[Federal Register Volume 79, Number 189 (Tuesday, September 30, 2014)]
[Notices]
[Pages 58837-58841]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23226]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31261; File No. 812-14270]


JNL Series Trust, et al.; Notice of Application

September 24, 2014.
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: JNL Series Trust, JNL Investors Series Trust, Curian 
Series Trust, and Curian Variable Series Trust (each a ``Trust'' and 
collectively the ``Trusts''), JNL Variable Fund LLC and JNL Strategic 
Income Fund LLC (each a ``Limited Liability Company''), Jackson 
National Asset Management, LLC (``JNAM'') and Curian Capital, LLC 
(``Curian'') (each, an ``Adviser,'' and such entities together, the 
``Advisers'').

DATES: Filing Dates: The application was filed on January 24, 2014, and 
amended on May 29, 2104, and September 22, 2014.
    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 October 17, 2014 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 Eric S. Purple, Esq., K&L Gates LLP, 1601 K Street NW., Washington, 
DC 20006-1600.
    For Further Information Contact: Emerson S. Davis, Senior Counsel, 
at (202) 551-6868 or Daniele Marchesani, Branch Chief, at (202) 551-
6821 (Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Each Trust is organized as a Massachusetts business trust and is 
registered under the Act as an open-end, management investment company. 
Each Limited Liability Company is a Delaware limited liability company 
and is registered as an open-end management investment company. Each 
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''). JNAM and Curian are each a 
Michigan limited liability company that is registered as an investment 
adviser under the Investment Advisers Act of 1940 (``Advisers Act''). 
Both are indirect, wholly-owned subsidiaries of Prudential plc, a 
publically traded company incorporated in the United Kingdom and act as 
investment adviser to the Funds.\2\
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    \1\ Applicants request that the order apply to any registered 
open-end management investment company or series thereof for which 
JNAM, Curian or any successor thereto or an investment adviser 
controlling, controlled by, or under common control (within the 
meaning of section 2(a)(9) of the Act) with JNAM or Curian or any 
successor thereto serves as investment adviser (each a ``Fund'' and 
collectively the ``Funds'' or each such investment adviser as 
``Adviser''). For purposes of the requested order, ``successor'' is 
limited to any entity that results from a reorganization into 
another jurisdiction or a change in the type of a business 
organization.
    \2\ All Funds that currently intend to rely on the requested 
order have been named as applicants. Any other Fund that relies on 
the requested order in the future will comply with the terms and 
conditions of the application.
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    2. The Funds may lend cash to banks or other entities by entering 
into repurchase agreements, purchasing short-term instruments. In order 
to meet an unexpected volume of redemptions or to cover unanticipated 
cash shortfalls, the Funds contracted for committed lines of credit 
with JP Morgan, N.A., and other lenders that are currently included or 
may be added in the future to the lending syndicate (``Bank 
Borrowing''). The amount of borrowing under each of these lines of 
credit is limited to the amount specified by fundamental investment 
restrictions, the terms specified in the agreements, and/or other 
policies of the applicable Fund and section 18 of the Act.
    3. If Funds that experience a cash shortfall were to draw down on 
their Bank Borrowing, they would pay interest at a rate that is likely 
to be higher than the rate that could be earned by non-borrowing Funds 
on investments in repurchase agreements and other short-term money 
market instruments of the same maturity as the Bank

[[Page 58838]]

