Federal Register / Vol. 81, No. 24 / Friday, February 5, 2016 / Notices 6317 

16 17 CFR 200.30–3(a)(12). 

Order Protection features will provide 

market participants with additional 

protection from anomalous executions, 

in addition to LULD protections. Thus, 

the Exchange does not believe the 

proposal creates any significant impact 

on competition. The Exchange believes 

that offering these protections to the 

PSX will not impose any undue burden 

on intra-market competition, rather, it 

would permit equities and options 

members to be protected in a similar 

manner from erroneous executions. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

Phlx–2016–12 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2016–12. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–Phlx– 

2016–12 and should be submitted on or 

before February 26, 2016. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2016–02197 Filed 2–4–16; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

31976; File No. 812–14530] 

PNC Funds, et al.; Notice of 

Application 

February 1, 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: PNC Funds and PNC 

Advantage Funds (each a ‘‘Trust’’ and 

collectively the ‘‘Trusts’’); the series 

thereof, and any registered open-end 

management investment company or 

series thereof in the future (each a 

‘‘Fund’’ and, collectively, the ‘‘Funds’’); 

and PNC Capital Advisors LLC (the 

‘‘Adviser’’). 

FILING DATES: The application was filed 

on August 10, 2015, and amended on 

January 11, 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 

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 February 26, 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: Brent J. Fields, Secretary, 

U.S. Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090; 

Applicants: c/o Todd P. Zerega, Esq., 

Perkins Coie LLP, 700 13th Street NW., 

Washington, DC 20005. 

FOR FURTHER INFORMATION CONTACT: 

James D. McGinnis, Attorney-Advisor, 

at (202) 551–3025 or Sara Crovitz, 

Assistant Chief Counsel, at (202) 551– 

6720 (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. Each Trust is organized as a 

Delaware statutory trust and is 

registered under the Act as an open-end, 

management investment company. Each 

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6318 Federal Register / Vol. 81, No. 24 / Friday, February 5, 2016 / Notices 

1Applicants request that the relief apply to each 

existing and future series of the Trusts, any other 

registered open-end investment company or series 

thereof for which the Adviser, including any 

successor entity thereto, or a person controlling, 

controlled by, or under common control (within the 

meaning of section 2(a)(9) of the Act) with the 

Adviser serves as investment adviser. The term 

‘‘successor’’ is limited to entities that result from a 

reorganization into another jurisdiction or a change 

in the type of business organization. All entities 

that currently intend to rely on the requested relief 

are named as applicants. Any other entity that relies 

on the order in the future will comply with the 

terms and conditions set forth in the application. 

2Applicants state that the Interfund Lending 

Program will be limited to Funds whose investment 

policies allow participation in the program. 

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’’). The Adviser is a 

Delaware limited liability company that 

is registered as an investment adviser 

under the Investment Advisers Act of 

1940 (‘‘Advisers Act’’). The Adviser is 

an indirect subsidiary of The PNC 

Financial Services Group, Inc., a 

publicly traded company incorporated 

in Delaware. The Adviser will, to the 

extent applicable, oversee the activities 

of any sub-adviser to a Fund (a ‘‘SubAdviser’’). 

2. The Funds may lend cash to banks 

or other entities by entering into 

repurchase agreements or purchasing 

other short-term instruments. The 

Funds may also need to borrow money 

from the same or similar banks for 

temporary purposes, to cover 

unanticipated cash shortfalls such as a 

trade ‘‘fail’’ or for other temporary 

purposes. The Funds may in the future 

establish a line of credit with one or 

more banks; currently, the Funds are not 

parties to any credit facilities with 

banks (‘‘Bank Borrowings’’). 

3. The Funds seek to enter into a 

master interfund lending agreement 

(‘‘Interfund Lending Agreement’’) with 

each other that would permit each 

Fund 2 to lend money directly to and 

borrow money directly from other 

Funds for temporary purposes through 

the Interfund Lending Program (an 

‘‘Interfund Loan’’). The Money Market 

Funds will not participate as borrowers. 

