[Federal Register Volume 72, Number 49 (Wednesday, March 14, 2007)]
[Notices]
[Pages 11919-11922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-4633]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-27749; 812-13295]
The RBB Fund, Inc. and Abundance Technologies, Inc.; Notice of
Application
March 8, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under section 12(d)(1)(J) of
the Investment Company Act of 1940 (``Act'') for an exemption from
sections 12(d)(1)(A) and (B) of the Act and under sections 6(c) and
17(b) of the Act for an exemption from section 17(a) of the Act.
-----------------------------------------------------------------------
Summary of Application: The order would permit certain series of a
registered open-end management investment company to acquire shares of
registered open-end management investment companies and unit investment
trusts (``UITs'') that are outside the same group of investment
companies.
Applicants: The RBB Fund, Inc. (the ``Company'') and Abundance
Technologies, Inc. (the ``Adviser'').
Filing Dates: The application was filed on May 23, 2006 and amended on
March 6, 2007. Applicants have agreed to file an amendment during the
notice period, the substance of which is reflected in this notice.
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. April 2, 2007, 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 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, The RBB Fund, Inc.,
400 Bellevue Parkway, Wilmington, DE 19809 and Abundance Technologies,
Inc., 3700 Park 42 Drive, Suite 105A, Cincinnati, OH 42141.
FOR FURTHER INFORMATION, CONTACT: Jean E. Minarick, Senior Counsel, at
(202) 551-6811, or Janet M. Grossnickle, Branch Chief, at (202) 551-
6821 (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
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington DC 20549-0102 (telephone (202) 551-5850).
Applicants' Representations
1. The Company is a Maryland corporation and an open-end management
investment company registered under the Act that is comprised of
eighteen separate series advised by various investment advisers,
including the Adviser. The Company intends to establish three new
series: Free Market U.S. Equity Fund, Free Market International Equity
Fund and Free Market Fixed-Income Fund, each of which will be advised
by the Adviser (each such series, a ``Fund of Funds'').\1\
---------------------------------------------------------------------------
\1\ Applicants also request relief with respect to any future
series of the Company for which the Adviser serves as investment
adviser (included in the term ``Fund of Funds.'').
---------------------------------------------------------------------------
2. Applicants request relief to permit a Fund of Funds to acquire
shares of registered open-end management investment companies or UITs
that are not part of the same group of investment companies as defined
in Section 12(d)(1)(G)(ii) of the Act as the Fund of Funds
(``Underlying Funds'') \2\ and the Underlying Funds to sell such shares
to the Fund of Funds. Applicants also apply for an order pursuant to
section 6(c) and section 17(b) of the Act exempting Applicants from
section 17(a) of the Act to the extent necessary to permit purchases
and redemptions by a Fund of Funds of shares of the Underlying Funds
and to permit the Underlying Funds to sell or redeem their shares in
transactions with the Funds of Funds.\3\ Applicants state that each
Fund of Funds will provide an efficient and simple method of allowing
investors, with minimal investments, to create a comprehensive asset
allocation program.
---------------------------------------------------------------------------
\2\ The Underlying Funds may include UITs (``Underlying
Trusts'') and open-end management investment companies (``Underlying
Management Companies'') that have received exemptive relief to sell
their shares on a national securities exchange at negotiated prices
(``ETFs''). Shares of an ETF also may be purchased from the ETF in
large aggregations by delivering a basket of specified securities to
the ETF, and large aggregations of shares may be redeemed from an
ETF in exchange for a basket of specified securities (``In-kind ETF
Purchases and Redemptions'').
\3\ All Funds of Funds that currently intend to rely on the
requested order are named as applicants. Any other investment
company that relies on the order in the future will comply with the
terms and conditions of the order.
---------------------------------------------------------------------------
3. The Adviser, a privately-held Ohio corporation, is registered
under the Investment Advisers Act of 1940. The Adviser serves, and will
serve, as investment adviser to the Funds of Funds.
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter and
any broker or dealer from selling the shares of the investment company
to another investment company if the sale will cause the acquiring
company to own more than 3% of the acquired company's voting stock, or
if the sale will cause more than 10% of the acquired company's voting
stock to be owned by investment companies generally.
