[Federal Register Volume 81, Number 127 (Friday, July 1, 2016)]
[Notices]
[Pages 43301-43306]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-15584]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. IC-32163; File No. 812-14523]


MainStay Funds Trust, et al.; Notice of Application

June 27, 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: MainStay Funds Trust, The MainStay Funds and MainStay 
VP Funds Trust (each a ``Trust'' and collectively the ``Trusts'') and 
New York Life Investment Management LLC (``New York Life 
Investments'').
    Filing Dates: The application was filed on July 30, 2015, and 
amended on September 28, 2015, January 19, 2016, May 12, 2016, and June 
20, 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 July 22, 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: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants: New York Life 
Investment Management LLC, 51 Madison Avenue, New York, NY 10010.

FOR FURTHER INFORMATION CONTACT:  Robert Shapiro, Senior Counsel, at 
(202) 551-7758 or Mary Kay Frech, 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 or a 
Delaware statutory trust and is registered under the Act as an open-end

[[Page 43302]]

management investment company. Each Trust has issued shares of one or 
more Funds with its own distinctive investment objectives, policies and 
restrictions.\1\ New York Life Investments, an indirect, wholly-owned 
subsidiary of New York Life, is a Delaware limited liability company 
that is registered as an investment adviser under the Investment 
Advisers Act of 1940 (``Advisers Act'').\2\ Any Adviser which serves as 
investment advisor to an applicant will be registered as an investment 
adviser under the Advisers Act.
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    \1\ Applicants request that the order apply to any existing or 
future registered open-end management investment company or series 
thereof for which New York Life Investments 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 New 
York Life Investments or any successor thereto serves as investment 
adviser (each such investment company or series thereof, a ``Fund'' 
and collectively the ``Funds'' or each such investment adviser an 
``Adviser''). For purposes of the requested order, ``successor'' is 
limited to any entity that results from a reorganization into 
another jurisdiction or a change in the type of a business 
organization.
    \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. At any particular time, those Funds with uninvested cash may, in 
effect, lend money to banks or other entities by entering into 
repurchase agreements or purchasing other short-term money market 
instruments. At the same time, other Funds may 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 are parties to an unsecured 364-day, $600 
million revolving credit facility with a group of lenders (the ``Credit 
Facility''), to meet unanticipated or excessive redemption requests.
    3. If Funds that experience a cash shortfall were to borrow under 
the Credit Facility (or another credit facility), 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. Applicants 
assert the difference between the higher rate paid on a 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 (the ``InterFund Program'') that will allow each Fund 
whose policies permit it to do so to lend money directly to and borrow 
money directly from other Funds for temporary purposes through the 
InterFund Program (an ``InterFund Loan'').\3\ Applicants state that the 
requested relief will 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 uninvested 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 overdrafts, the Funds would be free to establish and/
or continue lines of credit or other borrowing arrangements with banks.
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    \3\ No money market fund advised by an Adviser that complies 
with the requirements of rule 2a-7 under the Act will participate in 
the InterFund Program as either a borrower or a lender.
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    5. Applicants anticipate that the proposed InterFund Program would 
provide a borrowing Fund with a source of liquidity at a rate lower 
than the bank borrowing rate and also operational flexibility at times 
when the cash position of the borrowing 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 fixed income 
instruments). However, redemption requests for the Funds normally are 
effected on the day following the trade date.\4\ The InterFund Program 
would provide a source of immediate, short-term liquidity pending 
settlement of the sale of portfolio securities.
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    \4\ Applicants represent that although a significant amount of 
redemption requests for the Funds normally are effected on a trade 
date plus 1 (T+1) basis, redemption payments can take as long as 
seven days from receipt of a request in good order and may be 
delayed further in certain limited circumstances to the extent 
permitted by law.
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    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 result in a cash 
shortfall if the Fund has undertaken to purchase a security using the 
proceeds from securities sold. Applicants state that, in the event of a 
sales fail, the custodian typically extends temporary credit to cover 
the shortfall, and the Fund incurs overdraft charges. 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 borrowings (including the Credit Facility) and/or 
custodian overdrafts generally could supply Funds with a portion of the 
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 typically 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 repurchase agreements or certain other short-
term money market 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,'' each 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 Team (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 the Board. In 
addition, the Board periodically would review the continuing 
appropriateness of reliance on the formula used to determine the Bank 
Loan Rate, as well

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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 Trusts' administration personnel (other 
than investment advisory personnel) (the ``InterFund Program Team'') 
will administer the InterFund Program. No portfolio manager of any Fund 
will serve as a member of the InterFund Program Team. Under the 
proposed InterFund Program, the portfolio managers for each 
participating Fund would have the ability to 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 will allocate loans among borrowing Funds without any further 
communication from the portfolio managers of the Funds. 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 will 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 procedures 
for allocating cash among borrowers and determining loan participations 
among lenders, together with related administrative procedures, will be 
approved by the Board, 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 will: (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) 
implement and follow procedures designed to ensure equitable treatment 
of each Fund; and (d) make quarterly reports to the Board of each Fund 
concerning any transactions by the applicable Fund under the InterFund 
Program and the InterFund Loan Rate.
    12. New York Life Investments, through the InterFund Program Team, 
would administer the InterFund Program as a disinterested fiduciary as 
part of its duties under the investment management 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, 
investment restrictions, policies, limitations, and organizational 
documents.
    14. As part of the Board's review of the continuing appropriateness 
of a Fund's participation in the proposed InterFund Program as required 
by condition 14, the Board members of the Fund, including a majority of 
the Independent Board Members, also will review the process in place to 
appropriately assess: (i) If the Fund participates as a lender, any 
effect its participation may have on the Fund's liquidity risk; and 
(ii) if the Fund participates as a borrower, whether the Fund's 
portfolio liquidity is sufficient to satisfy its obligations under the 
facility along with its other liquidity needs.
    15. 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) New York 
Life Investments, through the InterFund Program Team members, would 
administer the InterFund Program as a disinterested fiduciary as part 
of its duties under the investment management and administrative

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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 obtain through short-term repurchase agreements or 
certain other short-term investments; and (e) the borrowing Fund would 
pay interest at a rate lower than otherwise available to it under its 
bank loan agreements. 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 the type of abuse at which 
section 12(d)(1) of the Act was directed. Applicants note that there 
will be no duplicative costs or fees to the Funds or their 
shareholders, and that New York Life Investments will receive no 
additional compensation for its services in administering the InterFund 
Program. Applicants also note that the purpose of the proposed 
InterFund Program is to provide economic benefits for all the 
participating Funds and their shareholders.
    7. 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 allow a Fund 
to borrow through the InterFund Program (because the lending Funds are 
not banks).
    8. 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).
    9. 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.
    10. 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: (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 borrowing; (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,

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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 
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 Fund, 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 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; (ii) 
reduce its outstanding indebtedness to 10% or less of its total assets; 
or (iii) secure each outstanding InterFund Loan 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.
    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 objectives and 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 of the Funds. 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 of the Funds. 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 Board 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. The Board, including a majority of its Independent Board 
Members, will:
    (i) Review, no less frequently than quarterly, the participation of 
each Fund 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 Board 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. 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.

[[Page 43306]]

    17. The Adviser 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 Adviser 
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 the 
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 
prospectus and/or statement of additional information 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. 2016-15584 Filed 6-30-16; 8:45 am]
 BILLING CODE 8011-01-P