Ivy Funds, et al.; Notice of Application, 32779-32784 [2014-13104]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 109 (Friday, June 6, 2014)]
[Notices]
[Pages 32779-32784]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-13104]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31068; File No. 812-14216]


Ivy Funds, et al.; Notice of Application

June 2, 2014.
AGENCY:  Securities and Exchange Commission (``Commission'').

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

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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: Ivy Funds, Ivy Funds Variable Insurance Portfolios, 
InvestEd Portfolios, Waddell & Reed Advisors Funds (each a ``Fund'' and 
collectively the ``Funds''), Ivy Investment Management Company 
(``IICO''), Waddell & Reed Investment Management Company (``WRIMCO'').

DATES:  Filing Dates: The application was filed on September 25, 2013, 
and amended on March 12, 2014.
    Hearing or Notification of Hearing: An order granting the 
application 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 June 27, 2014, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request

[[Page 32780]]

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: 6300 Lamar Avenue, 
Overland Park, Kansas 66202.

FOR FURTHER INFORMATION CONTACT:  Barbara T. Heussler, Senior Counsel, 
at (202) 551-6990 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 https://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Each Fund is a Delaware statutory trust and is registered with 
the Commission as an open-end management investment company. Each Fund 
has issued one or more series having a different investment objective 
and different investment policies and each such series is deemed to be 
a Fund. Certain of the Funds either are or may be money market funds 
that comply with rule 2a-7 of the Act (the ``Money Market Funds'' and 
included in the term ``Funds''). IICO is a Delaware corporation and 
WRIMCO is a Kansas corporation, and each is registered as an investment 
adviser under the Investment Advisers Act of 1940 (``Advisers Act''). 
IICO is a wholly-owned subsidiary of Waddell & Reed Financial, Inc. 
(``WDR'') and WRIMCO is an indirect wholly-owned subsidiary of WDR. 
Each Fund is or will be advised by an Adviser.\1\
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    \1\ Applicants request that the order also apply to any existing 
or future series of the Funds and to any other registered open-end 
management investment company or its series for which IICO or WRIMCO 
and each successor thereto or a person controlling, controlled by, 
or under common control (within the meaning of section 2(a)(9) of 
the Act) with IICO or WRIMCO serves as investment adviser (each an 
``Adviser'' and collectively, the ``Advisers''). Any Adviser will be 
registered as an investment adviser under the Advisers Act. All 
Funds that currently intend to rely on the requested order have been 
named as applicants and any other Fund that relies on the requested 
order in the future will comply with the terms and conditions of the 
application. A ``successor'' is defined as any entity resulting from 
a reorganization of either IICO or WRIMCO into another jurisdiction 
or a change in the type of business organization.
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    2. At any particular time, those Funds with uninvested cash may 
lend money to banks or other entities by entering into repurchase 
agreements or purchasing other short-term instruments. At the same 
time, other Funds may need to borrow money from the same or similar 
banks for temporary purposes to satisfy redemption requests, to cover 
unanticipated cash shortfalls such as a trade ``fail'' or for other 
temporary purposes. The Funds currently are not parties to any credit 
facilities with banks. The Funds have an overdraft facility with their 
custodian.
    3. The Funds seek to enter into a master interfund lending 
agreement (``Interfund Lending Agreement'') with each other that will 
allow each Fund to lend to and borrow money directly from each other 
for temporary purposes (``Interfund Program'' and each loan, an 
``Interfund Loan''). The Money Market Funds typically will not 
participate as borrowers under the Interfund Program but may do so if 
it is determined to be in the best interests of such Funds by the 
applicable Adviser and its respective portfolio manager(s). Applicants 
state that the Interfund Program would enable the Funds to access an 
available source of money and reduce costs incurred by the Funds that 
need to obtain loans for temporary purposes and permit those Funds that 
have cash available: (i) To earn a return on the money that they might 
not otherwise be able to invest; or (ii) to earn a higher rate of 
interest on investment of their short-term balances. Although the 
proposed Interfund Program would reduce the Funds' need to borrow 
through custodian overdrafts, in the future, the Funds would be free to 
establish committed lines of credit or other borrowing arrangements 
with banks.
    4. Applicants anticipate that the Interfund Program would provide a 
borrowing Fund with significant savings 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 volumes, such as during periods when shareholders 
redeem from the Funds in connection with the periodic re-balancing of 
their portfolios, and certain Funds have insufficient cash on hand to 
satisfy such redemptions. Another example could arise if shareholder 
redemption requests dramatically increase during a period of unusual 
market activity and cause the Funds to require short-term liquidity. 
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, a 
significant amount of redemption requests normally are effected on a 
trade date plus 1 (T+1) basis. The proposed Interfund Program would 
provide a source of immediate, short-term liquidity pending settlement 
of the sale of portfolio securities.
    5. Applicants also anticipate that a Fund could use the Interfund 
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 securities using the 
proceeds from securities sold. Alternatively, a 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.
    6. While custodian overdrafts generally could supply Funds with 
needed cash to cover unanticipated redemptions and ``sales fails,'' 
under the proposed Interfund Program, a borrowing Fund would pay lower 
interest rates than those that would be payable under an overdraft with 
the custodian. In addition, Funds making short-term cash loans directly 
to other Funds would earn interest at a rate higher than they otherwise 
could obtain from investing their cash in overnight repurchase 
agreements or other substantially equivalent short-term investments. 
Thus, applicants assert that the proposed Interfund Program would 
benefit both borrowing and lending Funds.
    7. The interest rate charged to the Funds on any Interfund Loan 
(the ``Interfund Loan Rate'') would be determined daily by the 
Interfund Lending Team (as defined below) and will consist of the 
average of the ``Repo Rate'' and the ``Bank Loan Rate,'' both as 
defined below. The Repo Rate would be the highest rate available to a 
lending Fund from investing in overnight repurchase agreements. The 
Bank Loan Rate for any day would be calculated by the Interfund Lending 
Team 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