Borrowing (``Short-Term Instruments''). Applicants assert the 
difference between the higher rate paid on Bank Borrowing and what the 
bank pays to borrow under repurchase agreements or other arrangements 
represents the bank's profit for serving as the middleperson between a 
borrower and lender and is not attributable to any material difference 
in the credit quality or risk of such transactions.
    4. The Funds seek to enter into master interfund lending agreements 
with each other that would permit each Fund to lend money directly to 
and borrow money directly from other Funds for temporary purposes 
through the InterFund Program (an ``Interfund Loan''). The Money Market 
Funds 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: 
(i) To earn a return on the money that they might not otherwise be able 
to invest; or (ii) to earn a higher rate of interest on investment of 
their short-term balances. Although the proposed InterFund Program 
would reduce the Funds' need to borrow from banks or through custodian 
drafts, the Funds would be free to establish and/or continue committed 
lines of credit or other borrowing arrangements with banks.
    5. Applicants anticipate that the proposed InterFund Program would 
provide a borrowing Fund with significant savings at times when the 
cash position of the Fund is insufficient to meet temporary cash 
requirements. This situation could arise when shareholder redemptions 
exceed anticipated cash volumes and certain Funds have insufficient 
cash on hand to satisfy such redemptions. When the Funds liquidate 
portfolio securities to meet redemption requests, they often do not 
receive payment in settlement for up to three days (or longer for 
certain foreign transactions). However, redemption requests normally 
are effected on the day following the trade date. The proposed 
InterFund Program would provide a source of immediate, short-term 
liquidity pending settlement of the sale of portfolio securities.
    6. Applicants also anticipate that a Fund could use the InterFund 
Program when a sale of securities ``fails'' due to circumstances beyond 
the Fund's control, such as a delay in the delivery of cash to the 
Fund's custodian or improper delivery instructions by the broker 
effecting the transaction. ``Sales fails'' may present a cash shortfall 
if the Fund has undertaken to purchase a security using the proceeds 
from securities sold. Alternatively, the Fund could: (i) ``fail'' on 
its intended purchase due to lack of funds from the previous sale, 
resulting in additional cost to the Fund; or (ii) sell a security on a 
same-day settlement basis, earning a lower return on the investment. 
Use of the InterFund Program under these circumstances would enable the 
Fund to have access to immediate short-term liquidity.
    7. While Bank Borrowing and/or custodian overdrafts generally could 
supply Funds with needed cash to cover unanticipated redemptions and 
sales fails, under the proposed InterFund Program, a borrowing Fund 
would pay lower interest rates than those that would be payable under 
short-term loans offered by banks or custodian overdrafts. In addition, 
Funds making short-term cash loans directly to other Funds would earn 
interest at a rate higher than they otherwise could obtain from 
investing their cash in Short-Term Instruments. Thus, applicants assert 
that the proposed InterFund Program would benefit both borrowing and 
lending Funds.
    8. The interest rate to be charged to the Funds on any Interfund 
Loan (the ``Interfund Loan Rate'') would be the average of the ``Repo 
Rate'' and the ``Bank Loan Rate,'' both as defined below. The Repo Rate 
would be the highest current overnight repurchase agreement rate 
available to a lending Fund. The Bank Loan Rate for any day would be 
calculated by the InterFund Program, as defined below, on each day an 
Interfund Loan is made according to a formula established by each 
Fund's board of trustees (the ``Board'') intended to approximate the 
lowest interest rate at which a bank short-term loan would be available 
to the Fund. The formula would be based upon a publicly available rate 
(e.g., Federal funds rate and/or LIBOR) plus an additional spread of 
basis points and would vary with this rate so as to reflect changing 
bank loan rates. The initial formula and any subsequent modifications 
to the formula would be subject to the approval of each Fund's Board. 
In addition, the Board of each Fund would periodically review the 
continuing appropriateness of reliance on the formula used to determine 
the Bank Loan Rate, as well as the relationship between the Bank Loan 
Rate and current bank loan rates that would be available to the Fund.
    9. Certain members of the Adviser's fund administration personnel 
(other than investment advisory personnel) (the ``InterFund Program 
Team'') would administer the InterFund Program. No portfolio manager of 
any Fund will serve as a member of the InterFund Program. Under the 
proposed InterFund Program, the portfolio managers for each 
participating Fund could provide standing instructions to participate 
daily as a borrower or lender. The InterFund Program Team on each 
business day would collect data on the uninvested cash and borrowing 
requirements of all participating Funds. Once the InterFund Program 
Team has determined the aggregate amount of cash available for loans 
and borrowing demand, the InterFund Program Team would allocate loans 
among borrowing Funds without any further communication from the 
portfolio managers of the Funds. Applicants anticipate that there 
typically will be far more available uninvested cash each day than 
borrowing demand. Therefore, after the InterFund Program Team has 
allocated cash for Interfund Loans, the InterFund Program Team will 
invest any remaining cash in accordance with the standing instructions 
of the relevant portfolio manager or such remaining amounts will be 
invested directly by the portfolio managers of the Funds.
    10. The InterFund Program Team would allocate borrowing demand and 
cash available for lending among the Funds on what the InterFund 
Program Team believes to be an equitable basis, subject to certain 
administrative procedures applicable to all Funds, such as the time of 
filing requests to participate, minimum loan lot sizes, and the need to 
minimize the number of transactions and associated administrative 
costs. To reduce transaction costs, each Interfund Loan normally would 
be allocated in a manner intended to minimize the number of 
participants necessary to complete the loan transaction. The method of 
allocation and related administrative procedures would be approved by 
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 Board Members''), to ensure that both borrowing and 
lending Funds participate on an equitable basis.
    11. The InterFund Program Team, on behalf of the Advisers. would: 
(a) Monitor the Interfund Loan Rate and the other terms and conditions 
of the Interfund Loans; (b) limit the borrowings and loans entered into 
by each Fund to ensure that they comply with the Fund's investment 
policies and limitations; (c) ensure equitable treatment of each Fund; 
and (d) make quarterly reports to the Board of each Fund concerning any 
transactions by