2. Section 12(d)(1)(J) 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 section
12(d)(1) if the exemption is consistent with the public interest and
the protection of investors. Applicants seek an exemption under section
12(d)(1)(J) to permit the Funds of Funds to acquire shares of
Underlying Funds and to permit the Underlying Funds, their principal
underwriters and any broker or dealer to sell shares of the Underlying
Funds to the Funds of Funds beyond the limits set forth in sections
12(d)(1)(A) and (B) of the Act.
3. Applicants state that the proposed arrangement will not give
rise to the policy concerns underlying sections 12(d)(1)(A) and (B),
which include concerns about undue influence by a fund of funds over
underlying funds,
[[Page 11920]]
excessive layering of fees, and overly complex fund structures.
Accordingly, applicants believe that the requested exemption is
consistent with the public interest and the protection of investors.
4. Applicants state that the proposed arrangement will not result
in undue influence by a Fund of Funds or its affiliated persons over an
Underlying Fund. To limit the control that a Fund of Funds may have
over an Underlying Fund, applicants propose a condition prohibiting:
(a) The Adviser and any person controlling, controlled by or under
common control with the Adviser, and any investment company and any
issuer that would be an investment company but for section 3(c)(1) or
section 3(c)(7) of the Act that is advised by the Adviser or any person
controlling, controlled by or under common control with the Adviser
(collectively, the ``Group''), and (b) any investment adviser to a Fund
of Funds that meets the definition of section 2(a)(20)(B) of the Act
(``Sub-Adviser''), any person controlling, controlled by or under
common control with the Sub-Adviser, and any investment company or
issuer that would be an investment company but for section 3(c)(1) or
3(c)(7) of the Act (or portion of such investment company or issuer)
advised by the Sub-Adviser or any person controlling, controlled by or
under common control with the Sub-Adviser (collectively, the ``Sub-
Adviser Group'') from controlling an Underlying Fund within the meaning
of section 2(a)(9) of the Act.
5. Applicants also propose conditions to preclude a Fund of Funds
and its affiliated entities from taking advantage of an Underlying
Fund. Under condition 2 no Fund of Funds or its Adviser, Sub-Adviser,
promoter, principal underwriter or any person controlling, controlled
by or under common control with any of these entities (each, a ``Fund
of Funds Affiliate'') will cause any existing or potential investment
by the Fund of Funds in shares of an Underlying Fund to influence the
terms of any services or transactions between the Fund of Funds or a
Fund of Funds Affiliate and the Underlying Fund or its investment
adviser(s), sponsor, promoter, principal underwriter and any person
controlling, controlled by or under common control with any of these
entities (each, an ``Underlying Fund Affiliate''). Condition 5
precludes a Fund of Funds and any Fund of Funds Affiliate (except to
the extent it is acting in its capacity as an investment adviser to an
Underlying Management Company or sponsor to an Underlying Trust) from
causing an Underlying Fund to purchase a security in an offering of
securities during the existence of any underwriting or selling
syndicate of which a principal underwriter is an officer, director,
member of an advisory board, Adviser, Sub-Adviser, or employee of the
Fund of Funds, or a person of which any such officer, director, member
of an advisory board, Adviser, Sub-Adviser, or employee is an
affiliated person (each, an ``Underwriting Affiliate,'' except any
person whose relationship to the Underlying Fund is covered by section
10(f) of the Act is not an Underwriting Affiliate). An offering of
securities during the existence of any underwriting or selling
syndicate of which a principal underwriter is an Underwriting Affiliate
is an ``Affiliated Underwriting.''
6. As an additional assurance that an Underlying Management Company
understands the implications of an investment by a Fund of Funds under
the requested order, prior to a Fund of Funds' investment in an
Underlying Management Company in excess of the limit in section
12(d)(1)(A)(i), condition 8 requires that the Fund of Funds and the
Underlying Management Company execute an agreement stating, without
limitation, that their boards of directors or trustees and their
investment advisers understand the terms and conditions of the order
and agree to fulfill their responsibilities under the order
(``Participation Agreement''). Applicants note that an Underlying Fund
(other than an ETF whose shares are purchased by a Fund of Funds in the
secondary market) will retain the right to reject an investment by a
Fund of Funds.\4\
---------------------------------------------------------------------------
\4\ An Underlying Fund, including an ETF, would retain its right
to reject any initial investment by a Fund of Funds in excess of the
limit in section 12(d)(1)(A)(i) of the Act by declining to execute
the Participation Agreement with the Fund of Funds.