[[Page 32781]]

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.
    8. Investment professionals and administrative personnel from the 
Advisers and their affiliates (the ``Interfund Lending Team'') will 
administer the Interfund Program. No portfolio manager of any Fund will 
serve as a member of the Interfund Lending Team. Under the proposed 
Interfund Program, portfolio managers for each participating Fund would 
have the ability to provide standing instructions to participate daily 
as a borrower or lender. The Interfund Lending Team on each business 
day would collect data on the uninvested cash and borrowing 
requirements of all participating Funds. Once the Interfund Lending 
Team has determined the aggregate amount of cash available for loans 
and borrowing demand, the Interfund Lending Team will allocate loans 
among borrowing Funds without any further communication from the 
portfolio managers of the Funds. Applicants anticipate that there 
typically will be far more available uninvested cash each day than 
borrowing demand. Therefore, after the Interfund Lending Team has 
allocated cash for Interfund Loans, the Interfund Lending Team will 
invest any remaining cash in accordance with the instructions of each 
relevant portfolio manager or such remaining amounts will be invested 
directly by the portfolio managers of the Funds.
    9. The Interfund Lending Team will allocate borrowing demand and 
cash available for lending among the Funds on what the Interfund 
Lending Team believes to be an equitable basis, subject to certain 
administrative procedures applicable to all Funds, such as (i) the time 
a Fund files a request to participate, (ii) minimum loan lot sizes, and 
(iii) the need to minimize the number of transactions and associated 
administrative costs. To reduce transaction costs, each Interfund Loan 
normally will 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 of each Fund, including a 
majority of the Board members who are not ``interested persons'' of the 
Fund, as that term is 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.
    10. The Interfund Lending Team would: (a) Monitor the Interfund 
Loan Rates charged 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.
    11. The Advisers, through the Interfund Lending Team, would 
administer the Interfund Program as disinterested fiduciaries as part 
of their duties under the investment management agreement with each 
Fund and would receive no additional fee as compensation for their 
services in connection with the administration of the Interfund 
Program.
    12. 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, limitations and organizational documents.
    13. 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 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 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 Lending Team, 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-

[[Page 32782]]