Applicants state that the requested will 

relief 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 cash 

available to: (i) Earn a return on the 

money that they might not otherwise be 

able to invest; or (ii) earn a higher rate 

of interest on investment of their shortterm balances. Although the proposed 

Interfund Lending Program would 

reduce the Funds’ need to draw through 

custodian drafts, the Funds would be 

free to establish committed lines of 

credit or other borrowing arrangements 

with banks. 

4. Applicants anticipate that the 

proposed Interfund Lending 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 and/or fixed income 

instruments). However, redemption 

requests normally are effected on the 

day following the trade date. The 

proposed Interfund Lending Program 

would provide a source of immediate, 

short-term liquidity pending settlement 

of the sale of portfolio securities. 

5. Applicants also anticipate that a 

Fund could use the Interfund Lending 

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 Lending Program under 

these circumstances would enable the 

Fund to have access to immediate, 

short-term liquidity. 

6. While custodian overdrafts 

generally could supply Funds with 

needed cash to cover unanticipated 

redemptions and sales fails, under the 

proposed Interfund Lending Program, a 

borrowing Fund would pay lower 

interest rates than those that would be 

typically payable under an overdraft 

with the custodian. 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 overnight 

repurchase agreements or other 

substantially equivalent short-term 

instruments. Thus, applicants assert that 

the proposed Interfund Lending 

Program would benefit both borrowing 

and lending Funds. 

7. The interest rate to be charged to 

the Funds on any Interfund Loan (the 

‘‘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 or best (after giving effect to 

factors such as the credit quality of the 

counterparty) current overnight 

repurchase agreement rate available to a 

lending Fund. The Bank Loan Rate for 

any day would be calculated by the 

Interfund Lending 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 (each a ‘‘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 Board. In addition, 

each Board 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. 

8. Certain members of the Adviser’s 

administrative personnel (other than 

investment advisory personnel) (the 

‘‘Interfund Lending Program Team’’) 

would administer the Interfund Lending 

Program. No portfolio manager of any 

Fund will serve as a member of the 

Interfund Lending Program. Under the 

proposed Interfund Lending Program, 

the portfolio managers for each 

participating Fund could provide 

standing instructions to participate 

daily as a borrower or lender. The 

Interfund Lending Program Team on 

each business day would collect data on 

the uninvested cash and borrowing 

requirements of all participating Funds. 

Once the Interfund Lending Program 

Team has determined the aggregate 

amount of cash available for loans and 

borrowing demand, the Interfund 

Lending 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 Lending Program Team has 

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Federal Register / Vol. 81, No. 24 / Friday, February 5, 2016 / Notices 6319 

allocated cash for Interfund Loans, the 

Interfund Lending Program Team will 

invest any remaining cash in accordance 

with any standing instruction of the 

relevant portfolio manager, or such 

remaining amounts will be invested 

directly by the portfolio managers of the 

Funds. 

9. The Interfund Lending Program 

Team would allocate borrowing demand 

and cash available for lending among 

the Funds on what the Interfund 

Lending Program Team believes to be an 

equitable basis, subject to certain 

administrative procedures applicable to 

all Funds, such as the time a Fund files 

a request 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 the Boards of the Funds, 

including a majority of the Board 

members who are not ‘‘interested 

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

of the Act (‘‘Independent Trustees’’), to 

ensure that both borrowing and lending 

Funds participate on an equitable basis. 

10. The Interfund Lending Program 

Team would: (i) Monitor the Interfund 

Loan Rate and the other terms and 

conditions of the Interfund Loans; (ii) 

limit the borrowings and loans entered 

into by each Fund to ensure that they 

comply with the Fund’s investment 

policies and limitations; (iii) ensure 

equitable treatment of each Fund; and 

(iv) make quarterly reports to the Board 

of each Fund concerning any 

transactions by the applicable Fund 

under the Interfund Lending Program 

and the Interfund Loan Rate charged. 

