81 FR 28918 - Bridge Builder Trust and Olive Street Investment Advisers, LLC; Notice of Application
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 90 (May 10, 2016)
Federal Register Volume 81, Issue 90 (May 10, 2016)
| Page Range | 28918-28923 | |
| FR Document | 2016-10917 |
[Federal Register Volume 81, Number 90 (Tuesday, May 10, 2016)] [Notices] [Pages 28918-28923] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-10917] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 32103; File No. 812-14492] Bridge Builder Trust and Olive Street Investment Advisers, LLC; Notice of Application May 4, 2016 AGENCY: Securities and Exchange Commission (``Commission''). ACTION: Notice of an application for an order pursuant to: (a) section 6(c) of the Investment Company Act of 1940 (``Act'') granting an exemption from sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Act; and (d) section 17(d) of the Act and rule 17d-1 under the Act to permit certain joint arrangements and transactions. ----------------------------------------------------------------------- Summary of the Application: Applicants request an order that would permit certain registered open-end management investment companies to participate in a joint lending and borrowing facility. Applicants: Bridge Builder Trust (the ``Trust'') and Olive Street Investment Advisers, LLC (``Olive Street'' or the ``Adviser''). Filing Dates: The application was filed on June 18, 2015, and amended on December 2, 2015, March 9, 2016, and May 4, 2016. Hearing or Notification of Hearing: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the [[Page 28919]] 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 May 31, 2016, and should be accompanied by proof of service on the applicants, in the form of an affidavit, or, for lawyers, a certificate of service. Pursuant to Rule 0-5 under the Act, hearing requests should state the nature of the writer's interest, any facts bearing upon the desirability of a hearing on the matter, 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: Joseph C. Neuberger, President and Elaine Richards, Secretary, Bridge Builder Trust, 2020 East Financial Way Suite 100, Glendora, CA 91741, Sean Graber, Esq. Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103, and Helge K. Lee, Esq., Edward D. Jones & Co. L.P., 12555 Manchester Road, St. Louis MO 63131. FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at (202) 551-6915 or Daniele Marchesani, Branch Chief, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office). 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 Trust is organized as a Delaware statutory trust and is registered under the Act as an open-end management investment company. The Trust has issued one or more series, each of which has shares having a different investment objective and different investment policies. Certain of the Funds\1\ either are or may be money market funds that comply with rule 2a-7 under the Act (each a ``Money Market Fund'' and collectively, the ``Money Market Funds''). Olive Street is a Missouri limited liability company that is registered as an investment adviser under the Investment Advisers Act of 1940 (``Advisers Act''). Olive Street is a wholly-owned subsidiary of The Jones Financial Companies, L.L.L.P. (``JFC'') and is affiliated with other subsidiaries of JFC, including Edward D. Jones & Co., L.P., and Edward Jones Trust Company. Currently, Olive Street acts as investment adviser only to the Trust.\2\ --------------------------------------------------------------------------- \1\ Applicants request that the order apply to any registered open-end management investment company or series thereof for which Olive Street or any successor thereto or an investment adviser controlling, controlled by, or under common control (within the meaning of section 2(a)(9) of the Act) with Olive Street or any successor thereto serves as investment adviser (each a ``Fund'' and collectively the ``Funds'' and each such investment adviser as ``Adviser''). For purposes of the requested order, ``successor'' is limited to any entity that results from a reorganization into another jurisdiction or a change in the type of a business organization. \2\ All Funds that currently intend to rely on the requested order have been named as applicants. Any other Fund that relies on the requested order in the future will comply with the terms and conditions of the application. --------------------------------------------------------------------------- 2. The Funds may lend cash to banks or other entities by entering into repurchase agreements or purchasing other short-term instruments. In order to meet an unexpected volume of redemptions or to cover unanticipated cash shortfalls, the Funds contracted for a revolving credit facility with U.S. Bank National Association (``U.S. Bank''), the Funds' custodian (``Bank Borrowing''). 3. If Funds that experience a cash shortfall were to use Bank Borrowing, they would pay interest at a rate that is likely to be higher than the rate that could be earned by non-borrowing Funds on investments in repurchase agreements and other short-term money market instruments of the same maturity as the Bank Borrowing (``Short-Term Instruments''). Applicants assert this differential represents the bank's profit for serving as the middleperson between a borrower and lender and is not attributable to any material difference in the credit quality or risk of such transactions. 4. The Funds seek to enter into a master interfund lending agreement with each other that would permit each Fund to lend money directly to and borrow money directly from other Funds for temporary purposes through the InterFund Program (an ``Interfund Loan''). The Money Market Funds typically will not participate as borrowers. Applicants state that the requested relief will enable the Funds to access an available source of money and reduce costs incurred by the Funds that need to obtain loans for temporary purposes and permit those Funds that have uninvested cash available: (i) to earn a return on the money that they might not otherwise be able to invest; or (ii) to earn a higher rate of interest on investment of their short-term balances. Although the proposed InterFund Program would reduce the Funds' need to borrow from banks or through custodian overdrafts, the Funds would be free to establish and/or continue committed lines of credit or other borrowing arrangements with banks. 