[[Page 58839]]

the applicable Fund under the InterFund Program and the Interfund Loan 
Rate.
    12. The Advisers, through the InterFund Program Team, would 
administer the InterFund 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 Program.
    13. No Fund may participate in the InterFund Program unless: (a) 
The Fund has obtained shareholder approval for its participation, if 
such approval is required by law; (b) the Fund has fully disclosed all 
material information concerning the InterFund Program in its 
registration statement on form N-1A; and (c) the Fund's participation 
in the InterFund Program is consistent with its investment objectives, 
limitations and organizational documents.
    14. In connection with the InterFund Program, applicants request an 
order under section 6(c) of the Act exempting them from the provisions 
of sections 18(f) and 21(b) of the Act; under section 12(d)(1)(J) of 
the Act exempting them from section 12(d)(1) of the Act; under sections 
6(c) and 17(b) of the Act exempting them from sections 17(a)(1), 
17(a)(2), and 17(a)(3) of the Act; and under section 17(d) of the Act 
and rule 17d-1 under the Act to permit certain joint arrangements and 
transactions.

Applicants' Legal Analysis

    1. Section 17(a)(3) of the Act generally prohibits any affiliated 
person of a registered investment company, or affiliated person of an 
affiliated person, from borrowing money or other property from the 
registered investment company. Section 21(b) of the Act generally 
prohibits any registered management company from lending money or other 
property to any person, directly or indirectly, if that person controls 
or is under common control with that company. Section 2(a)(3)(C) of the 
Act defines an ``affiliated person'' of another person, in part, to be 
any person directly or indirectly controlling, controlled by, or under 
common control with, such other person. Section 2(a)(9) of the Act 
defines ``control'' as the ``power to exercise a controlling influence 
over the management or policies of a company,'' but excludes 
circumstances in which ``such power is solely the result of an official 
position with such company.'' Applicants state that the Funds may be 
under common control by virtue of having 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: (a) The 
Advisers, through the InterFund Program Team members, would administer 
the InterFund Program as disinterested fiduciaries as part of their 
duties under the investment management and administrative agreements 
with each Fund; (b) 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; (c) the 
Interfund Loans would not involve a greater risk than such other 
investments; (d) the lending Fund would receive interest at a rate 
higher than it could otherwise obtain through such other investments; 
and (e) the borrowing Fund would pay interest at a rate lower than 
otherwise available to it under its bank loan agreements or through 
custodian overdrafts and avoid the commitment fees associated with 
lines of credit. Moreover, applicants assert that the other terms and 
conditions that applicants propose also would effectively preclude the 
possibility of any Fund obtaining an undue advantage over any other 
Fund.
    4. Section 17(a)(1) of the Act generally prohibits an affiliated 
person of a registered investment company, or any affiliated person of 
such a person, from selling securities or other property to the 
investment company. Section 17(a)(2) of the Act generally prohibits an 
affiliated person of a registered investment company, or any affiliated 
person of such a person, from purchasing securities or other property 
from the investment company. Section 12(d)(1) of the Act generally 
prohibits a registered investment company from purchasing or otherwise 
acquiring any security issued by any other investment company except in 
accordance with the limitations set forth in that section.
    5. Applicants state that the obligation of a borrowing Fund to 
repay an Interfund Loan could be deemed to constitute a security for 
the purposes of sections 17(a)(1) and 12(d)(1). Applicants also state 
that any pledge of securities to secure an Interfund Loan by the 
borrowing Fund to the lending Fund could constitute a purchase of 
securities for purposes of section 17(a)(2) of the Act. Section 
12(d)(1)(J) of the Act provides that the Commission may exempt persons 
or transactions from any provision of section 12(d)(1) if and to the 
extent that such exemption is consistent with the public interest and 
the protection of investors. Applicants contend that the standards 
under sections 6(c), 17(b), and 12(d)(1)(J) are satisfied for all the 
reasons set forth above in support of their request for relief from 
sections 17(a)(3) and 21(b) and for the reasons discussed below. 
Applicants state that the requested relief from section 17(a)(2) of the 
Act meets the standards of section 6(c) and 17(b) because any 
collateral pledged to secure an Interfund Loan would be subject to the 
same conditions imposed by any other lender to a Fund that imposes 
conditions on the quality of or access to collateral for a borrowing 
(if the lender is another Fund) or the same or better conditions (in 
any other circumstance).
    6. Applicants state that section 12(d)(1) was intended to prevent 
the pyramiding of investment companies in order to avoid imposing on 
investors additional and duplicative costs and fees attendant upon 
multiple layers of investment companies. Applicants submit that the 
proposed InterFund Program does not involve these abuses. Applicants 
note that there will be no duplicative costs or fees to the Funds or 
their shareholders, and that each Adviser will receive no additional 
compensation for its services in administering the InterFund Program. 
Applicants also note that the purpose of