---------------------------------------------------------------------------
7. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. With respect to investment advisory
fees, applicants state that, before approving any investment advisory
contract under section 15 of the Act, the board of directors or
trustees (``Board'') of the Company, including a majority of the
directors or trustees who are not ``interested persons,'' as defined in
section 2(a)(19) of the Act (``Disinterested Directors''), will find
that the investment advisory fees charged under such contract are based
on services provided that are in addition to, rather than duplicative
of, services provided under the advisory contract(s) of any Underlying
Fund in which the Fund of Funds may invest.
8. Applicants state that the proposed arrangement will not create
an overly complex fund structure. Applicants note that an Underlying
Fund will be prohibited from acquiring securities of any investment
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in
excess of the limits contained in section 12(d)(1)(A), except to the
extent that such Underlying Fund (a) receives securities of another
investment company as a dividend or as a result of a plan of
reorganization of a company (other than a plan devised for the purpose
of evading section 12(d)(1) of the Act); or (b) acquires (or is deemed
to have acquired) securities of one or more affiliated investment
companies for short-term cash management purposes; or (ii) engage in
interfund borrowing or lending transactions. Applicants also represent
that a Fund of Funds' prospectus and sales literature will contain
concise, ``plain English'' disclosure designed to inform investors of
the unique characteristics of the proposed Fund of Funds structure,
including, but not limited to, its expense structure and the additional
expenses of investing in Underlying Funds. Each Fund of Funds also will
comply with the disclosure requirements adopted in Investment Company
Act Release No. 27399 (June 20, 2006).
B. Section 17(a)
5. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and any
affiliated person of the company. Section 2(a)(3) of the Act defines an
``affiliated person'' of another person to include (a) Any person
directly or indirectly owning, controlling, or holding with power to
vote, 5% or more of the outstanding voting securities of the other
person; (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote by the other person; and (c) any person directly or
indirectly controlling, controlled by, or under common control with the
other person.
6. Applicants state that the Funds of Funds and the Underlying
Funds might be deemed to be affiliated persons of one another if a Fund
of Funds acquires 5% or more of an Underlying Fund's outstanding voting
securities. In light of these possible affiliations, section 17(a)
could prevent an Underlying Fund from selling shares to and redeeming
shares from a Fund of Funds.\5\
---------------------------------------------------------------------------
\5\ Applicants note that a Fund of Funds generally would
purchase and sell shares of an Underlying Fund that operates as an
ETF through secondary market transactions at market prices rather
than through principal transactions with the Underlying Fund at net
asset value. Applicants would not rely on the requested relief from
section 17(a) for such secondary market transactions. To the extent
a Fund of Funds engages in In-Kind ETF Purchases and Redemptions,
Applicants request relief from Section 17(a) for these transactions.
---------------------------------------------------------------------------
[[Page 11921]]
7. Section 17(b) of the Act authorizes the Commission to grant an
order permitting a transaction otherwise prohibited by section 17(a) if
it finds that (a) the terms of the proposed transaction are reasonable
and fair and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act. Section
6(c) of the Act permits the Commission to exempt any person or
transactions from any provision of the Act 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.
8. Applicants submit that the proposed transactions satisfy the
standards for relief under sections 17(b) and 6(c) of the Act.\6\
Applicants state that the terms of the transactions are fair and
reasonable and do not involve overreaching. Applicants note that the
terms upon which an Underlying Fund will sell its shares to or purchase
its shares from a Fund of Funds will be based on the net asset value of
the Underlying Fund. Applicants state that the proposed arrangement
will be consistent with the policies of each Fund of Funds and
Underlying Fund, and with the general purposes of the Act.