5. Applicants anticipate that the proposed InterFund Program would provide a borrowing Fund with significant savings at times when the cash position of the Fund is insufficient to meet temporary cash requirements. This situation could arise when shareholder redemptions exceed anticipated cash volumes and certain Funds have insufficient cash on hand to satisfy such redemptions. When the Funds liquidate portfolio securities to meet redemption requests, they often do not receive payment in settlement for up to three days (or longer for certain foreign transactions). However, redemption requests normally are effected on the day following the trade date. The proposed InterFund Program would provide a source of immediate, short-term liquidity pending settlement of the sale of portfolio securities. 6. Applicants also anticipate that a Fund could use the InterFund Program when a sale of securities ``fails'' due to circumstances beyond the Fund's control, such as a delay in the delivery of cash to the Fund's custodian or improper delivery instructions by the broker effecting the transaction. ``Sales fails'' may present a cash shortfall if the Fund has undertaken to purchase a security using the proceeds from securities sold. Alternatively, the Fund could: (i) ``fail'' on its intended purchase due to lack of funds from the previous sale, resulting in additional cost to the Fund; or (ii) sell a security on a same-day settlement basis, earning a lower return on the investment. Use of the InterFund Program under these circumstances would enable the Fund to have access to immediate short-term liquidity. 7. While Bank Borrowing and/or custodian overdrafts generally could supply Funds with needed cash to cover unanticipated redemptions and sales fails, under the proposed InterFund Program, a borrowing Fund would pay lower interest rates than those that would be payable under short-term loans offered by banks or custodian overdrafts. In addition, Funds making short-term cash loans directly to other Funds would earn interest at a rate higher than they otherwise could obtain from investing their cash in Short-Term Instruments. Thus, applicants assert that the proposed InterFund Program would benefit both borrowing and lending Funds. 8. The interest rate to be charged to the Funds on any Interfund Loan (the [[Page 28920]] ``Interfund Loan Rate'') would be the average of the ``Repo Rate'' and the ``Bank Loan Rate,'' both as defined below. The Repo Rate would be the highest current overnight repurchase agreement rate available to a lending Fund. The Bank Loan Rate for any day would be calculated by the InterFund Program Team, as defined below, on each day an Interfund Loan is made according to a formula established by each Fund's board of trustees (the ``Board'') intended to approximate the lowest interest rate at which a bank short-term loan would be available to the Fund. The formula would be based upon a publicly available rate (e.g., Federal funds rate and/or LIBOR) plus an additional spread of basis points and would vary with this rate so as to reflect changing bank loan rates. The initial formula and any subsequent modifications to the formula would be subject to the approval of each Fund's Board. In addition, the Board of each Fund would periodically review the continuing appropriateness of reliance on the formula used to determine the Bank Loan Rate, as well as the relationship between the Bank Loan Rate and current bank loan rates that would be available to the Fund. 9. Investment professionals and administrative personnel from the Adviser and its affiliates (the ``InterFund Program Team'') would administer the InterFund Program. No portfolio manager of any Fund will serve as a member of the InterFund Program Team. Under the proposed InterFund Program, the portfolio managers for each participating Fund could provide standing instructions to participate daily as a borrower or lender. The InterFund Program Team on each business day would collect data on the uninvested cash and borrowing requirements of all participating Funds. Once the InterFund Program Team has determined the aggregate amount of cash available for loans and borrowing demand, the InterFund Program Team would allocate loans among borrowing Funds without any further communication from the portfolio managers of the Funds. Applicants anticipate that there typically will be far more available uninvested cash each day than borrowing demand. Therefore, after the InterFund Program Team has allocated cash for Interfund Loans, the InterFund Program Team will invest any remaining cash in accordance with the standing instructions of the relevant portfolio manager or such remaining amounts will be invested directly by the portfolio managers of the Funds. 10. The InterFund Program Team would allocate borrowing demand and cash available for lending among the Funds on what the InterFund Program Team believes to be an equitable basis, subject to certain administrative procedures applicable to all Funds, such as the time of filing requests to participate, minimum loan lot sizes, and the need to minimize the number of transactions and associated administrative costs. To reduce transaction costs, each Interfund Loan normally would be allocated in a manner intended to minimize the number of participants necessary to complete the loan transaction. The method of allocation and related administrative procedures would be approved by each Fund's Board, including a majority of the Board members who are not ``interested persons,'' as defined in section 2(a)(19) of the Act, of the Fund (``Independent Board Members''), to ensure that both borrowing and lending Funds participate on an equitable basis. 11. As part of the Board's review of the continuing appropriateness of a Fund's participation in the InterFund Program, as required below by condition 14, the Board, including a majority of the Independent Board Members, also will review the process in place to appropriately assess: (a) If the Fund participates as a lender, any effect its participation may have on the Fund's liquidity risk; and (b) if the Fund participates as a borrower, whether the Fund's portfolio liquidity is sufficient to satisfy its obligations under the InterFund Program along with its other liquidity needs. 