[[Page 58840]]

the proposed InterFund Program is to provide economic benefits for all 
the participating Funds and their shareholders. Section 18(f)(1) of the 
Act prohibits open-end investment companies from issuing any senior 
security except that a company is permitted to borrow from any bank, 
provided, that immediately after the borrowing, there is asset coverage 
of at least 300 per centum for all borrowings of the company. Under 
section 18(g) of the Act, the term ``senior security'' generally 
includes any bond, debenture, note or similar obligation or instrument 
constituting a security and evidencing indebtedness. Applicants request 
exemptive relief under section 6(c) from section 18(f)(1) to the 
limited extent necessary to implement the InterFund Program (because 
the lending Funds are not banks).
    7. Applicants believe that granting relief under section 6(c) is 
appropriate because the Funds would remain subject to the requirement 
of section 18(f)(1) that all borrowings of a Fund, including combined 
Interfund Loans and bank borrowings, have at least 300% asset coverage. 
Based on the conditions and safeguards described in the application, 
applicants also submit that to allow the Funds to borrow from other 
Funds pursuant to the proposed InterFund Program is consistent with the 
purposes and policies of section 18(f)(1).
    8. Section 17(d) of the Act and rule 17d-1 under the Act generally 
prohibit an affiliated person of a registered investment company, or 
any affiliated person of such a person, when acting as principal, from 
effecting any joint transaction in which the investment company 
participates, unless, upon application, the transaction has been 
approved by the Commission. Rule 17d-1(b) under the Act provides that 
in passing upon an application filed under the rule, the Commission 
will consider whether the participation of the registered investment 
company in a joint enterprise, joint arrangement or profit sharing plan 
on the basis proposed is consistent with the provisions, policies and 
purposes of the Act and the extent to which such participation is on a 
basis different from or less advantageous than that of the other 
participants.
    9. Applicants assert that the purpose of section 17(d) is to avoid 
overreaching by and unfair advantage to insiders. Applicants assert 
that the InterFund Program is consistent with the provisions, policies 
and purposes of the Act in that it offers both reduced borrowing costs 
and enhanced returns on loaned funds to all participating Funds and 
their shareholders. Applicants note that each Fund would have an equal 
opportunity to borrow and lend on equal terms consistent with its 
investment policies and fundamental investment limitations. Applicants 
assert that each Fund's participation in the proposed InterFund Program 
would be on terms that are no different from or less advantageous than 
that of other participating Funds.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Interfund Loan Rate will be the average of the Repo Rate and 
the Bank Loan Rate.
    2. On each business day, when an interfund loan is to be made, the 
InterFund Program Team will compare the Bank Loan Rate with the Repo 
Rate and will make cash available for Interfund Loans only if the 
Interfund Loan Rate is: (a) More favorable to the lending Fund than the 
Repo Rate; and (b) more favorable to the borrowing Fund than the Bank 
Loan Rate.
    3. If a Fund has outstanding Bank Borrowings, any Interfund Loan to 
the Fund will: (a) Be at an interest rate equal to or lower than the 
interest rate of any outstanding bank loan; (b) be secured at least on 
an equal priority basis with at least an equivalent percentage of 
collateral to loan value as any outstanding bank loan that requires 
collateral; (c) have a maturity no longer than any outstanding bank 
loan (and in any event not over seven days); and (d) provide that, if 
an event of default 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 (i) entitles the lending Fund to 
call the Interfund Loan immediately and exercise all rights with 
respect to any collateral and (ii) causes the call to be made if the 
lending bank exercises its right to call its loan under its agreement 
with the borrowing Fund.
    4. A Fund may borrow on an unsecured basis through the InterFund 
Program only if 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 Program only on 
a secured basis. A Fund may not borrow through the InterFund Program or 
from any other source if its total outstanding borrowings immediately 
after the borrowing would be more than 33\1/3\% of its total assets or 
any lower threshold provided for by a Fund's fundamental restriction or 
non-fundamental policy.
    5. Before any Fund that has outstanding interfund borrowings may, 
through additional borrowings, cause its outstanding borrowings from 
all sources to exceed 10% of its total assets, it must first secure 
each outstanding Interfund Loan 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: (a) Repay all its outstanding Interfund 
Loans to Funds; (b) reduce its outstanding indebtedness to Funds to 10% 
or less of its total assets; or (c) 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 Program 
if the loan would cause the lending Fund's aggregate outstanding loans 
through the InterFund Program to exceed 15% of its current net assets 
at the time of the loan.
    7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of 
the lending Fund's net assets.

