated person, as 
defined in section 2(a)(3) of the Act, of the Trust or of the Adviser, 
other than by reason of serving as a subadviser to one or more of the 
Funds (``Affiliated Subadviser'').
    4. Applicants also request an exemption from the various disclosure 
provisions described below that may require a Fund to disclose fees 
paid by the Adviser to each Subadviser. An exemption is requested to 
permit the Trust to disclose for each Fund (as both a dollar amount and 
as a percentage of each Fund's net assets): (a) The aggregate fees paid 
to the Adviser and any Affiliated Subadvisers; and (b) the aggregate 
fees paid to Subadvisers other than Affiliated Subadvisers (``Aggregate 
Fee Disclosure''). Any Fund that employs an Affiliated Subadviser 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 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 14(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. 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

[[Page 11687]]

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 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 their requested relief meets this standard 
for the reasons discussed below.
    7. Applicants assert that the shareholders rely on the Adviser's 
experience to select one or more Subadvisers best suited to achieve a 
Fund's investment objectives. Applicants assert that, from the 
perspective of the investor, the role of the Subadvisers is comparable 
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 costs 
and unnecessary delays on the Funds, and may preclude the Adviser from 
acting promptly in a manner considered advisable by the Board. 
Applicants note that the Advisory Agreement and any Subadvisory 
Agreement with an Affiliated Subadviser will remain 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 while Subadvisers are 
willing to negotiate fees that are lower than those posted on the 
schedule, they are reluctant to do so where the fees are disclosed to 
other prospective and existing customers. Applicants submit that the 
requested relief will encourage potential Subadvisers to negotiate 
lower subadvisory fees with the Adviser.

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 
management 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 Subadvisers and 
recommend their hiring, termination, and replacement.
    3. Within 90 days of the hiring of any new Subadviser, the affected 
Fund shareholders will be furnished all information about the new 
Subadviser that would be included in a proxy statement, except as 
modified to permit Aggregate Fee Disclosure. This information will 
include Aggregate Fee Disclosure and any change in that disclosure 
caused by the addition of the new Subadviser. To meet this obligation, 
the Fund will provide shareholders within 90 days of the hiring of a 
new Subadviser with an information statement meeting the requirements 
of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the 
1934 Act, except as modified by the order to permit Aggregate Fee 
Disclosure.
    4. The Adviser 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. At all times, at least a majority of the Board will be 
Independent Trustees, and the nomination of new or additional 
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
    6. When a Subadviser change is proposed for a Fund with an 
Affiliated Subadviser, 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 Subadviser would 
derive 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 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 Subadviser during the 
applicable quarter.
    9. Whenever a Subadviser 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 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 Subadvisers to manage 
all or part of a Fund's assets; (iii) when appropriate, allocate and 
reallocate a Fund's assets among multiple Subadvisers; (iv) monitor and 
evaluate the performance of Subadvisers; and (v) implement procedures 
reasonably designed to ensure that the Subadvisers comply with each 
Fund's investment objective, policies and restrictions.
    11. No director 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 (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 Subadviser or an entity that controls, 
is controlled by, or is under common control with a Subadviser.
    12. Each Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    13. The requested order will expire on the effective date of Rule 
15a-5 under the Act, if adopted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-4081 Filed 3-3-08; 8:45 am]

BILLING CODE 8011-01-P