12. The InterFund Program Team would: (a) Monitor the Interfund Loan Rate and the other terms and conditions of the Interfund Loans; (b) limit the borrowings and loans entered into by each Fund to ensure that they comply with the Fund's investment policies and limitations; (c) ensure equitable treatment of each Fund; and (d) make quarterly reports to the Board concerning any transactions by the Funds under the InterFund Program and the Interfund Loan Rate charged. 13. The Adviser, through the InterFund Program Team, would administer the InterFund Program as a disinterested fiduciary as part of its duties under the investment management agreement with each Fund and would receive no additional fee as compensation for its services in connection with the administration of the InterFund Program. 14. No Fund may participate in the InterFund Program unless: (a) The Fund has obtained shareholder approval for its participation, if such approval is required by law; (b) the Fund has fully disclosed all material information concerning the InterFund Program in its registration statement on form N-1A; and (c) the Fund's participation in the InterFund Program is consistent with its investment objectives, limitations and organizational documents. 15. In connection with the InterFund Program, applicants request an order under section 6(c) of the Act exempting them from the provisions of sections 18(f) and 21(b) of the Act; under section 12(d)(1)(J) of the Act exempting them from section 12(d)(1) of the Act; under sections 6(c) and 17(b) of the Act exempting them from sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Act; and under section 17(d) of the Act and rule 17d-1 under the Act to permit certain joint arrangements and transactions. Applicants' Legal Analysis 1. Section 17(a)(3) of the Act generally prohibits any affiliated person of a registered investment company, or affiliated person of an affiliated person, from borrowing money or other property from the registered investment company. Section 21(b) of the Act generally prohibits any registered management company from lending money or other property to any person, directly or indirectly, if that person controls or is under common control with that company. Section 2(a)(3)(C) of the Act defines an ``affiliated person'' of another person, in part, to be any person directly or indirectly controlling, controlled by, or under common control with, such other person. Section 2(a)(9) of the Act defines ``control'' as the ``power to exercise a controlling influence over the management or policies of a company,'' but excludes circumstances in which ``such power is solely the result of an official position with such company.'' Applicants state that the Funds may be under common control by virtue of having a common investment adviser and/or by having common trustees and officers. 2. Section 6(c) of the Act provides that an exemptive order may be granted where an 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. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from section 17(a) provided that the terms of the transaction, including the consideration to be paid or received, are fair and reasonable and do not involve overreaching on the part of any person concerned, and the transaction is consistent with the policy of the investment company as recited in its [[Page 28921]] registration statement and with the general purposes of the Act. Applicants believe that the proposed arrangements satisfy these standards for the reasons discussed below. 3. Applicants assert that sections 17(a)(3) and 21(b) of the Act were intended to prevent a party with strong potential adverse interests to, and some influence over the investment decisions of, a registered investment company from causing or inducing the investment company to engage in lending transactions that unfairly inure to the benefit of such party and that are detrimental to the best interests of the investment company and its shareholders. Applicants assert that the proposed transactions do not raise these concerns because: (a) The Adviser, through the InterFund Program Team, would administer the InterFund Program as a disinterested fiduciary as part of its duties under the investment management agreement with each Fund; (b) all Interfund Loans would consist only of uninvested cash reserves that the Fund otherwise would invest in Short-Term Instruments; (c) the Interfund Loans would not involve a greater risk than such other investments; (d) the lending Fund would receive interest at a rate higher than it could otherwise obtain through such other investments; and (e) the borrowing Fund would pay interest at a rate lower than otherwise available to it under its bank loan agreements or through custodian overdrafts and avoid the commitment fees associated with lines of credit. Moreover, applicants assert that the other terms and conditions that applicants propose also would effectively preclude the possibility of any Fund obtaining an undue advantage over any other Fund. 4. Section 17(a)(1) of the Act generally prohibits an affiliated person of a registered investment company, or any affiliated person of such a person, from selling securities or other property to the investment company. Section 17(a)(2) of the Act generally prohibits an affiliated person of a registered investment company, or any affiliated person of such a person, from purchasing securities or other property from the investment company. Section 12(d)(1) of the Act generally prohibits a registered investment company from purchasing or otherwise acquiring any security issued by any other investment company except in accordance with the limitations set forth in that section. 