[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Notices]
[Pages 53512-53517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19184]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32209; File No. 812-14497]


Blackrock Funds, et al.; Notice of Application

August 8, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order pursuant to: (a) Section 
6(c) of the Investment Company Act of 1940 (``Act'') granting an 
exemption from sections 18(f) and 21(b) of the Act; (b) section 
12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of 
the Act; (c) sections 6(c) and 17(b) of the Act granting an exemption 
from sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Act; and (d) 
section 17(d) of the Act and rule 17d-1 under the Act to permit certain 
joint arrangements and transactions.

-----------------------------------------------------------------------

    Summary of the Application: Applicants request an order that would 
permit certain registered open-end management investment companies to 
participate in a joint lending and borrowing facility.
    Applicants: Blackrock Funds; Blackrock Funds II; BBIF Government 
Securities Fund; BBIF Money Fund; BBIF Tax-Exempt Fund; BBIF Treasury 
Fund; BIF Government Securities Fund; BIF Money Fund; BIF Multi-State 
Municipal Series Trust; BIF Tax-Exempt Fund; BIF Treasury Fund; 
Blackrock Emerging Markets Fund, Inc.; Blackrock Financial Institutions 
Series Trust; Blackrock Index Funds, Inc.; Blackrock Large Cap Series 
Funds, Inc.; Blackrock Latin America Fund, Inc.; Blackrock Liquidity 
Funds; Blackrock Master LLC; Blackrock Pacific Fund, Inc.; Blackrock 
Series, Inc.; Master Government Securities LLC; Master Large Cap Series 
LLC; Master Money LLC; Master Tax-Exempt LLC; Master Treasury LLC; 
Quantitative Master Series LLC; Ready Asset Government Liquidity Fund; 
Ready Assets U.S.A. Government Money Fund; Ready Assets U.S. Treasury 
Money Fund; Retirement Series Trust; Blackrock Allocation Target 
Shares; Blackrock Balanced Capital Fund, Inc.; Blackrock Basic Value 
Fund, Inc.; Blackrock Bond Fund, Inc.; Blackrock California Municipal 
Series Trust; Blackrock Capital Appreciation Fund, Inc.; Blackrock Cori 
Funds; Blackrock Equity Dividend Fund; Blackrock Eurofund; Blackrock 
Focus Growth Fund, Inc.; Blackrock Global Allocation Fund, Inc.; 
Blackrock Global Smallcap Fund, Inc., Blackrock Long-Horizon Equity 
Fund; Blackrock Mid Cap Value Opportunities Series, Inc.; Blackrock 
Multi-State Municipal Series Trust; Blackrock Municipal Bond Fund, 
Inc.; Blackrock Municipal Series Trust; Blackrock Natural Resources 
Trust; Blackrock Series Fund, Inc.; Blackrock Strategic Global Bond 
Fund, Inc.; Blackrock Value Opportunities Fund, Inc.; Blackrock 
Variable Series Funds, Inc.; FDP Series, Inc.; Managed Account Series; 
Master Bond LLC; Master Focus Growth LLC; Master Value Opportunities 
LLC; Blackrock Funds III; Master Investment Portfolio; Funds For 
Institutions Series; and Master Institutional Money Market LLC 
(together with each investment company listed in Exhibit A-1 to the 
application, a ``Company'' and collectively, the ``Companies''); 
Blackrock Advisors, LLC and Blackrock Fund Advisors (each, an 
``Adviser,'' and together, the ``Advisers'').