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 such other 
investments; and (e) the borrowing Fund would pay interest at a rate 
lower than otherwise available to it through custodian overdrafts and 
avoid the up-front commitment fees generally associated with committed 
lines of credit. Moreover, applicants assert that the other terms and 
conditions that applicants propose also would effectively preclude the 
possibility of any Fund obtaining an undue advantage over any other 
Fund.
    4. Section 17(a)(1) of the Act generally prohibits an affiliated 
person of a registered investment company, or any affiliated person of 
such a person, from selling securities or other property to the 
investment company. Section 17(a)(2) of the Act generally prohibits an 
affiliated person of a registered investment company, or any affiliated 
person of such a person, from purchasing securities or other property 
from the investment company. Section 12(d)(1) of the Act generally 
prohibits a registered investment company from purchasing or otherwise 
acquiring any security issued by any other investment company except in 
accordance with the limitations set forth in that section.
    5. Applicants state that the obligation of a borrowing Fund to 
repay an Interfund Loan could be deemed to constitute a security for 
the purposes of sections 17(a)(1) and 12(d)(1). Applicants also state 
that any pledge of securities to secure an Interfund Loan by the 
borrowing Fund to the lending Fund could constitute a purchase of 
securities for purposes of section 17(a)(2) of the Act. Section 
12(d)(1)(J) of the Act provides that the Commission may exempt persons 
or transactions from any provision of section 12(d)(1) if and to the 
extent that such exemption is consistent with the public interest and 
the protection of investors. Applicants submit that the requested 
exemptions from sections 17(a)(1), 17(a)(2) and 12(d)(1) are 
appropriate in the public interest, and consistent with the protection 
of investors and policies and purposes of the Act for all the reasons 
set forth above in support of their request for relief from sections 
17(a)(3) and 21(b) and for the reasons discussed below. Applicants 
state that the requested relief from section 17(a)(2) of the Act meets 
the standards of section 6(c) and 17(b) because any collateral pledged 
to secure an Interfund Loan would be subject to the same conditions 
imposed by any other lender to a Fund that imposes conditions on the 
quality of or access to collateral for a borrowing (if the lender is 
another Fund) or the same or better conditions (in any other 
circumstance).
    6. Applicants state that section 12(d)(1) was intended to prevent 
the pyramiding of investment companies in order to avoid imposing on 
investors additional and duplicative costs and fees attendant upon 
multiple layers of investment companies. Applicants submit that the 
proposed Interfund Program does not involve these abuses. Applicants 
note that there will be no duplicative costs or fees to the Funds or 
their shareholders, and that each Adviser will receive no additional 
compensation for its services in administering the Interfund Program. 
Applicants also note that the purpose of 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 implement the 
Interfund Program (because the lending Funds are not banks). The Funds 
would remain subject to the requirement of section 18(f)(1) of the Act 
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 
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 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 Lending Team will compare the Bank Loan Rate with the Repo 
Rate and will make cash available for Interfund Loans only if the 
Interfund Loan Rate is: (a) More favorable to the lending Fund than the 
Repo Rate; and (b) more favorable to the borrowing Fund than the Bank 
Loan Rate.
    3. If a Fund has outstanding bank borrowings, any Interfund Loan to 
the Fund will: (a) Be at an interest rate equal to or lower than the 
interest rate of any outstanding bank loan; (b) be secured at least on 
an equal priority basis with at least an equivalent percentage of 
collateral to loan value as any outstanding bank loan that requires 
collateral; (c) have a maturity no longer than any outstanding bank 
loan (and in any event not over seven days); and (d) provide that, if 
an event of default occurs under any agreement evidencing an 
outstanding bank loan to the Fund, that event of default will 
automatically (without need for action or notice by the lending Fund) 
constitute an immediate event of default under the Interfund Lending 
Agreement, entitling the lending Fund to call the Interfund Loan (and 
exercise all rights with respect to any collateral), and that such call 
will be made if the lending bank exercises its

[[Page 32783]]

right to call its loan under its agreement with the borrowing Fund.
    4. A Fund may make an unsecured borrowing under the Interfund 
Program if its outstanding borrowings from all sources immediately 
after the borrowing under the Interfund Program are equal to or less 
than 10% of its total assets, provided that if the Fund has a secured 
loan outstanding from any other lender, including but not limited to 
another Fund, the Fund's borrowing under the Interfund Program 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 Fund's total outstanding borrowings 
immediately after borrowing under the Interfund Program exceed 10% of 
its total assets, the Fund may borrow under the Interfund Program on a 
secured basis only. A Fund may not borrow under 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.
    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, the Fund 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: (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% 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 Loan.
    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. The 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 Lending 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 
Lending 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 Lending Team will invest 
all amounts remaining after satisfaction of borrowing demand in 
accordance with the instructions of each relevant portfolio manager or 
such remaining amounts will be invested directly by the portfolio 
managers of the Funds.
    13. The Interfund Lending 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 of the Funds 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 of each Fund, including a majority of the Independent 
Board Members, will (a) review, no less frequently than quarterly, each 
Fund's participation 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 each Fund's participation in the 
Interfund Program.
    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 borrowing, 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 
promptly will refer the loan for arbitration to an independent 
arbitrator selected by the Board of the Fund involved in the loan, who 
will serve as arbitrator of disputes concerning Interfund Loans.\2\ The 
arbitrator will resolve any dispute promptly, and the arbitrator's 
decision will be binding on both Funds. The arbitrator will submit, at 
least annually, a written report to the Board of each Fund setting 
forth a description of the nature of any dispute and the actions taken 
by the Funds to resolve the dispute.
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    \2\ If the dispute involves Funds that do not have a common 
Board, the Board of each affected Fund will select an independent 
arbitrator that is satisfactory to each Fund.
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    17. The Advisers will prepare and submit to the Board for review an 
initial report describing the operations of the Interfund Program and 
the procedures to be implemented to ensure that all Funds are treated 
fairly. After the commencement of the Interfund Program, the Advisers 
will report on the operations of the Interfund Program at the Board's 
quarterly meetings.

[[Page 32784]]

    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 the Advisers 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.
    After the final report is filed, each Fund's independent public 
auditor, in connection with their audit examination of the Fund, will 
continue to 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.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-13104 Filed 6-5-14; 8:45 am]
BILLING CODE 8011-01-P