[[Page 58841]]

    8. The duration of Interfund Loans will be limited to the time 
required to receive payment for securities sold, but in no event more 
than seven days. Loans effected within seven days of each other will be 
treated as separate loan transactions for purposes of this condition.
    9. A Fund's borrowings through the InterFund Program, as measured 
on the day when the most recent loan was made, will not exceed the 
greater of 125% of the Fund's total net cash redemptions for the 
preceding seven calendar days or 102% of the Fund's sales fails for the 
preceding seven calendar days.
    10. Each Interfund Loan may be called on one business day's notice 
by a lending Fund and may be repaid on any day by a borrowing Fund.
    11. A Fund's participation in the InterFund Program must be 
consistent with its investment restrictions, policies, limitations and 
organizational documents.
    12. The InterFund Program Team will calculate total Fund borrowing 
and lending demand through the InterFund Program, and allocate 
Interfund Loans on an equitable basis among the Funds, without the 
intervention of any portfolio manager. The InterFund Program Team will 
not solicit cash for the InterFund Program from any Fund or 
prospectively publish or disseminate loan demand data to portfolio 
managers. The InterFund Program Team will invest all amounts remaining 
after satisfaction of borrowing demand in accordance with the standing 
instructions of the relevant portfolio manager or such remaining 
amounts will be invested directly by the portfolio managers of the 
Funds.
    13. The InterFund Program Team will monitor the Interfund Loan Rate 
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 Program and the terms and other conditions of 
any extensions of credit under the InterFund Program.
    14. Each Board, including a majority of the Independent Board 
Members, will:
    (a) Review, no less frequently than quarterly, the participation of 
each Fund's it oversees in the InterFund Program during the preceding 
quarter for compliance with the conditions of any order permitting such 
participation;
    (b) establish the Bank Loan Rate formula used to determine the 
interest rate on Interfund Loans;
    (c) review, no less frequently than annually, the continuing 
appropriateness of the Bank Loan Rate formula; and
    (d) review, no less frequently than annually, the continuing 
appropriateness of the participation in the InterFund Program by each 
Fund it oversees.
    15. Each Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any transaction 
by it under the InterFund Program occurred, the first two years in an 
easily accessible place, written records of all such transactions 
setting forth a description of the terms of the transaction, including 
the amount, the maturity and the Interfund Loan Rate, the rate of 
interest available at the time each Interfund Loan is made on overnight 
repurchase agreements and Bank Borrowings, and such other information 
presented to the 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.\3\ The arbitrator will resolve any problem 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.
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    \3\ If the dispute involves Funds that do not have a common 
Board, the Board of each affected Fund will select an independent 
arbitrator that is satisfactory to each Fund.
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    17. The Advisers will prepare and submit to the Board for review an 
initial report describing the operations of the InterFund Program and 
the procedures to be implemented to ensure that all Funds are treated 
fairly. After the commencement of the InterFund Program, the Advisers 
will report on the operations of the InterFund Program at the Board's 
quarterly meetings. Each Fund's chief compliance officer, as defined in 
rule 38a-1(a)(4) under the Act, shall prepare an annual report for its 
Board each year that the Fund participates in the InterFund Program, 
that evaluates the Fund's compliance with the terms and conditions of 
the application and the procedures established to achieve such 
compliance. Each Fund's chief compliance officer will also annually 
file a certification pursuant to Item 77Q3 of Form N-SAR as such Form 
may be revised, amended or superseded from time to time, for each year 
that the Fund participates in the InterFund Program, that certifies 
that the Fund and 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;
    (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 Program for compliance with the conditions 
of the application and their review will form the basis, in part, of 
the auditor's report on internal accounting controls in Form N-SAR.
    18. No Fund will participate in the InterFund Program, upon receipt 
of requisite regulatory approval, unless it has fully disclosed in its 
registration statement on Form N-1A (or any successor form adopted by 
the Commission) all material facts about its intended participation.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
 Deputy Secretary.
[FR Doc. 2014-23226 Filed 9-29-14; 8:45 am]
BILLING CODE 8011-01-P