[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Notices]
[Pages 53512-53517]
[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,

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<PHONE_NUMBER>
(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<PHONE_NUMBER>.

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

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

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.

    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

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