[Federal Register Volume 81, Number 90 (Tuesday, May 10, 2016)]
[Notices]
[Pages 28918-28923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-10917]
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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.
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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\
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\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.
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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.
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\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.
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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