39606 Federal Register / Vol. 63, No. 141 /Thursday, July 23, 1998 / Notices

1All existing entities that currently intend to rely

on the order are named as applicants and any

Upper Tier Fund that may rely on this order in the

future will do so only in accordance with the terms

and conditions of the application.

3. Applicant Insurance Companies

shall have satisfied themselves, that (i)

the Variable Contracts allow the

substitution of investment in the

manner contemplated by the

Substitutions and related transactions

described herein; (ii) the transactions

can be consummated as described in the

application under applicable insurance

laws; and (iii) that any regulatory

requirements in each jurisdiction where

the Variable Contracts are qualified for

sale, have been complied with to the

extent necessary to complete the

transactions.

Applicants’ Legal Analysis

1. Section 26(b) of the 1940 Act

prohibits any depositor or trustee of a

unit investment trust holding the

security of a single issuer to substitute

another security for such security unless

the Commission shall have approved

such substitution. Section 26(b) of the

1940 Act also provides that the

Commission shall issue an order

approving such substitution if the

evidence establishes that the

substitution is consistent with the

protection of investors and the purposes

fairly intended by the policies and

provisions of the 1940 Act.

2. Applicants request an order

pursuant to Section 26(b) of the 1940

Act approving the substitutions.

Applicants maintain that the

Substitutions, if implemented, would

not raise any of the concerns that

Congress sought to address when the

1940 Act was amended to include this

provision (e.g., that a substitution might

force shareholders dissatisfied with the

substituted security to redeem their

shares, thereby possibly incurring

additional sales or surrender charges.)

Applicants also maintain that, subject to

the terms and conditions summarized in

this notice, the Substitution is

consistent with the protection of

investors and the purposes fairly

intended by the policy and provisions of

the 1940 Act.

3. Section 17(a)(1) and (2) of the 1940

Act generally prohibits an affiliated

person of a registered investment

company, or an affiliated person of an

affiliated person, from selling to or

purchasing a security from such

registered investment company.

Applicants may be deemed to be

affiliates of one another based upon the

definition of ‘‘affiliated person’’ in

Section 2(a)(3) of the 1940 Act. Because

the Substitutions and subsequent

combination of subaccounts will be

effected by means of an in-kind

redemption and purchase, Applicants

state that the Substitutions may be

deemed to involve one or more

purchases or sales of securities or

property between a registered

investment company and its affiliates.

4. Applicants request an order

pursuant to Section 17(b) of the 1940

Act exempting the Substitutions and

related transactions from the provisions

of Section 17(a) of the 1940 Act. Section

17(b) of the 1940 Act provides that the

Commission may grant an order

exempting proposed transactions from

the prohibition of Section 17(a) if: (i)

The terms of the proposed transaction,

including the consideration to be paid

and received, are reasonable and fair

and do not involve overreaching on the

part of any person concerned; (ii) the

proposed transaction is consistent with

the policy of each registered investment

company concerned; and (iii) the

proposed transaction is consistent with

the general purposes of the 1940 Act.

5. Applicants represent that the terms

of the proposed transactions, including

the consideration to be paid and

received, are reasonable and fair and do

not involve overreaching on the part of

any person concerned. Applicants

maintain that the interests of

Contractholders will not be diluted and

that the Substitutions will not effect any

change in economic interest, contract

value, or the dollar value of any

Variable Contract held by an Affected

Contractholder.

6. Applicants also state that the

Substitutions will take place in

accordance with procedures, adopted by

the Board of Trustees of each of the GCG

Trust and the ESS Trust, respectively,

designed to meet the requirements

enumerated in Rule 17a–7 under the

1940 Act, except that transactions be

effected in cash. Although the relief

afforded by Rule 17a–7 is not available

in connection with the Substitutions,

Applicants submit that structuring the

Substitutions to comply with the

requirements of that rule provides a

strong basis upon which the

Commission may base a finding that the

standards necessary to grant an order of

exemption pursuant to Section 17(b) of

the 1940 Act have been satisfied.

7. Applicants represent that the

transactions are consistent with the

investment policy of each investment

company involved, as recited in the

current prospectus relating to each

investment company, and the general

purposes of the 1940 Act, and do not

present any of the conditions or abuses

that the 1940 Act was designed to

prevent.

Conclusion

Applicants assert that, for the reasons

summarized above, the requested order

approving the Substitutions and related

transactions should be granted.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 98–19651 Filed 7–22–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. IC–23318; 812–11104]

The RBB Fund, Inc. and BEA

Associates; Notice of Application

July 16, 1998.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

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 section

12(d)(1)(G)(i)(II) of the Act.

SUMMARY OF APPLICATION: Applicants

request an order that would permit a

fund of funds relying on section

12(d)(1)(G) to invest directly in

securities and other instruments.

APPLICANTS: The RBB Fund, Inc. (the

‘‘Company’’) and BEA Associates

(‘‘BEA’’). The requested order also

would extend to any existing or future

open-end management investment

company or series thereof advised by

BEA (an ‘‘Upper Tier Fund’’) that

wishes to invest in a registered openend management investment company

or series thereof that is advised by BEA

and is part of the same ‘‘group of

investment companies’’ (as defined in

section 12(d)(1)(G)(ii) of the Act)

(together with the series of the Company

excluding the BEA Long-Short Equity

Fund, the ‘‘Underlying Funds’’) as the

investing Upper Tier Fund.1

FILING DATES: The application was filed

on April 15, 1998. Applicants have

agreed to file an amendment during the

notice period, the substance of which is

included in this notice.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicant with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on
Federal Register / Vol. 63, No. 141 /Thursday, July 23, 1998 / Notices 39607

August 10, 1998, and should be

accompanied by proof of service on

applicant, 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 SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 5th

Street, N.W., Washington, D.C. 20549.