11. The Adviser or Sub-Adviser, as 

applicable, through the Interfund 

Lending Program Team, would 

administer the Interfund Lending 

Program as a disinterested fiduciary as 

part of its duties under the investment 

management and administrative 

agreements with each Fund and would 

receive no additional fee as 

compensation for its services in 

connection with the administration of 

the Interfund Lending Program. 

12. No Fund may participate in the 

Interfund Lending Program unless: (i) 

The Fund has obtained shareholder 

approval for its participation, if such 

approval is required by law; (ii) the 

Fund has fully disclosed all material 

information concerning the Interfund 

Lending Program in its registration 

statement on form N–1A; and (iii) the 

Fund’s participation in the Interfund 

Lending Program is consistent with its 

investment objectives, limitations and 

organizational documents. 

13. In connection with the Interfund 

Lending 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 common 

investment advisers and/or by having 

common trustees, managers and/or 

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 

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: (i) The Advisers, 

through the Interfund Lending Program 

Team members, would administer the 

Interfund Lending Program as 

disinterested fiduciaries as part of their 

duties under the investment 

management and administrative 

agreements with each Fund; (ii) all 

Interfund Loans would consist only of 

uninvested cash reserves that the Fund 

otherwise would invest in short-term 

repurchase agreements or other shortterm investments; (iii) the Interfund 

Loans would not involve a greater risk 

than such other investments; (iv) the 

lending Fund would receive interest at 

a rate higher than it could otherwise 

obtain through such other investments; 

and (v) the borrowing Fund would pay 

interest at a rate lower than otherwise 

available to it under its bank loan 

agreements or through custodian 

overdrafts. 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) of the Act. 

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6320 Federal Register / Vol. 81, No. 24 / Friday, February 5, 2016 / Notices 

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 

Lending 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 Lending 

Program. Applicants also note that the 

purpose of the proposed Interfund 

Lending 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 

Lending 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 Lending 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 

Lending 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 fundamental 

investment limitations. Applicants 

assert that each Fund’s participation in 

the proposed Interfund Lending 

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 Lending Program Team will 

compare the Bank Loan Rate with the 

Repo Rate and will make cash available 

for Interfund Loans only if the Interfund 

Loan Rate is: (i) More favorable to the 

lending Fund than the Repo Rate; and 

(ii) 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: (i) Be at an interest rate equal 

to or lower than the interest rate of any 

outstanding bank loan; (ii) 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; (iii) have a maturity no longer 

than any outstanding bank loan (and in 

any event not over seven days); and (iv) 

provide that, if an event of default 

occurs under any agreement evidencing 

an outstanding bank loan to the Fund, 

that the event of default by the Fund, 

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 (aa) entitles the lending 

Fund to call the Interfund Loan 

immediately and exercise all rights with 

respect to any collateral and (bb) 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 

Lending Program only if the relevant 

borrowing Fund’s outstanding 

borrowings from all sources 

immediately after the interfund 

borrowing total 10% or less of its total 

assets, provided that if the borrowing 

Fund has a secured loan outstanding 

from any other lender, including but not 

limited to another, the lending Fund’s 

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 borrowing 

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 Lending Program only on 

a secured basis. A Fund may not borrow 

through the Interfund Lending Program 

or from any other source if its total 

outstanding borrowings immediately 

after the borrowing would be more than 

331⁄3% of its total assets or any lower 

threshold provided for by a Fund’s 

fundamental restriction or nonfundamental 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 

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Federal Register / Vol. 81, No. 24 / Friday, February 5, 2016 / Notices 6321 

first secure each outstanding Interfund 

Loan to a Fund 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: (i) Repay 

all its outstanding Interfund Loans to 

Funds; (ii) reduce its outstanding 

indebtedness to Funds to 10% or less of 

its total assets; or (iii) secure each 

outstanding Interfund Loan to other 

Funds 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 to Funds at 

least equal to 102% of the outstanding 

principal value of the Interfund Loans. 

6. No Fund may lend to another Fund 

through the Interfund Lending Program 

if the loan would cause its aggregate 

outstanding loans through the Interfund 

Lending 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 Lending 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 Lending Program must be 

consistent with its investment 

objectives, policies, limitations and 

organizational documents. 