5. Applicants state that the obligation of a borrowing Fund to repay an Interfund Loan could be deemed to constitute a security for the purposes of sections 17(a)(1) and 12(d)(1). Applicants also state that any pledge of securities to secure an Interfund Loan by the borrowing Fund to the lending Fund could constitute a purchase of securities for purposes of section 17(a)(2) of the Act. Section 12(d)(1)(J) of the Act provides that the Commission may exempt persons or transactions from any provision of section 12(d)(1) if and to the extent that such exemption is consistent with the public interest and the protection of investors. Applicants contend that the standards under sections 6(c), 17(b), and 12(d)(1)(J) are satisfied for all the reasons set forth above in support of their request for relief from sections 17(a)(3) and 21(b) and for the reasons discussed below. Applicants state that the requested relief from section 17(a)(2) of the Act meets the standards of section 6(c) and 17(b) because any collateral pledged to secure an Interfund Loan would be subject to the same conditions imposed by any other lender to a Fund that imposes conditions on the quality of or access to collateral for a borrowing (if the lender is another Fund) or the same or better conditions (in any other circumstance). 6. Applicants state that section 12(d)(1) was intended to prevent the pyramiding of investment companies in order to avoid imposing on investors additional and duplicative costs and fees attendant upon multiple layers of investment companies. Applicants submit that the proposed InterFund Program does not involve these abuses. Applicants note that there will be no duplicative costs or fees to the Funds or their shareholders, and that each Adviser will receive no additional compensation for its services in administering the InterFund Program. Applicants also note that the purpose of the proposed InterFund Program is to provide economic benefits for all the participating Funds and their shareholders. Section 18(f)(1) of the Act prohibits open-end investment companies from issuing any senior security except that a company is permitted to borrow from any bank, provided, that immediately after the borrowing, there is asset coverage of at least 300 per centum for all borrowings of the company. Under section 18(g) of the Act, the term ``senior security'' generally includes any bond, debenture, note or similar obligation or instrument constituting a security and evidencing indebtedness. Applicants request exemptive relief under section 6(c) from section 18(f)(1) to the limited extent necessary to implement the InterFund Program (because the lending Funds are not banks). 7. Applicants believe that granting relief under section 6(c) is appropriate because the Funds would remain subject to the requirement of section 18(f)(1) that all borrowings of a Fund, including combined Interfund Loans and bank borrowings, have at least 300% asset coverage. Based on the conditions and safeguards described in the application, applicants also submit that to allow the Funds to borrow from other Funds pursuant to the proposed InterFund Program is consistent with the purposes and policies of section 18(f)(1). 8. Section 17(d) of the Act and rule 17d-1 under the Act generally prohibit an affiliated person of a registered investment company, or any affiliated person of such a person, when acting as principal, from effecting any joint transaction in which the investment company participates, unless, upon application, the transaction has been approved by the Commission. Rule 17d-1(b) under the Act provides that in passing upon an application filed under the rule, the Commission will consider whether the participation of the registered investment company in a joint enterprise, joint arrangement or profit sharing plan on the basis proposed is consistent with the provisions, policies and purposes of the Act and the extent to which such participation is on a basis different from or less advantageous than that of the other participants. 9. Applicants assert that the purpose of section 17(d) is to avoid overreaching by and unfair advantage to insiders. Applicants assert that the InterFund Program is consistent with the provisions, policies and purposes of the Act in that it offers both reduced borrowing costs and enhanced returns on loaned funds to all participating Funds and their shareholders. Applicants note that each Fund would have an equal opportunity to borrow and lend on equal terms consistent with its investment policies and limitations. Applicants assert that each Fund's participation in the proposed InterFund Program would be on terms that are no different from or less advantageous than that of other participating Funds. Applicants' Conditions Applicants agree that any order granting the requested relief will be subject to the following conditions: 1. The Interfund Loan Rate will be the average of the Repo Rate and the Bank Loan Rate. 2. On each business day when an Interfund Loan is to be made, the InterFund Program Team will compare the Bank Loan Rate with the Repo Rate [[Page 28922]] and will make cash available for Interfund Loans only if the Interfund Loan Rate is: (a) More favorable to the lending Fund than the Repo Rate; and (b) more favorable to the borrowing Fund than the Bank Loan Rate. 3. If a Fund has outstanding Bank Borrowings, any Interfund Loan to the Fund will: (a) Be at an interest rate equal to or lower than the interest rate of any outstanding bank loan; (b) be secured at least on an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding bank loan that requires collateral; (c) have a maturity no longer than any outstanding bank loan (and in any event not over seven days); and (d) provide that, if an event of default by the Fund occurs under any agreement evidencing an outstanding bank loan to the Fund, that event of default will automatically (without need for action or notice by the lending Fund) constitute an immediate event of default under the interfund lending agreement, which both (i) entitles the lending Fund to call the Interfund Loan immediately and exercise all rights with respect to any collateral and (ii) causes the call to be made if the lending bank exercises its right to call its loan under its agreement with the borrowing Fund. 4. A Fund may borrow on an unsecured basis through the InterFund Program only if its outstanding borrowings from all sources immediately after the interfund borrowing total 10% or less of its total assets, provided that if the Fund has a secured loan outstanding from any other lender, including but not limited to another Fund, the Interfund Loan will be secured on at least an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding loan that requires collateral. If a Fund's total outstanding borrowings immediately after an Interfund Loan would be greater than 10% of its total assets, the Fund may borrow through the InterFund Program only on a secured basis. A Fund may not borrow through the InterFund Program or from any other source if its total outstanding borrowings immediately after the borrowing would be more than 33\1/3\% of its total assets or any lower threshold provided for by a Fund's fundamental restriction or non-fundamental policy. 