[Federal Register Volume 83, Number 177 (Wednesday, September 12, 2018)]
[Notices]
[Pages 46223-46225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19837]



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SECURITIES AND EXCHANGE COMMISSION


Investment Company Act Release No. 33220; 812-14928 Broadstone 
Real Estate Access Fund and Broadstone Asset Management, LLC

September 7, 2018.
    Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from sections 
18(a)(2), 18(c) and 18(i) of the Act, under sections 6(c) and 23(c)(3) 
of the Act for an exemption from rule 23c-3 under the Act, and for an 
order pursuant to section 17(d) of the Act and rule 17d-1 under the 
Act.

Summary of Application: Applicants request an order to permit certain 
registered closed-end management investment companies to issue multiple 
classes of shares and to impose asset-based distribution and/or service 
fees, early withdrawal charges (``Early Withdrawal Charges''), and 
early repurchase fees.

Applicants: Broadstone Real Estate Access Fund (the ``Initial Fund''), 
and Broadstone Asset Management, LLC (the ``Adviser'').

Filing Dates: The application was filed on July 11, 2018. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice.

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 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 September 27, 2018, 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: Broadstone Asset 
Management, Inc., 800 Clinton Square, Rochester, NY 14604.

For Further Information Contact: Stephan N. Packs, Senior Counsel, at 
(202) 551-6853, or David J. Marcinkus, 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 for 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 Initial Fund is a newly-formed Delaware statutory trust that 
is registered under the Act as a continuously offered, non-diversified, 
closed-end management investment company.
    2. The Adviser, a New York limited liability company, is registered 
as an investment adviser under the Investment Advisers Act of 1940. The 
Adviser serves as investment adviser to the Initial Fund.
    3. The applicants seek an order to permit the Funds (as defined 
below) to issue multiple classes of shares, each having its own fee and 
expense structure and to impose Early Withdrawal Charges, asset-based 
distribution and/or service fees with respect to certain classes.
    4. Applicants request that the order also apply to any 
continuously-offered registered closed-end management investment 
company, existing now or in the future, for which the Adviser, or any 
entity controlling, controlled by, or under common control with the 
Adviser, or any successor in interest to any such entity,\1\ acts as 
investment adviser and which operates as an interval fund pursuant to 
rule 23c-3 under the Act or provides periodic liquidity with respect to 
its shares pursuant to rule 13e-4 under the Securities Exchange Act of 
1934 (``Exchange Act'') (each, a ``Future Fund'' and together with the 
Initial Fund, the ``Funds'').\2\
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    \1\ A successor in interest is limited to an entity that results 
from a reorganization into another jurisdiction or a change in the 
type of business organization.
    \2\ Any Fund relying on this relief in the future will do so in 
a manner consistent with the terms and conditions of the 
application. Applicants represent that each entity presently 
intending to rely on the requested relief is listed as an applicant.
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    5. The Initial Fund intends to make a continuous public offering of 
its shares upon a declaration of effectiveness of its registration 
statement. Applicants state that additional offerings by any Fund 
relying on the order may be on a private placement or public offering 
basis. Shares of the Funds are not expected to be listed on any 
securities exchange nor quoted on any quotation medium and the Funds do 
not expect there to be a secondary trading market for their shares.
    6. If the requested relief is granted, the Initial Fund intends to 
continuously offer Class W Shares and Class I Shares, with each class 
having its own fee and expense structure. Because of the different 
distribution fees, services, and any other class expenses that may be 
attributable to the Class W and Class I Shares, the net income 
attributable to, and the dividends payable on, each class of shares may 
differ from each other.
    7. Applicants state that, from time to time, the Initial Fund may 
create additional classes of shares, the terms of which may differ from 
Class W and Class I Shares in the following respects: (i) The amount of 
fees permitted by different distribution plans or different service fee 
arrangements; (ii) voting rights with respect to a distribution plan of 
a class; (iii) different class designations; (iv) the impact of any 
class expenses directly attributable to a particular class of shares 
allocated on a class basis as described in the application; (v) any 
differences in dividends and net asset value resulting from differences 
in fees under a distribution plan or in class expenses; (vi) any Early 
Withdrawal Charge or other sales load structure; and (vii) exchange or 
conversion privileges of the classes as permitted under the Act.
    8. Applicants state that the Initial Fund has adopted a fundamental 
policy to repurchase a specified percentage of its shares (no less than 
5% and no more than 25%) at net asset value on a quarterly basis. Such 
repurchase offers will be conducted pursuant to rule 23c-3 under the 
Act. Each of the other Funds will likewise adopt fundamental investment 
policies in compliance with rule 23c-3 and make quarterly repurchase 
offers to its shareholders, or provide periodic liquidity with respect 
to its shares pursuant to rule 13e-4 under the Exchange Act.\3\ Any 
repurchase offers made by the Funds will be made to all holders of 
shares of each such Fund.
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    \3\ Applicants submit that rule 23c-3 and Regulation M under the 
Exchange Act permit an interval fund to make repurchase offers to 
repurchase its shares while engaging in a continuous offering of its 
shares pursuant to Rule 415 under the Securities Act of 1933, as 
amended.
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    9. Applicants represent that any asset-based service and/or 
distribution fees for each class of shares of the Funds will comply 
with the provisions of FINRA Rule 2341 (``FINRA Sales Charge

