[Federal Register Volume 76, Number 61 (Wednesday, March 30, 2011)]
[Notices]
[Pages 17718-17720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-7417]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29616; 812-13801]
Simple Alternatives, LLC and The RBB Fund, Inc.; Notice of
Application
Date: March 24, 2011.
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 of 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: Simple Alternatives, LLC (``Simple Alternatives'') and The
RBB Fund, Inc. (the ``Company'').
Filing Dates: The application was filed on July 23, 2010, and amended
on December 22, 2010 and March 11, 2011.
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 April 18, 2011, 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, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants: c\o Gilbert H.
Davis, Esq., Sims Moss Kline & Davis LLP, Suite 1700, Three Ravinia
Drive, Atlanta, Georgia 30346.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel,
at (202) 551-6868, or Janet M. Grossnickle, Assistant Director, 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 via the
Commission's Web site by searching for the file number, or 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 Company, a Maryland corporation, is registered under the Act
as an open-end management investment company and offers eighteen
series, including the S1 Fund (``S1 Fund'').\1\ Simple Alternatives is
registered as an investment adviser under the Investment Advisers Act
of 1940 (``Advisers Act'') and serves as the investment adviser to the
S1 Fund. An Adviser will serve as the investment adviser to each Fund
pursuant to an investment advisory agreement (``Advisory Agreement'')
with the Fund. Each Advisory Agreement will be approved by the
Company's board of directors (``Board''), including a majority of the
directors who are not ``interested persons,'' as defined in section
2(a)(19) of the Act, of the Company or the Adviser (``Independent
Directors'') and by the initial shareholder of the Fund.
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\1\ Applicants also request relief with respect to existing and
future series of the Company and any other existing or future
registered open-end management investment company or series thereof
that: (a) Is advised by Simple Alternatives or any entity
controlling, controlled by or under common control with Simple
Alternatives (each, an ``Adviser''); (b) uses the manager of
managers structure described in the application (the ``Manager of
Managers Structure'') and (c) complies with the terms and conditions
of this application (together with the S1 Fund, the ``Funds'' and
each, individually, a ``Fund''). 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 that serves as the primary adviser to the Fund will
precede the name of the Subadviser.
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2. Under the terms of each Advisory Agreement, the Adviser will be
responsible for the overall management of the Fund's business affairs
and selecting the Funds' investments in accordance with its investment
objectives, policies and restrictions. For the investment management
services that it provides to the Fund, the Adviser will receive the fee
specified in the Advisory Agreement. The Advisory Agreement also
permits the Adviser to retain one or more subadvisers, at its own cost
and expense, for the purpose of managing the investments of the Funds.
Pursuant to this authority, the Adviser will enter into investment
subadvisory agreements (``Subadvisory Agreements'') with certain
unaffiliated subadvisers (each, a ``Subadviser'') to provide investment
advisory services to the Funds. Simple Alternatives currently employs
eight Subadvisers for the S1 Fund. Each Subadviser is and each future
Subadviser will be registered as an investment adviser under the
Advisers Act. The Adviser will supervise, evaluate and allocate assets
to the Subadvisers, and make recommendations to the Board about their
hiring, retention or termination, at all times subject to the authority
of the Board.
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 Company, a Fund or the
Adviser, other than by reason of serving as a subadviser to the Fund
(``Affiliated Subadviser'').
[[Page 17719]]
4. Applicants also request an exemption from the various disclosure
provisions described below that may require the Funds to disclose fees
paid by the Adviser to the Subadvisers. An exemption is requested to
permit the each Fund to disclose (as both a dollar amount and as a
percentage of the respective Fund's net assets): (a) The aggregate fees
paid to the Adviser and any Affiliated Subadvisers; and (b) the
aggregate fees paid to Subadvisers (collectively, ``Aggregate Fee
Disclosure''). Any Fund that employs an Affiliated Subadviser also will
provide separate disclosure of any fees paid to any 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 pursuant to a written contract that has been
approved by the 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 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. 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.
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 are relying 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
substantially equivalent to that of the individual portfolio managers
employed by traditional advisory firms. Applicants state that requiring
shareholder approval of each Subadvisory Agreement would subject a Fund
to expenses and delays and may preclude the Adviser from acting
promptly. 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.
7. Applicants assert that Subadvisers use a ``posted'' rate
schedule to set their fees. Applicants state that, while Subadvisers
are willing to negotiate fees lower than those posted in the schedule,
they are reluctant to do so where the fees are disclosed to the public
and other Subadvisers. Applicants submit that the requested relief will
allow the Adviser to negotiate more effectively with Subadvisers.
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 requested order, 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 initial shareholder(s) before
offering shares of that Fund to the public.
2. Each Fund relying on the requested order will disclose in its
prospectus the existence, substance, and effect of any order granted
pursuant to this application. Each Fund will hold itself out to the
public as utilizing the Manager of Managers Structure. 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 a new Subadviser, 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 disclosure caused by the
addition of the new Subadviser. To meet this obligation, each Fund will
provide shareholders, within 90 days of the hiring of a new Subadviser,
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. An Adviser will not enter into a Subadvisory Agreement with any
Affiliated Subadviser without such 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 Directors, and the nomination of new or additional
Independent Directors will be placed within the discretion of the then-
existing Independent Directors.
6. Whenever a subadviser change is proposed for a Fund with an
Affiliated Subadviser, the Board, including a majority of the
Independent Directors, 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 derives 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 Directors. The
selection of such counsel will be within the discretion of the then-
existing Independent Directors.
8. Each 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.
[[Page 17720]]
10. An Adviser will provide general management services to each
Fund, including overall supervisory responsibility for the general
management and investment of each Fund's assets and, subject to review
and approval of the Board, will: (a) Set each Fund's overall investment
strategies; (b) evaluate, select and recommend Subadvisers to manage
all or a part of each Fund's assets; (c) allocate and, when
appropriate, reallocate each Fund's assets among one or more
Subadvisers; (d) monitor and evaluate the performance of Subadvisers;
and (e) 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 Company or a Fund, or director,
manager, or officer of an 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 any 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. In the event the Commission adopts a rule under the Act
providing substantially similar relief to that in the order 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.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-7417 Filed 3-29-11; 8:45 am]
BILLING CODE 8011-01-P