Applicants, 153 East 53rd Street, New

York, New York 10022.

FOR FURTHER INFORMATION CONTACT:

Deepak T. Pai, Staff Attorney, at (202)

942–0574, or Edward P. Macdonald,

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 is

available for a fee at the SEC’s Public

Reference Branch, 450 Fifth Street,

N.W., Washington, D.C. 20549 (tel. 202–

942–8090).

Applicant’s Representations

1. The Company, an open-end

management investment company

registered under the Act and organized

as a Maryland corporation, currently

consists of twenty-two series (the

‘‘Funds’’). BEA, an investment adviser

registered under the Investment

Advisers Act of 1940, is the investment

adviser for twelve of the Funds,

including the BEA Long Short Equity

Fund (the ‘‘Equity Fund’’) and the BEA

Long-Short Market Neutral Fund (the

‘‘Market Neutral Fund’’).

2. The Equity Fund will seek a total

return greater than that of the Standard

& Poor’s 500 Composite Stock Price

Index (the ‘‘S&P 500 Index’’) by

investing in shares of the Market

Neutral Fund, while also investing in

S&P 500 Index futures, options on S&P

500 Index futures, and equity swap

contracts (collectively, ‘‘Index

Securities’’). The Market Neutral Fund

seeks long-term capital appreciation

while maintaining minimal exposure to

general equity market risk by taking

long positions in stocks that BEA has

identified as undervalued and short

positions that BEA has identified as

overvalued. By investing in shares of the

Market Neutral Fund, the Equity Fund

seeks to add the return generated by the

‘‘market neutral strategy’’ of the Market

Neutral Fund. The Equity Fund and the

Upper Tier Funds would also like to

retain the flexibility to invest in

securities and financial instruments,

including financial futures, swaps,

reverse repurchase agreements, and

options on currencies.

3. With respect to the Market Neutral

Fund and the Equity Fund, BEA intends

to reduce its advisory fees and bear

certain expenses to the extent that each

Fund’s total annual operating expenses

(excluding nonrecurring account fees

and extraordinary expenses) exceed a

specified percentage of net assets, and,

in the case of the Market Neutral Fund,

a performance adjustment will be

applied to the advisory fee of the Market

Neutral Fund. Any advisory fee that

BEA charges to the Equity Fund or

Upper Tier Funds will be for services

that are in addition to, rather than

duplicative of, services provided to the

Market Neutral Fund and the

Underlying Funds. Applicants believe

that the proposed operation of the

Equity Fund and Upper Tier Funds will

benefit shareholders by lowering

transaction and operational costs.

Applicants’ Legal Analysis

1. Section 12(d)(1)(A) of the Act

provides that no registered investment

company may acquire securities of

another investment company if such

securities represent more than 3% of the

acquired company’s outstanding voting

stock, more than 5% of the acquiring

company’s total assets, or if such

securities, together with the securities of

other investment companies, represent

more than 10% of the acquiring

company’s total assets. Section

12(d)(1)(B) provides that no registered

open-end investment company may sell

its securities 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.

2. Section 12(d)(1)(G) of the Act

provides that section 12(d)(1) will not

apply to securities of an acquired

company purchased by an acquiring

company if: (a) The acquiring company

and the acquired company are part of

the same group of investment

companies; (b) the acquiring company

holds only securities of acquired

companies that are part of the same

group of investment companies,

government securities, and short-term

paper; (c) the aggregate sales loads and

distribution-related fees of the acquiring

company and the acquired company are

not excessive under rules adopted

pursuant to section 22(b) or section

22(c) by a securities association

registered under section 15A of the

Securities Exchange Act of 1934 or the

Commission; and (d) the acquired

company has a policy that prohibits it

from acquiring securities of registered

open-end investment companies or

registered unit investment trusts in

reliance on section 12(d)(1)(F) or (G).

3. Applicants state that the proposed

arrangement would comply with the

provisions of section 12(d)(1)(G), but for

the fact that the Equity Fund’s

investment policies contemplate that it

will invest in Index Securities and other

securities and financial instruments.

4. Section 12(d)(1)(J) provides that the

SEC may exempt persons or transactions

from any provision of section 12(d)(1) if

and to the extent the exemption is

consistent with the public interest and

the protection of investors. Applicants

believe that permitting the Equity Fund

or other Upper Tier Funds to invest in

securities as described in the

application would not raise any of the

concerns that the requirements of

section 12(d)(1)(G) were designed to

address.

Applicants’ Conditions

Applicants agree that the order

granting the requested relief will be

subject to the following conditions:

1. Before approving any advisory

contract under section 15 of the Act, the

board of directors of the Company on

behalf of the Equity Fund or Upper Tier

Fund, including a majority of the

directors who are not ‘‘interested

persons’’ as defined in section 2(a)(19)

of the Act, will find that advisory fees,

if any, charged under such contract are

based on services provided that are in

addition to, rather than duplicative of,

services provided under any Underlying

Fund’s advisory contract. The finding,

and the basis upon which the finding

was made, will be recorded fully in the

Company’s minute books on behalf of

the Equity Fund or Upper Tier Fund.

2. Applicants will comply with all

provisions of section 12(d)(1)(G) of the

Act, except for section 12(d)(1)(G)(i)(II)

to the extent that it restricts the Equity

Fund or an Upper Tier Fund from

investing in securities as described in

the application.

For the SEC, by the Division of Investment

Management, under delegated authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 98–19650 Filed 7–22–98; 8:45 am]

BILLING CODE 8010–01–M