5. Before any Fund that has outstanding interfund borrowings may, through additional borrowings, cause its outstanding borrowings from all sources to exceed 10% of its total assets, it must first secure each outstanding Interfund Loan by the pledge of segregated collateral with a market value at least equal to 102% of the outstanding principal value of the loan. If the total outstanding borrowings of a Fund with outstanding Interfund Loans exceed 10% of its total assets for any other reason (such as a decline in net asset value or because of shareholder redemptions), the Fund will within one business day thereafter either: (a) Repay all its outstanding Interfund Loans; (b) reduce its outstanding indebtedness to 10% or less of its total assets; or (c) secure each outstanding Interfund Loan by the pledge of segregated collateral with a market value at least equal to 102% of the outstanding principal value of the loan until the Fund's total outstanding borrowings cease to exceed 10% of its total assets, at which time the collateral called for by this condition 5 shall no longer be required. Until each Interfund Loan that is outstanding at any time that a Fund's total outstanding borrowings exceed 10% of its total assets is repaid or the Fund's total outstanding borrowings cease to exceed 10% of its total assets, the Fund will mark the value of the collateral to market each day and will pledge such additional collateral as is necessary to maintain the market value of the collateral that secures each outstanding Interfund Loan at least equal to 102% of the outstanding principal value of the Interfund Loan. 6. No Fund may lend to another Fund through the InterFund Program if the loan would cause the lending Fund's aggregate outstanding loans through the InterFund Program to exceed 15% of its current net assets at the time of the loan. 7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of the lending Fund's net assets. 8. The duration of Interfund Loans will be limited to the time required to receive payment for securities sold, but in no event more than seven days. Loans effected within seven days of each other will be treated as separate loan transactions for purposes of this condition. 9. A Fund's borrowings through the InterFund Program, as measured on the day when the most recent loan was made, will not exceed the greater of 125% of the Fund's total net cash redemptions for the preceding seven calendar days or 102% of the Fund's sales fails for the preceding seven calendar days. 10. Each Interfund Loan may be called on one business day's notice by a lending Fund and may be repaid on any day by a borrowing Fund. 11. A Fund's participation in the InterFund Program must be consistent with its investment objectives and limitations and organizational documents. 12. The InterFund Program Team will calculate total Fund borrowing and lending demand through the InterFund Program, and allocate Interfund Loans on an equitable basis among the Funds, without the intervention of any portfolio manager. The InterFund Program Team will not solicit cash for the InterFund Program from any Fund or prospectively publish or disseminate loan demand data to portfolio managers. The InterFund Program Team will invest all amounts remaining after satisfaction of borrowing demand in accordance with the standing instructions of the relevant portfolio manager or such remaining amounts will be invested directly by the portfolio managers of the Funds. 13. The InterFund Program Team will monitor the Interfund Loan Rate charged and the other terms and conditions of the Interfund Loans and will make a quarterly report to the Board concerning the participation of the Funds in the InterFund Program and the terms and other conditions of any extensions of credit under the InterFund Program. 14. Each Board, including a majority of the Independent Board Members, will: (a) Review, no less frequently than quarterly, the participation of each Fund it oversees in the InterFund Program during the preceding quarter for compliance with the conditions of any order permitting such participation; (b) establish the Bank Loan Rate formula used to determine the interest rate on Interfund Loans; (c) review, no less frequently than annually, the continuing appropriateness of the Bank Loan Rate formula; and (d) review, no less frequently than annually, the continuing appropriateness of the participation in the InterFund Program by each Fund it oversees. 15. Each Fund will maintain and preserve for a period of not less than six years from the end of the fiscal year in which any transaction by it under the InterFund Program occurred, the first two years in an easily accessible place, written records of all such transactions setting forth a description of the terms of the transaction, including the amount, the maturity and the Interfund Loan Rate, the rate of interest available at the time each Interfund Loan is made on overnight repurchase agreements and Bank Borrowings, and such other information presented to the Board in connection with the review required by conditions 13 and 14. [[Page 28923]] 16. In the event an Interfund Loan is not paid according to its terms and the default is not cured within two business days from its maturity or from the time the lending Fund makes a demand for payment under the provisions of the interfund lending agreement, the InterFund Program Team will promptly refer the loan for arbitration to an independent arbitrator selected by the Board of each Fund involved in the loan who will serve as arbitrator of disputes concerning Interfund Loans.