DATES: The application was filed on June 26, 2015, and amended on 
November 20, 2015, May 13, 2016 and August 5, 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 September 2, 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: Benjamin Archibald, 
Esq., BlackRock Advisors, LLC, 55 East 52 Street, New York, NY 10055 
and John A. MacKinnon, Esq., Sidley Austin LLP,

[[Page 53513]]

787 Seventh Avenue, New York, NY 10019.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915 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 Company is organized as a Massachusetts business trust, a 
Delaware statutory trust, a Delaware limited liability company, or a 
Maryland corporation and is registered under the Act as an open-end 
management investment company. Each Company has issued shares of one or 
more series, each series of shares with its own distinct investment 
objectives, policies and restrictions. 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''). BlackRock Advisors is a Delaware limited liability company 
and BFA is a California corporation, each is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). BlackRock Advisors and BFA are under common control 
by virtue of having the same ultimate parent, BlackRock, Inc.\2\
---------------------------------------------------------------------------

    \1\ Applicants request that the order apply to the applicants 
and to any existing or future registered open-end management 
investment company or series thereof for which BlackRock Advisors or 
BFA 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 BlackRock Advisors or BFA or any 
successor thereto serves as investment adviser (each a ``Fund'' and 
collectively the ``Funds'' and 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.
---------------------------------------------------------------------------

    2. The Funds may lend cash to banks or other entities by entering 
into repurchase agreements or purchasing other short-term money market 
instruments. Certain of the Funds are parties to an unsecured revolving 
credit agreement with a group of lenders (``Credit Agreement''). The 
Funds may borrow under the Credit Agreement to meet shareholder 
redemptions and for other lawful purposes.
    3. If Funds that experience a cash shortfall were to borrow under 
the Credit Agreement (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 a 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 requested relief would permit the applicants to participate 
in an interfund lending facility (``InterFund Program'') that would 
permit each Fund to lend money directly to and borrow money directly 
from other Funds for temporary purposes (each, an ``InterFund Loan''). 
The Money Market Funds typically will not participate as borrowers 
under the InterFund Program. 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.
    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 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 
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 borrowings 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 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,'' 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 Team, as defined below, on each day 
an InterFund Loan is made according to a formula established by each 
Fund's Board of Trustees, Board of Directors or Board of Managers, as 
applicable (each a ``Board,'' and collectively the ``Boards'') 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

[[Page 53514]]

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 and/or their affiliates' 
administrative and other personnel (the ``InterFund Program Team''), 
which may include one or more investment professionals, including 
individuals involved in making investment decisions regarding short-
term investments in the Money Market Funds (``Money Market portfolio 
managers''), would administer the InterFund Program. No portfolio 
manager of any Fund, (other than Money Market portfolio managers) would 
serve as a member of the InterFund Program Team. 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. All allocations made by the InterFund Program Team will require 
the approval by at least one member of the InterFund Program Team who 
is a high level employee, other than a Money Market portfolio manager. 
Applicants anticipate that there typically will be 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) 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 
charged.
    12. The Advisers, through the InterFund Program Team, would 
administer the InterFund Program as disinterested fiduciaries as part 
of their duties under the investment management and administrative 
agreements with each Fund and would receive no additional fee as 
compensation for their services in connection with the administration 
of the InterFund Program. The Funds will bear transaction costs, 
including, without limitation, transaction, wire and other fees in 
connection with the facility, none of which would be paid to an 
Adviser. Such costs and fees would be no higher than those applicable 
for comparable bank loan transactions.
    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 prospectus 
and/or statement of additional information; 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 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, directors, 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

[[Page 53515]]

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 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 submit that the requested 
exemptions meet the standards set forth in sections 6(c), 12(d)(1)(J) 
and 17(b) of the Act and rule 17d-1 under the Act. Applicants also 
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 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.

[[Page 53516]]

    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 borrowing; (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 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 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 the 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: (a) Repay all its outstanding InterFund Loans; (b) 
reduce its outstanding indebtedness to 10% or less of its total assets; 
or (c) 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 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 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 (other than a Money Market 
portfolio manager acting in his or her capacity as a member of the 
InterFund Program Team). All allocations will require the approval of 
at least one member of the InterFund Program Team who is high level 
employee and is not a Money Market 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 (except to the extent that a Money Market portfolio 
manager has access to loan demand data). After the InterFund Program 
Team has allocated cash for InterFund Loans, any remaining cash will be 
invested 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 
charged 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 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

[[Page 53517]]

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 each 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 registered 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. 2016-19184 Filed 8-11-16; 8:45 am]
BILLING CODE 8011-01-P