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Rule'').\4\ Applicants also represent that each Fund will disclose in 
its prospectus the fees, expenses and other characteristics of each 
class of shares offered for sale by the prospectus, as is required for 
open-end multiple class funds under Form N-1A.\5\ As is required for 
open-end funds, each Fund will disclose its expenses in shareholder 
reports, and describe any arrangements that result in breakpoints in or 
elimination of sales loads in its prospectus.\6\ In addition, 
applicants will comply with applicable enhanced fee disclosure 
requirements for fund of funds, including registered funds of hedge 
funds.\7\
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    \4\ Any reference in the application to the FINRA Sales Charge 
Rule includes any successor or replacement to the FINRA Sales Charge 
Rule.
    \5\ In all respects other than class by class disclosure, each 
Fund will comply with the requirements of Form N-2.
    \6\ See Shareholder Reports and Quarterly Portfolio Disclosure 
of Registered Management Investment Companies, Investment Company 
Act Release No. 26372 (Feb. 27, 2004) (adopting release) (requiring 
open-end investment companies to disclose fund expenses in 
shareholder reports); and Disclosure of Breakpoint Discounts by 
Mutual Funds, Investment Company Act Release No. 26464 (June 7, 
2004) (adopting release) (requiring open-end investment companies to 
provide prospectus disclosure of certain sales load information).
    \7\ Fund of Funds Investments, Investment Company Act Rel. Nos. 
26198 (Oct. 1, 2003) (proposing release) and 27399 (Jun. 20, 2006) 
(adopting release). See also Rules 12d1-1, et seq. of the Act.
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    10. Each of the Funds will comply with any requirements that the 
Commission or FINRA may adopt regarding disclosure at the point of sale 
and in transaction confirmations about the costs and conflicts of 
interest arising out of the distribution of open-end investment company 
shares, and regarding prospectus disclosure of sales loads and revenue 
sharing arrangements, as if those requirements applied to the Fund. In 
addition, each Fund will contractually require that any distributor of 
the Fund's shares comply with such requirements in connection with the 
distribution of such Fund's shares.
    11. Each Fund will allocate all expenses incurred by it among the 
various classes of shares based on the net assets of the Fund 
attributable to each class, except that the net asset value and 
expenses of each class will reflect the expenses associated with the 
distribution plan of that class, service fees, and any other 
incremental expenses of that class. Expenses of a Fund allocated to a 
particular class of shares will be borne on a pro rata basis by each 
outstanding share of that class. Applicants state that each Fund will 
comply with the provisions of rule 18f-3 under the Act as if it were an 
open-end investment company.
    12. Applicants state that each Fund may impose an Early Withdrawal 
Charge on shares submitted for repurchase that have been held less than 
a specified period and may waive the Early Withdrawal Charge for 
certain categories of shareholders or transactions to be established 
from time to time. Applicants state that each Fund will apply the Early 
Withdrawal Charge (and any waivers or scheduled variations of the Early 
Withdrawal Charge) uniformly to all shareholders in a given class and 
consistently with the requirements of rule 22d-1 under the Act as if 
the Funds were open-end investment companies.
    13. Applicants state that shares of a Fund may be subject to an 
early repurchase fee (``Early Repurchase Fee'') at a rate of no greater 
than 2% of the aggregate net asset value of a shareholder's shares 
repurchased by the Fund if the interval between the date of purchase of 
the shares and the valuation date with respect to the repurchase of 
those shares is less than 90 days. Any Early Repurchase Fees will apply 
equally to all classes of shares of a Fund, consistent with section 18 
of the Act and rule 18f-3 thereunder. To the extent a Fund determines 
to waive, impose scheduled variations of, or eliminate any Early 
Repurchase Fee, it will do so consistently with the requirements of 
rule 22d-1 under the Act as if the Early Repurchase Fee were a 
contingent deferred sales load (defined below) and as if the Fund were 
an open-end investment company and the Fund's waiver of, scheduled 
variation in, or elimination of, any such Early Repurchase Fee will 
apply uniformly to all shareholders of the Fund regardless of class. 
Applicants state that the Initial Funds do not intend to impose an 
Early Repurchase Fee.
    14. Each Fund operating as an interval fund pursuant to rule 23c-3 
under the Act may offer its shareholders an exchange feature under 
which the shareholders of the Fund may, in connection with the Fund's 
periodic repurchase offers, exchange their shares of the Fund for 
shares of the same class of (i) registered open-end investment 
companies or (ii) other registered closed-end investment companies that 
comply with rule 23c-3 under the Act and continuously offer their 
shares at net asset value, that are in the Fund's group of investment 
companies (collectively, ``Other Funds''). Shares of a Fund operating 
pursuant to rule 23c-3 that are exchanged for shares of Other Funds 
will be included as part of the amount of the repurchase offer amount 
for such Fund as specified in rule 23c-3 under the Act. Any exchange 
option will comply with rule 11a-3 under the Act, as if the Fund were 
an open-end investment company subject to rule 11a-3. In complying with 
rule 11a-3, each Fund will treat an Early Withdrawal Charge as if it 
were a contingent deferred sales load.
    Applicants' Legal Analysis:

Multiple Classes of Shares

    1. Section 18(a)(2) of the Act provides that a closed-end 
investment company may not issue or sell a senior security that is a 
stock unless certain requirements are met. Applicants state that the 
creation of multiple classes of shares of the Funds may violate section 
18(a)(2) because the Funds may not meet such requirements with respect 
to a class of shares that may be a senior security.
    2. Section 18(c) of the Act provides, in relevant part, that a 
closed-end investment company may not issue or sell any senior security 
if, immediately thereafter, the company has outstanding more than one 
class of senior security. Applicants state that the creation of 
multiple classes of shares of the Funds may be prohibited by section 
18(c), as a class may have priority over another class as to payment of 
dividends because shareholders of different classes would pay different 
fees and expenses.
    3. Section 18(i) of the Act provides that each share of stock 
issued by a registered management investment company will be a voting 
stock and have equal voting rights with every other outstanding voting 
stock. Applicants state that multiple classes of shares of the Funds 
may violate section 18(i) of the Act because each class would be 
entitled to exclusive voting rights with respect to matters solely 
related to that class.
    4. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction or any class or classes of persons, 
securities or transactions from any provision of the Act, or from any 
rule or regulation under the Act, if and to the extent such exemption 
is necessary or appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act. Applicants request an exemption under 
section 6(c) from sections 18(a)(2), 18(c) and 18(i) to permit the 
Funds to issue multiple classes of shares.
    5. Applicants submit that the proposed allocation of expenses 
relating to distribution and/or services and voting rights among 
multiple classes is equitable and will not discriminate

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against any group or class of shareholders. Applicants submit that the 
proposed arrangements would permit a Fund to facilitate the 
distribution of its shares and provide investors with a broader choice 
of shareholder services. Applicants assert that the proposed closed-end 
investment company multiple class structure does not raise the concerns 
underlying section 18 of the Act to any greater degree than open-end 
investment companies' multiple class structures that are permitted by 
rule 18f-3 under the Act. Applicants state that each Fund will comply 
with the provisions of rule 18f-3 as if it were an open-end investment 
company.