\3\ The arbitrator will resolve any dispute promptly, and the arbitrator's decision will be binding on both Funds. The arbitrator will submit, at least annually, a written report to the Board setting forth a description of the nature of any dispute and the actions taken by the Funds to resolve the dispute. --------------------------------------------------------------------------- \3\ If the dispute involves Funds that do not have a common Board, the Board of each affected Fund will select an independent arbitrator that is satisfactory to each Fund. --------------------------------------------------------------------------- 17. The InterFund Program Team will prepare and submit to the Board for review an initial report describing the operations of the InterFund Program and the procedures to be implemented to ensure that all Funds are treated fairly. After the commencement of the InterFund Program, the InterFund Program Team will report on the operations of the InterFund Program at the Board's quarterly meetings. Each Fund's chief compliance officer, as defined in rule 38a-1(a)(4) under the Act, shall prepare an annual report for the Board each year that the Fund participates in the InterFund Program, that evaluates the Fund's compliance with the terms and conditions of the application and the procedures established to achieve such compliance. Each Fund's chief compliance officer will also annually file a certification pursuant to Item 77Q3 of Form N-SAR as such Form may be revised, amended or superseded from time to time, for each year that the Fund participates in the InterFund Program, that certifies that the Fund and the Adviser have implemented procedures reasonably designed to achieve compliance with the terms and conditions of the order. In particular, such certification will address procedures designed to achieve the following objectives: (a) That the Interfund Loan Rate will be higher than the Repo Rate but lower than the Bank Loan Rate; (b) compliance with the collateral requirements as set forth in the application; (c) compliance with the percentage limitations on interfund borrowing and lending; (d) allocation of interfund borrowing and lending demand in an equitable manner and in accordance with procedures established by the Board; and (e) that the Interfund Loan Rate does not exceed the interest rate on any third party borrowings of a borrowing Fund at the time of the Interfund Loan. Additionally, each Fund's independent registered public accountants, in connection with their audit examination of the Fund, will review the operation of the InterFund Program for compliance with the conditions of the application and their review will form the basis, in part, of the auditor's report on internal accounting controls in Form N-SAR. 18. No Fund will participate in the InterFund Program, upon receipt of requisite regulatory approval, unless it has fully disclosed in its registration statement on Form N-1A (or any successor form adopted by the Commission) all material facts about its intended participation. For the Commission, by the Division of Investment Management, under delegated authority. Robert W. Errett, Deputy Secretary. [FR Doc. 2016-10917 Filed 5-9-16; 8:45 am] BILLING CODE 8011-01-P
![28918 Federal Register / Vol. 81, No. 90 / Tuesday, May 10, 2016 / Notices
positions) except as specified in the structures, which are the concerns interest and the protection of investors.
application. underlying the limits in sections Section 17(b) of the Act authorizes the
4. Because shares will not be 12(d)(1)(A) and (B) of the Act. Commission to grant an order
individually redeemable, applicants 8. Applicants request an exemption permitting a transaction otherwise
request an exemption from section from sections 17(a)(1) and 17(a)(2) of the prohibited by section 17(a) if it finds
5(a)(1) and section 2(a)(32) of the Act Act to permit persons that are Affiliated that (a) the terms of the proposed
that would permit the Funds to register Persons, or Second Tier Affiliates, of the transaction are fair and reasonable and
as open-end management investment Funds, solely by virtue of certain do not involve overreaching on the part
companies and issue shares that are ownership interests, to effectuate of any person concerned; (b) the
redeemable in Creation Units only. purchases and redemptions in-kind. The proposed transaction is consistent with
5. Applicants also request an deposit procedures for in-kind the policies of each registered
exemption from section 22(d) of the Act purchases of Creation Units and the investment company involved; and (c)
and rule 22c–1 under the Act as redemption procedures for in-kind the proposed transaction is consistent
secondary market trading in shares will redemptions of Creation Units will be with the general purposes of the Act.
take place at negotiated prices, not at a the same for all purchases and
For the Commission, by the Division of
current offering price described in a redemptions and Deposit Instruments Investment Management, under delegated
Fund’s prospectus, and not at a price and Redemption Instruments will be authority.
based on NAV. Applicants state that (a) valued in the same manner as those Robert W. Errett,
secondary market trading in shares does investment positions currently held by
Deputy Secretary.
not involve a Fund as a party and will the Funds. Applicants also seek relief
[FR Doc. 2016–10983 Filed 5–9–16; 8:45 am]
not result in dilution of an investment from the prohibitions on affiliated
in shares, and (b) to the extent different BILLING CODE 8011–01–P
transactions in section 17(a) to permit a
prices exist during a given trading day, Fund to sell its shares to and redeem its
or from day to day, such variances occur shares from a Fund of Funds, and to
as a result of third-party market forces, SECURITIES AND EXCHANGE
engage in the accompanying in-kind
such as supply and demand. Therefore, COMMISSION
transactions with the Fund of Funds.3
applicants assert that secondary market The purchase of Creation Units by a [Investment Company Act Release No.
transactions in shares will not lead to Fund of Funds directly from a Fund will 32103; File No. 812–14492]
discrimination or preferential treatment be accomplished in accordance with the
among purchasers. Finally, applicants policies of the Fund of Funds and will Bridge Builder Trust and Olive Street
represent that share market prices will be based on the NAVs of the Funds. Investment Advisers, LLC; Notice of
be disciplined by arbitrage 9. Applicants also request relief to Application
opportunities, which should prevent permit a Feeder Fund to acquire shares May 4, 2016
shares from trading at a material of another registered investment AGENCY: Securities and Exchange
discount or premium from NAV. company managed by the Adviser Commission (‘‘Commission’’).