12. The Interfund Lending Program 

Team will calculate total Fund 

borrowing and lending demand through 

the Interfund Lending Program, and 

allocate Interfund Loans on an equitable 

basis among the Funds, without the 

intervention of any portfolio manager. 

The Interfund Lending Program Team 

will not solicit cash for the Interfund 

Lending Program from any Fund or 

prospectively publish or disseminate 

loan demand data to portfolio managers. 

The Interfund Lending 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 Lending Program 

Team will monitor the Interfund Loan 

Rate and the other terms and conditions 

of the Interfund Loans and will make a 

quarterly report to the Boards 

concerning the participation of the 

Funds in the Interfund Lending Program 

and the terms and other conditions of 

any extensions of credit under the 

Interfund Lending Program. 

14. Each Board, including a majority 

of the Independent Trustees, will: 

(i) Review, no less frequently than 

quarterly, the participation of each 

Fund’s it oversees in the Interfund 

Lending Program during the preceding 

quarter for compliance with the 

conditions of any order permitting such 

participation; 

(ii) establish the Bank Loan Rate 

formula used to determine the interest 

rate on Interfund Loans; 

(iii) review, no less frequently than 

annually, the continuing 

appropriateness of the Bank Loan Rate 

formula; and 

(iv) review, no less frequently than 

annually, the continuing 

appropriateness of the participation in 

the Interfund Lending 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 Lending 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 Boards of the Funds in 

connection with the review required by 

conditions 13 and 14. 

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 

Adviser to the lending Fund promptly 

will refer the loan for arbitration to an 

independent arbitrator selected by the 

Board of any Fund involved in the loan 

who will serve as arbitrator of disputes 

concerning Interfund Loans. If the 

dispute involves Funds that do not have 

a common Board, the Board of each 

Fund will select an independent 

arbitrator that is satisfactory to each 

Fund. 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 

of each Fund setting forth a description 

of the nature of any dispute and the 

actions taken by the Funds to resolve 

the dispute. 

17. The Adviser will prepare and 

submit to the Board for review an initial 

report describing the operations of the 

Interfund Lending Program and the 

procedures to be implemented to ensure 

that all Funds are treated fairly. After 

the commencement of the Interfund 

Lending Program, the Adviser will 

report on the operations of the Interfund 

Lending 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 its Board each year 

that the Fund participates in the 

Interfund Lending 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 Lending Program, that 

certifies that the Fund and its 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; 

mstockstill on DSK4VPTVN1PROD with NOTICES

6322 Federal Register / Vol. 81, No. 24 / Friday, February 5, 2016 / Notices 

1Section 2(a)(48) defines a BDC to be any closedend investment company that operates for the 

purpose of making investments in securities 

described in sections 55(a)(1) through 55(a)(3) of the 

Act and makes available significant managerial 

assistance with respect to the issuers of such 

securities. 

2Applicant also conducts business through its 

asset-based lending division, Medallion Business 

Credit, an originator of loans to small businesses for 

the purpose of financing inventory and receivables. 

3The Eligible Directors receive a $39,655 per year 

retainer payment, $3,965 for each Board meeting 

attended, $1,130 for each telephonic Board meeting, 

from $1,700 to $3,965 for each committee meeting 

attended, and reimbursement for related expenses. 

4Applicant previously obtained similar relief for 

its Amended and Restated 1996 Non-Employee 

Director Stock Option Plan (the ‘‘1996 Director 

Plan’’), the 2006 Non-Employee Director Stock 

Option Plan (the ‘‘2006 Director Plan’’), and the 

First Amended and Restated 2006 Non-Employee 

Director Stock Option Plan (the ‘‘2006 Amended 

Director Plan’’). 

(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 public accountants, in 

connection with their audit examination 

of the Fund, will review the operation 

of the Interfund Lending 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 Lending 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. 2016–02199 Filed 2–4–16; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

31977; 812–14458] 

Medallion Financial Corp.; Notice of 

Application 

February 1, 2016. 

