[Federal Register Volume 85, Number 86 (Monday, May 4, 2020)]
[Notices]
[Pages 26507-26508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09378]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33857; File No. 812-15075]
First Trust Series Fund, et. al.
April 28, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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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. Applicants request an order that would
permit certain registered open-end management investment companies to
participate in a joint lending and borrowing facility.
Applicants: First Trust Series Fund, First Trust Variable Insurance
Trust, First Trust Exchange-Traded Fund, First Trust Exchange-Traded
Fund II, First Trust Exchange-Traded Fund III, First Trust Exchange-
Traded Fund IV, First Trust Exchange-Traded Fund V, First Trust
Exchange-Traded Fund VI, First Trust Exchange-Traded Fund VII, First
Trust Exchange-Traded Fund VIII, First Trust Exchange-Traded
AlphaDEX[supreg] Fund, and First Trust Exchange-Traded AlphaDEX[supreg]
Fund II, each an investment company organized as a Massachusetts
business trust and registered under the Act as an open-end management
investment company, and on behalf of each of their respective series
\1\, and First Trust Advisors L.P. (the ``Adviser''), an Illinois
limited partnership registered as an investment adviser under the
Investment Advisers Act of 1940.
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\1\ Certain of the Funds (defined below) may be money market
funds that comply with Rule 2a-7 under the Act (each a ``Money
Market Fund Money Market Funds typically will not participate as
borrowers under the interfund lending facility because they rarely
need to borrow cash to meet redemptions.
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Filing Dates: The application was filed on October 22, 2019 and
amended on February 13, 2020.
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 emailing the Commission's
Secretary at [email protected] and serving applicants with a
copy of the request, personally, by mail, or by email. Hearing requests
should be received by the Commission by 5:30 p.m. on May 25, 2020, 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 emailing the Commission's Secretary at
[email protected].
ADDRESSES: Secretary, U.S. Securities and Exchange Commission,
[email protected]; Applicants: Attention: W. Scott Jardine, 120
East Liberty Drive, Suite 400, Wheaton, IL 60187,
[email protected].
FOR FURTHER INFORMATION CONTACT: Lily D. Vo, Senior Counsel, at (202)
551-5431, or Kaitlin Bottock, 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 website 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.
Summary of the Application
1. Applicants request an order that would permit the applicants to
participate in an interfund lending facility where each Fund could lend
money directly to and borrow money directly from other Funds to cover
unanticipated cash shortfalls, such as unanticipated redemptions or
sales fails.\2\ The Funds will not borrow under
[[Page 26508]]
the facility for leverage purposes and the loans' duration will be no
more than 7 days.\3\
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\2\ Applicants request that the order apply to the applicants
and to any existing or future registered open-end management
investment company or series thereof for which the Adviser or any
successor thereto or an investment adviser controlling, controlled
by, or under common control with the Adviser or any successor
thereto serves as investment adviser (each a ``Fund'' and
collectively the ``Funds'' and each such investment adviser an
``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.
\3\ Any Fund, however, will be able to call a loan on one
business day's notice.
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2. Applicants anticipate that the proposed facility would provide a
borrowing Fund with a source of liquidity at a rate lower than the bank
borrowing rate at times when the cash position of the Fund is
insufficient to meet temporary cash requirements. 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 repurchase agreements or certain other short
term instruments. Thus, applicants assert that the facility would
benefit both borrowing and lending Funds.
3. Applicants agree that any order granting the requested relief
will be subject to the terms and conditions stated in the application.
Among others, the Adviser, through a designated committee, would
administer the facility as a disinterested fiduciary as part of its
duties under the investment management agreements with the Funds and
would receive no additional fee as compensation for its services in
connection with the administration of the facility.\4\ The facility
would be subject to oversight and certain approvals by the Funds'
Board, including, among others, approval of the interest rate formula
and of the method for allocating loans across Funds, as well as review
of the process in place to evaluate the liquidity implications for the
Funds. A Fund's aggregate outstanding interfund loans will not exceed
15% of its net assets, and the Fund's loans to any one Fund will not
exceed 5% of the lending Fund's net assets.\5\
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\4\ Members of the designated committee may include one or more
investment professionals, including individuals involved in making
investment decisions regarding short-term investments.
\5\ Under certain circumstances, a borrowing Fund will be
required to pledge collateral to secure the loan.
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4. Applicants assert that the facility does not raise the concerns
underlying section 12(d)(1) of the Act given that the Funds are part of
the same group of investment companies and there will be no duplicative
costs or fees to the Funds.\6\ Applicants also assert that the proposed
transactions do not raise the concerns underlying sections 17(a)(1),
17(a)(3), 17(d) and 21(b) of the Act as the Funds would not engage in
lending transactions that unfairly benefit insiders or are detrimental
to the Funds. Applicants state that the facility will offer both
reduced borrowing costs and enhanced returns on loaned funds to all
participating Funds and each Fund would have an equal opportunity to
borrow and lend on equal terms based on an interest rate formula that
is objective and verifiable. With respect to the relief from section
17(a)(2) of the Act, applicants note that 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).\7\
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\6\ Applicants state that the obligation to repay an interfund
loan could be deemed to constitute a security for the purposes of
sections 17(a)(1) and 12(d)(1) of the Act.
\7\ Applicants state that any pledge of securities to secure an
interfund loan could constitute a purchase of securities for
purposes of section 17(a)(2) of the Act.
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5. Applicants also believe that the limited relief from section
18(f)(1) of the Act that is necessary to implement the facility
(because the lending Funds are not banks) is appropriate in light of
the conditions and safeguards described in the application and because
the open-end Funds would remain subject to the requirement of section
18(f)(1) that all borrowings of the open-end Fund, including combined
interfund loans and bank borrowings, have at least 300% asset coverage.
6. Section 6(c) of the Act permits the Commission to exempt any
persons or transactions from any provision of the Act if such exemption
is necessary or appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities, or
transactions, from any provision of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Section 17(b) of the Act authorizes the Commission to grant an order
permitting a transaction otherwise prohibited by section 17(a) if it
finds that (a) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act. 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.
For the Commission, by the Division of Investment Management,
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09378 Filed 5-1-20; 8:45 am]
BILLING CODE 8011-01-P