6. With respect to Funds that effect having substantially the same
ACTION: Notice of an application for an
creations and redemptions of Creation investment objectives as the Feeder
Units in kind and that are based on order pursuant to: (a) section 6(c) of the
Fund (‘‘Master Fund’’) beyond the
certain Underlying Indexes that include Investment Company Act of 1940
limitations in section 12(d)(1)(A) and
foreign securities, applicants request (‘‘Act’’) granting an exemption from
permit the Master Fund, and any
relief from the requirement imposed by sections 18(f) and 21(b) of the Act; (b)
principal underwriter for the Master
section 22(e) in order to allow such Fund, to sell shares of the Master Fund section 12(d)(1)(J) of the Act granting an
Funds to pay redemption proceeds to the Feeder Fund beyond the exemption from section 12(d)(1) of the
within fifteen calendar days following limitations in section 12(d)(1)(B). Act; (c) sections 6(c) and 17(b) of the
the tender of Creation Units for 10. Section 6(c) of the Act permits the Act granting an exemption from sections
redemption. Applicants assert that the Commission to exempt any persons or 17(a)(1), 17(a)(2) and 17(a)(3) of the Act;
requested relief would not be transactions from any provision of the and (d) section 17(d) of the Act and rule
inconsistent with the spirit and intent of Act if such exemption is necessary or 17d-1 under the Act to permit certain
section 22(e) to prevent unreasonable, appropriate in the public interest and joint arrangements and transactions.
undisclosed or unforeseen delays in the consistent with the protection of
SUMMARY OF THE APPLICATION:
actual payment of redemption proceeds. investors and the purposes fairly
7. Applicants request an exemption to intended by the policy and provisions of Applicants request an order that would
permit Funds of Funds to acquire Fund the Act. Section 12(d)(1)(J) of the Act permit certain registered open-end
shares beyond the limits of section provides that the Commission may management investment companies to
12(d)(1)(A) of the Act; and the Funds, exempt any person, security, or participate in a joint lending and
and any principal underwriter for the transaction, or any class or classes of borrowing facility.
Funds, and/or any broker or dealer persons, securities, or transactions, from APPLICANTS: Bridge Builder Trust (the
registered under the Securities any provision of section 12(d)(1) if the ‘‘Trust’’) and Olive Street Investment
Exchange Act of 1934, to sell shares to exemption is consistent with the public Advisers, LLC (‘‘Olive Street’’ or the
Funds of Funds beyond the limits of ‘‘Adviser’’).
section 12(d)(1)(B) of the Act. The FILING DATES: The application was filed
asabaliauskas on DSK3SPTVN1PROD with NOTICES
3 The requested relief would apply to direct sales
application’s terms and conditions are of shares in Creation Units by a Fund to a Fund of on June 18, 2015, and amended on
Funds and redemptions of those shares. Applicants, December 2, 2015, March 9, 2016, and
designed to, among other things, help moreover, are not seeking relief from section 17(a)
prevent any potential (i) undue for, and the requested relief will not apply to, May 4, 2016.
influence over a Fund through control transactions where a Fund could be deemed an HEARING OR NOTIFICATION OF HEARING: An
or voting power, or in connection with Affiliated Person, or a Second-Tier Affiliate, of a order granting the requested relief will
Fund of Funds because an Adviser or an entity
certain services, transactions, and controlling, controlled by or under common control
be issued unless the Commission orders
underwritings, (ii) excessive layering of with an Adviser provides investment advisory a hearing. Interested persons may
fees, and (iii) overly complex fund services to that Fund of Funds. request a hearing by writing to the
VerDate Sep<11>2014 17:33 May 09, 2016 Jkt 238001 PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 E:\FR\FM\10MYN1.SGM 10MYN1](https://thefederalregister.org/doc/81_FR_29008/page/1.svg)
![Federal Register / Vol. 81, No. 90 / Tuesday, May 10, 2016 / Notices 28923
16. In the event an Interfund Loan is (d) allocation of interfund borrowing identity and number of shares bought or
not paid according to its terms and the and lending demand in an equitable sold, and whether the broker-dealer acts
default is not cured within two business manner and in accordance with as agent for the customer or as principal
days from its maturity or from the time procedures established by the Board; for its own account. Depending on
the lending Fund makes a demand for and whether the broker-dealer acts as agent
payment under the provisions of the (e) that the Interfund Loan Rate does or principal, Rule 10b–10 requires the
interfund lending agreement, the not exceed the interest rate on any third disclosure of commissions, as well as
InterFund Program Team will promptly party borrowings of a borrowing Fund at mark-up and mark-down information.
refer the loan for arbitration to an the time of the Interfund Loan. For transactions in debt securities, Rule
independent arbitrator selected by the Additionally, each Fund’s 10b–10 requires the disclosure of
Board of each Fund involved in the loan independent registered public redemption and yield information. Rule
who will serve as arbitrator of disputes accountants, in connection with their 10b–10 potentially applies to all of the
concerning Interfund Loans.3 The audit examination of the Fund, will approximately 4,183 firms registered
arbitrator will resolve any dispute review the operation of the InterFund with the Commission that effect
promptly, and the arbitrator’s decision Program for compliance with the transactions for or with customers.