AGENCY: Securities and Exchange 

Commission (the ‘‘Commission’’). 

ACTION: Notice of an application for an 

order under section 61(a)(3)(B) of the 

Investment Company Act of 1940 (the 

‘‘Act’’). 

SUMMARY OF APPLICATION: Applicant, 

Medallion Financial Corp., requests an 

order approving a proposal to grant 

certain stock options to directors who 

are not also employees or officers of 

Applicant (the ‘‘Eligible Directors’’) 

under its 2015 Non-Employee Director 

Stock Option Plan (the ‘‘Director Plan’’). 

FILING DATES: The application was filed 

on May 12, 2015, and amended on 

September 25, 2015 and January 14, 

2016. 

HEARING OR NOTIFICATION OF HEARING: An 

order granting the application will be 

issued unless the Commission orders a 

hearing. Interested persons may request 

a hearing by writing to the 

Commission’s Secretary and serving 

Applicant with a copy of the request, 

personally or by mail. Hearing requests 

should be received by the Commission 

by 5:30 p.m. on February 26, 2016, and 

should be accompanied by proof of 

service on Applicant, 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; 

Applicant, 437 Madison Avenue, 38th 

Floor, New York, New York 10022. 

FOR FURTHER INFORMATION CONTACT: 

Deepak T. Pai, Senior Counsel, at (202) 

551–6876, or Mary Kay Frech, Branch 

Chief, at (202) 551–6821 (Division of 

Investment Management, Office of Chief 

Counsel). 

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. 

Applicant’s Representations 

1. Applicant, a Delaware corporation, 

is a business development company 

(‘‘BDC’’) within the meaning of section 

2(a)(48) of the Act.1 Applicant is a 

specialty finance company that has a 

leading position in originating, 

acquiring and servicing loans that 

finance taxicab medallions and various 

types of commercial businesses. 

Applicant operates its businesses 

through four wholly-owned 

subsidiaries, Medallion Funding LLC, 

Medallion Capital, Inc., Freshstart 

Venture Capital Corp., and Medallion 

Bank.2 Applicant is managed by its 

executive officers under the supervision 

of its board of directors (‘‘Board’’). 

Applicant’s investment decisions are 

made by its executive officers under 

authority delegated by the Board. 

Applicant does not have an external 

investment adviser within the meaning 

of section 2(a)(20) of the Act. 

Applicant’s common stock is listed on 

the NASDAQ Global Select Market. 

2. Applicant requests an order under 

section 61(a)(3)(B) of the Act approving 

its proposal to grant certain stock 

options under the Director Plan to its 

Eligible Directors.3 Applicant has an 

eight member Board, six of whom are 

Eligible Directors. Five of the six 

Eligible Directors on the Board are not 

‘‘interested persons’’ (as defined in 

section 2(a)(19) of the Act) of Applicant. 

The Board approved the Director Plan at 

a meeting held on March 12, 2015, and 

Applicant’s stockholders approved the 

Director Plan at the annual meeting of 

stockholders held on June 5, 2015. The 

Director Plan will become effective on 

the date on which the Commission 

issues an order on the application (the 

‘‘Order Date’’).4

3. Applicant’s Eligible Directors 

currently are eligible to receive stock 

options under the 2006 Amended 

Director Plan and will be eligible to 

receive options under the Director Plan 

on the Order Date. Under the Director 

Plan, a maximum of 300,000 shares of 

Applicant’s common stock, in the 

aggregate, may be issued to Eligible 

Directors and there is no limit on the 

number of shares of Applicant’s 

common stock that may be issued to any 

one Eligible Director. The Director Plan 

provides for automatic grants of stock 

options to Eligible Directors. At each 

annual meeting of Applicant’s 

stockholders after the Order Date, each 

Eligible Director elected or re-elected at 

such meeting to a three-year term will 

automatically be granted an option to 

purchase 12,000 shares of Applicant’s 

common stock. Upon the election, 

reelection or appointment of an Eligible 

Director to the Board other than at the 

mstockstill on DSK4VPTVN1PROD with NOTICES