[Federal Register Volume 81, Number 24 (Friday, February 5, 2016)]
[Notices]
[Pages 6317-6322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02199]


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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.

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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: 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

[[Page 6318]]

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 ``Sub-Adviser'').
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    \1\ Applicants 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.
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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. 
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 
short-term 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.
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    \2\ Applicants state that the Interfund Lending Program will be 
limited to Funds whose investment policies allow participation in 
the program.
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    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

[[Page 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 short-term 
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.

[[Page 6320]]

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 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

[[Page 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;

[[Page 6322]]

    (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