---------------------------------------------------------------------------
\6\ Applicants acknowledge that receipt of any compensation by
(a) an affiliated person of a Fund of Funds, or an affiliated person
of such person, for the purchase by the Fund of Funds of shares of
an Underlying Fund or (b) an affiliated person of an Underlying
Fund, or an affiliated person of such person, for the sale by the
Underlying Fund of its shares to a Fund of Funds is subject to
section 17(e) of the Act. The Participation Agreement also will
include this acknowledgement.
---------------------------------------------------------------------------
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The members of the Group will not control (individually or in
the aggregate) an Underlying Fund within the meaning of section 2(a)(9)
of the Act. The members of the Sub-Adviser Group will not control
(individually or in the aggregate) an Underlying Fund within the
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in
the outstanding voting securities of an Underlying Fund, the Group or
the Sub-Adviser Group, each in the aggregate, becomes a holder of more
than 25% of the outstanding voting securities of the Underlying Fund,
it will vote its shares of the Underlying Fund in the same proportion
as the vote of all other holders of the Underlying Fund's shares. This
condition shall not apply to the Sub-Adviser Group with respect to an
Underlying Fund for which the Sub-Adviser or a person controlling,
controlled by, or under common control with the Sub-Adviser acts as the
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(in the case of an Underlying Management Company) or as the sponsor (in
the case of an Underlying Trust).
2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in shares of an
Underlying Fund to influence the terms of any services or transactions
between the Fund of Funds or a Fund of Funds Affiliate and the
Underlying Fund or an Underlying Fund Affiliate.
3. The Board of the Company, including a majority of the
Disinterested Directors, will adopt procedures reasonably designed to
assure that the Adviser and any Sub-Adviser to the Fund of Funds are
conducting the investment program of the Fund of Funds without taking
into account any consideration received by the Fund of Funds or a Fund
of Funds Affiliate from an Underlying Fund or an Underlying Fund
Affiliate in connection with any services or transactions.
4. Once an investment by a Fund of Funds in the securities of an
Underlying Management Company exceeds the limit of section
12(d)(1)(A)(i) of the Act, the Board of the Underlying Management
Company, including a majority of the Disinterested Directors, will
determine that any consideration paid by the Underlying Management
Company to the Fund of Funds or a Fund of Funds Affiliate in connection
with any services or transactions: (a) Is fair and reasonable in
relation to the nature and quality of the services and benefits
received by the Underlying Management Company; (b) is within the range
of consideration that the Underlying Management Company would be
required to pay to another unaffiliated entity in connection with the
same services or transactions; and (c) does not involve overreaching on
the part of any person concerned. This condition does not apply with
respect to any services or transactions between an Underlying
Management Company and its investment adviser(s), or any person
controlling, controlled by, or under common control with such
investment adviser(s).
5. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to an
Underlying Management Company or sponsor to an Underlying Trust) will
cause an Underlying Fund to purchase a security in any Affiliated
Underwriting.
6. The Board of an Underlying Management Company, including a
majority of the Disinterested Directors, will adopt procedures
reasonably designed to monitor any purchases of securities by the
Underlying Management Company in Affiliated Underwritings, once an
investment by a Fund of Funds in the securities of the Underlying
Management Company exceeds the limit of section 12(d)(1)(A)(i) of the
Act, including any purchases made directly from an Underwriting
Affiliate. The Board will review these purchases periodically, but no
less frequently than annually, to determine whether the purchases were
influenced by the investment by the Fund of Funds in shares of the
Underlying Management Company. The Board will consider, among other
things: (a) Whether the purchases were consistent with the investment
objectives and policies of the Underlying Management Company; (b) how
the performance of securities purchased in an Affiliated Underwriting
compares to the performance of comparable securities purchased during a
comparable period of time in underwritings other than Affiliated
Underwritings or to a benchmark such as a comparable market index; and
(c) whether the amount of securities purchased by the Underlying
Management Company in Affiliated Underwritings and the amount purchased
directly from an Underwriting Affiliate have changed significantly from
prior years. The Board will take any appropriate actions based on its
review, including, if appropriate, the institution of procedures
designed to assure that purchases of securities in Affiliated
Underwritings are in the best interests of shareholders.
7. Each Underlying Management Company shall maintain and preserve
permanently in an easily accessible place a written copy of the
procedures described in the preceding condition, and any modifications
to such procedures, and shall maintain and preserve for a period of not
less than six years from the end of the fiscal year in which any
purchase from an Affiliated Underwriting occurred, the first two
[[Page 11922]]
years in an easily accessible place, a written record of each purchase
of securities in Affiliated Underwritings once an investment by a Fund
of Funds in the securities of an Underlying Management Company exceeds
the limit of section 12(d)(1)(A)(i) of the Act, setting forth from whom
the securities were acquired, the identity of the underwriting
syndicate's members, the terms of the purchase, and the information or
materials upon which the determinations of the Board of the Underlying
Management Company were made.
8. Prior to an investment in shares of an Underlying Management
Company in excess of the limit in section 12(d)(1)(A)(i) of the Act,
the Fund of Funds and the Underlying Management Company will execute a
Participation Agreement stating, without limitation, that their Boards
and their investment advisers understand the terms and conditions of
the order and agree to fulfill their responsibilities under the order.
At the time of its investment in shares of an Underlying Management
Company in excess of the limit in section 12(d)(1)(A)(i), a Fund of
Funds will notify the Underlying Management Company of the investment.
At such time, the Fund of Funds also will transmit to the Underlying
Management Company a list of the names of each Fund of Funds Affiliate
and Underwriting Affiliate. The Fund of Funds will notify the
Underlying Management Company of any changes to the list as soon as
reasonably practicable after a change occurs. The Underlying Management
Company and the Fund of Funds will maintain and preserve a copy of the
order, the Participation Agreement, and the list with any updated
information for the duration of the investment and for a period of not
less than six years thereafter, the first two years in an easily
accessible place.
9. Prior to approving any investment advisory agreement under
section 15 of the Act with respect to a Fund of Funds, the Board of the
Company, including a majority of the Disinterested Directors, will find
that the advisory fees charged under such agreement are based on
services provided that are in addition to, rather than duplicative of,
the services provided under the investment advisory agreement(s) of any
Underlying Fund in which the Fund of Funds may invest. The finding, and
the basis upon which the finding was made, will be recorded fully in
the minute books of the Company.
10. The Adviser will waive fees otherwise payable to it by a Fund
of Funds in an amount at least equal to any compensation (including
fees received pursuant to a plan adopted by an Underlying Management
Company under rule 12b-1 under the Act) received from an Underlying
Fund by the Adviser or an affiliated person of the Adviser, other than
any advisory fees paid to the Adviser or its affiliated person by an
Underlying Management Company, in connection with the investment by the
Fund of Funds in the Underlying Fund. Any Sub-Adviser will waive fees
otherwise payable to the Sub-Adviser, directly or indirectly, by the
Fund of Funds in an amount at least equal to any compensation received
from an Underlying Fund by the Sub-Adviser, or an affiliated person of
the Sub-Adviser, other than any advisory fees paid to the Sub-Adviser
or its affiliated person by an Underlying Management Company, in
connection with the investment by the Fund of Funds in the Underlying
Fund made at the direction of the Sub-Adviser. In the event that the
Sub-Adviser waives fees, the benefit of the waiver will be passed
through to the Fund of Funds.
11. Any sales charges and/or service fees charged with respect to
shares of a Fund of Funds will not exceed the limits applicable to
funds of funds set forth in NASD Conduct Rule 2830.
12. No Underlying Fund will acquire securities of any other
investment company or company relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained in section 12(d)(1)(A) of the
Act, except to the extent that such Underlying Fund (i) receives
securities of another investment company as a dividend or as a result
of a plan of reorganization of a company (other than a plan devised for
the purpose of evading Section 12(d)(1) of the 1940 Act); or (ii)
acquires (or is deemed to have acquired) securities of another
investment company pursuant to exemptive relief from the Commission
permitting such Underlying Fund to (a) acquire securities of one or
more affiliated investment companies for short-term cash management
purposes, or (b) engage in interfund borrowing and lending
transactions.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-4633 Filed 3-13-07; 8:45 am]
BILLING CODE 8010-01-P