Early Withdrawal Charges

    1. Section 23(c) of the Act provides, in relevant part, that no 
registered closed-end investment company shall purchase securities of 
which it is the issuer, except: (a) On a securities exchange or other 
open market; (b) pursuant to tenders, after reasonable opportunity to 
submit tenders given to all holders of securities of the class to be 
purchased; or (c) under other circumstances as the Commission may 
permit by rules and regulations or orders for the protection of 
investors.
    2. Rule 23c-3 under the Act permits a registered closed-end 
investment company (an ``interval fund'') to make repurchase offers of 
between five and twenty-five percent of its outstanding shares at net 
asset value at periodic intervals pursuant to a fundamental policy of 
the interval fund. Rule 23c-3(b)(1) under the Act permits an interval 
fund to deduct from repurchase proceeds only a repurchase fee, not to 
exceed two percent of the proceeds, that is paid to the interval fund 
and is reasonably intended to compensate the fund for expenses directly 
related to the repurchase. A Fund will not impose a repurchase fee on 
investors who purchase and tender their shares.
    3. Section 23(c)(3) provides that the Commission may issue an order 
that would permit a closed-end investment company to repurchase its 
shares in circumstances in which the repurchase is made in a manner or 
on a basis that does not unfairly discriminate against any holders of 
the class or classes of securities to be purchased.
    4. Applicants request relief under section 6(c), discussed above, 
and section 23(c)(3) from rule 23c-3 to the extent necessary for the 
Funds to impose Early Withdrawal Charge on shares of the Funds 
submitted for repurchase that have been held for less than a specified 
period.
    5. Applicants state that the Early Withdrawal Charges they intend 
to impose are functionally similar to contingent deferred sales loads 
imposed by open-end investment companies under rule 6c-10 under the 
Act. Rule 6c-10 permits open-end investment companies to impose 
contingent deferred sales loads, subject to certain conditions. 
Applicants note that rule 6c-10 is grounded in policy considerations 
supporting the employment of contingent deferred sales loads where 
there are adequate safeguards for the investor and state that the same 
policy considerations support imposition of Early Withdrawal Charges in 
the interval fund context. In addition, applicants state that Early 
Withdrawal Charges may be necessary for the distributor to recover 
distribution costs. Applicants represent that any Early Withdrawal 
Charge imposed by the Funds will comply with rule 6c-10 under the Act 
as if the rule were applicable to closed-end investment companies. The 
Funds will disclose Early Withdrawal Charges in accordance with the 
requirements of Form N-1A concerning contingent deferred sales loads.

Asset-Based Distribution and/or Service Fees

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, or an 
affiliated person of such person, acting as principal, from 
participating in or effecting any transaction in connection with any 
joint enterprise or joint arrangement in which the investment company 
participates unless the Commission issues an order permitting the 
transaction. In reviewing applications submitted under section 17(d) 
and rule 17d-1, the Commission considers whether the participation of 
the investment company in a joint enterprise or joint arrangement is 
consistent with the provisions, policies and purposes of the Act, and 
the extent to which the participation is on a basis different from or 
less advantageous than that of other participants.
    2. Rule 17d-3 under the Act provides an exemption from section 
17(d) and rule 17d-1 to permit open-end investment companies to enter 
into distribution arrangements pursuant to rule 12b-1 under the Act. 
Applicants request an order under section 17(d) and rule 17d-1 under 
the Act to the extent necessary to permit the Fund to impose asset-
based distribution and/or service fees. Applicants have agreed to 
comply with rules 12b-1 and 17d-3 as if those rules applied to closed-
end investment companies, which they believe will resolve any concerns 
that might arise in connection with a Fund financing the distribution 
of its shares through asset-based distribution and/or service fees.
    For the reasons stated above, applicants submit that the exemptions 
requested under section 6(c) are necessary and appropriate in the 
public interest and are consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the Act. 
Applicants further submit that the relief requested pursuant to section 
23(c)(3) will be consistent with the protection of investors and will 
insure that applicants do not unfairly discriminate against any holders 
of the class of securities to be purchased. Finally, applicants state 
that the Funds' imposition of asset-based distribution and/or service 
fees is consistent with the provisions, policies and purposes of the 
Act and does not involve participation on a basis different from or 
less advantageous than that of other participants.
    Applicants' Condition:
    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    Each Fund relying on the order will comply with the provisions of 
rules 6c-10, 12b-1, 17d-3, 18f-3, 22d-1, and, where applicable, 11a-3 
under the Act, as amended from time to time, as if those rules applied 
to closed-end management investment companies, and will comply with the 
FINRA Sales Charge Rule, as amended from time to time, as if that rule 
applied to all closed-end management investment companies.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19837 Filed 9-11-18; 8:45 am]
 BILLING CODE 8011-01-P