will be binding on both Funds. The conditions of the application and their Based on information provided by
arbitrator will submit, at least annually, review will form the basis, in part, of registered broker-dealers to the
a written report to the Board setting the auditor’s report on internal Commission in FOCUS Reports, the
forth a description of the nature of any accounting controls in Form N–SAR. Commission staff estimates that on
dispute and the actions taken by the 18. No Fund will participate in the average, registered broker-dealers
Funds to resolve the dispute. InterFund Program, upon receipt of process approximately 1,383,492,184
17. The InterFund Program Team will requisite regulatory approval, unless it order tickets per month for transactions
prepare and submit to the Board for has fully disclosed in its registration for or with customers. Each order ticket
review an initial report describing the statement on Form N–1A (or any representing a transaction effected for or
operations of the InterFund Program successor form adopted by the with a customer results in one
and the procedures to be implemented Commission) all material facts about its confirmation. Therefore, the
to ensure that all Funds are treated intended participation. Commission staff estimates that
fairly. After the commencement of the For the Commission, by the Division of
approximately 16,601,906,208
InterFund Program, the InterFund Investment Management, under delegated confirmations are sent to customers
Program Team will report on the authority. annually. The confirmations required by
operations of the InterFund Program at Robert W. Errett, Rule 10b–10 are generally processed
the Board’s quarterly meetings. Each Deputy Secretary.
through automated systems. It takes
Fund’s chief compliance officer, as approximately 30 seconds to generate
[FR Doc. 2016–10917 Filed 5–9–16; 8:45 am]
defined in rule 38a–1(a)(4) under the and send a confirmation. Accordingly,
BILLING CODE 8011–01–P
Act, shall prepare an annual report for the Commission staff estimates that
the Board each year that the Fund broker-dealers spend approximately
participates in the InterFund Program, 138,349,218 hours per year complying
SECURITIES AND EXCHANGE
that evaluates the Fund’s compliance with Rule 10b–10.
COMMISSION The amount of confirmations sent and
with the terms and conditions of the
[SEC File No. 270–389, OMB Control No. the cost of sending each confirmation
application and the procedures
3235–0444] varies from firm to firm. Smaller firms
established to achieve such compliance.
generally send fewer confirmations than
Each Fund’s chief compliance officer Submission for OMB Review; larger firms because they effect fewer
will also annually file a certification Comment Request transactions. The Commission staff
pursuant to Item 77Q3 of Form N–SAR
Upon Written Request, Copies Available estimates the costs of producing and
as such Form may be revised, amended
From: Securities and Exchange sending a paper confirmation, including
or superseded from time to time, for postage, to be approximately 57 cents.
each year that the Fund participates in Commission, Office of FOIA Services,
100 F Street NE., Washington, DC The Commission staff also estimates
the InterFund Program, that certifies that the cost of producing and sending
that the Fund and the Adviser have 20549–2736.
a wholly electronic confirmation is
implemented procedures reasonably Extension: approximately 39 cents. Based on
designed to achieve compliance with Rule 10b–10. informal discussions with industry
the terms and conditions of the order. In Notice is hereby given that, pursuant participants, as well as representations
particular, such certification will to the Paperwork Reduction Act of 1995 made in requests for exemptive and no-
address procedures designed to achieve (44 U.S.C. 3501 et seq.) (‘‘PRA’’), the action letters relating to Rule 10b–10,
the following objectives: Securities and Exchange Commission the staff estimates that broker-dealers
(a) That the Interfund Loan Rate will (‘‘Commission’’) has submitted to the used electronic confirmations for
be higher than the Repo Rate but lower Office of Management and Budget approximately 35 percent of
than the Bank Loan Rate; (‘‘OMB’’) a request for approval of transactions. Based on these
(b) compliance with the collateral extension of the previously approved calculations, Commission staff estimates
requirements as set forth in the collection of information provided for in that 10,791,239, 035 paper
asabaliauskas on DSK3SPTVN1PROD with NOTICES
application; Rule 10b–10 (17 CFR 240.10b–10) under confirmations are mailed each year at a
(c) compliance with the percentage the Securities and Exchange Act of 1934 cost of $6,151,006,250. Commission
limitations on interfund borrowing and (15 U.S.C. 78a et seq.). staff also estimates that 5,810,667,173
lending; Rule 10b–10 requires broker-dealers wholly electronic confirmations are sent
3 If the dispute involves Funds that do not have
to convey specified information to each year at a cost of $2,266,160,197.
a common Board, the Board of each affected Fund
customers regarding their securities Accordingly, Commission staff
will select an independent arbitrator that is transactions. This information includes estimates that the total annual cost
satisfactory to each Fund. the date and time of the transaction, the associated with generating and
VerDate Sep<11>2014 17:33 May 09, 2016 Jkt 238001 PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 E:\FR\FM\10MYN1.SGM 10MYN1](https://thefederalregister.org/doc/81_FR_29008/page/6.svg)
Document Created: 2016-05-10 05:18:54
Document Modified: 2016-05-10 05:18:54
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| Action | Notice of an application for an order pursuant to: (a) section 6(c) of the Investment Company Act of 1940 (``Act'') granting an exemption from sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Act; and (d) section 17(d) of the Act and rule 17d-1 under the Act to permit certain joint arrangements and transactions. | |
| Dates | The application was filed on June 18, 2015, and amended on December 2, 2015, March 9, 2016, and May 4, 2016. | |
| Contact | Laura L. Solomon, Senior Counsel, at (202) 551-6915 or Daniele Marchesani, Branch Chief, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office). | |
| FR Citation | 81 FR 28918 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR