81 FR 59688 - Calvert Social Investment Fund, et al.; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 168 (August 30, 2016)

Page Range		59688-59693
FR Document		2016-20738

Federal Register, Volume 81 Issue 168 (Tuesday, August 30, 2016)

[Federal Register Volume 81, Number 168 (Tuesday, August 30, 2016)]
[Notices]
[Pages 59688-59693]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2016-20738]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32234; File No. 812-14529]

Calvert Social Investment Fund, et al.; Notice of Application

August 24, 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.

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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: Calvert Social Investment Fund, Calvert Sage Fund,
Calvert World Values Fund, Inc., Calvert Responsible Index Series,
Inc., Calvert Impact Fund, Inc., The Calvert Fund, Calvert Management
Series, Calvert Variable Series, Inc., and Calvert Variable Products,
Inc. (collectively, the ``Companies''), and Calvert Investment
Management, Inc. (``CIM'').
Filing Dates: The application was filed on August 5, 2015, and
amended on January 19, 2016, and April 28, 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 19, 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

[[Page 59689]]

NE., Washington, DC, 20549-1090; Applicants, c/o Andrew K. Niebler,
Esq., Calvert Investment Management, Inc., 4550 Montgomery Avenue Suite
1000N, Bethesda, MD 20814.

FOR FURTHER INFORMATION CONTACT: Erin C. Loomis, Senior Counsel, at
(202) 551-6721 or Sara Crovitz, Assistant Chief Counsel, at (202) 551-
6862 (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 for 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,
Maryland corporation or Maryland business trust. Each Company is
registered under the Act as an open-end management investment company.
Each Company consists of one or more series, none of which hold
themselves out as money market funds in reliance on rule 2a-7 under the
Act, and each Company may offer additional series in the future. CIM
serves as the investment adviser to the Funds and is a wholly-owned
subsidiary of Calvert Investments, Inc., which is an indirect wholly-
owned subsidiary of Ameritas Mutual Holding Company.\1\ CIM and every
investment adviser to the Funds will be registered as an investment
adviser under the Investment Advisers Act of 1940.
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\1\ Applicants request that the order apply to any registered
open-end management investment company or series thereof (except
with respect to a money market fund) for which CIM 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 CIM or any successor thereto serves as investment adviser
(each a ``Fund,'' and collectively the ``Funds''). 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. The term ``successor'' is limited to any entity that
results from a reorganization into another jurisdiction or a change
in the type of business organization.
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2. At any particular time, while Funds with uninvested cash may
enter into repurchase agreements or purchase other short-term
instruments issued by banks or other entities, other Funds may need to
borrow money from the same or similar banks for temporary purposes to
cover unanticipated cash shortfalls such as a trade ``fail'' in which
cash payment for a security sold by a Fund has been delayed, or for
other temporary purposes. Certain Funds may borrow for investment
purposes; however, such Funds will not borrow from the Facility (as
defined below) for the purposes of leverage. Presently, the Funds have
committed and uncommitted lines of credit with their custodian bank,
which is unaffiliated with the Funds. If a Fund had a temporary cash
need, it could borrow money through the line of credit.
3. If the Funds borrowed under a line of credit from their
custodian bank, the Funds would pay interest on the borrowed cash at a
rate that would be higher than the rate that would be earned by other
(non-borrowing) Funds on the investments in repurchase agreements and
other short-term instruments of the same maturity as the bank loan.
Applicants assert that this differential represents the profit the
banks would earn for serving as a middleman between a borrower and
lender and is not attributable to any material difference in the credit
quality or risk in such transactions. The banks, in effect, would
borrow uninvested cash from some Funds in the form of repurchase
agreements or other short-term obligations and lend cash to other Funds
at a rate higher than the bank's cost of borrowing the cash.
4. The Funds seek to enter into master interfund lending agreements
(``Interfund Lending Agreements'') with each other that would permit
each Fund to lend money directly to and borrow money directly from
other Funds through a credit facility (``Facility'') for temporary
purposes (an ``Interfund Loan''). Applicants assert that the Facility
would both reduce the Funds' potential borrowing costs and enhance the
ability of the lending Funds to earn higher rates of interest on their
short-term lendings. Although the Facility would reduce the Funds' need
to borrow from banks, the Funds would be free to establish and maintain
committed lines of credit or other borrowing arrangements with
unaffiliated banks. The Funds are charged a commitment fee up-front to
obtain the bank's commitment to lend money. These fees must be paid
regardless of whether a Fund borrows any money from the bank. Due to
the up-front costs of these arrangements, the Funds prefer to have
available additional credit arrangements.
5. Applicants anticipate that the Facility will provide a borrowing
Fund with significant savings at times when the cash position of the
Fund is insufficient to meet temporary cash requirements. This
situation could arise when shareholder redemptions exceed anticipated
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). The
redemption requests, however, normally are satisfied promptly upon
receipt. The Facility would provide a source of immediate, short-term
liquidity pending settlement of the sale of portfolio securities.
6. Applicants anticipate that a Fund could use the Facility 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. Under such circumstances, the Fund could: (1) ``fail''
on its intended purchase due to lack of funds from the previous sale,
resulting in additional cost to the Fund, or (2) sell a security on a
same-day settlement basis, earning a lower return on the investment.
Use of the Facility under these circumstances would give the Fund
access to immediate short-term liquidity without incurring custodian
overdraft or other charges.
7. While bank borrowings generally could supply needed cash to
cover unanticipated redemptions and sales fails, the borrowing Funds
would incur commitment fees and/or other charges involved in obtaining
a bank loan. Under the Facility, a borrowing Fund would pay lower
interest rates than those that would be payable under short-term loans
offered by banks. 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 other substantially equivalent short-term investments.
Thus, applicants assert that the Facility would benefit both borrowing
and lending Funds.
8. The interest rate to be charged to the Funds on any Interfund
Loan (``Interfund Loan Rate'') would be determined daily and would be
the average of: (1) The ``Repo Rate,'' as defined below, and (2) the
``Bank Loan Rate,'' as defined below. The ``Repo Rate'' on any day
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 Fund Administration Department (as defined below) on
each day an Interfund Loan is made according to a formula established
by each Fund's board of directors/trustees (``Board'') intended to
approximate the

[[Page 59690]]

lowest interest rate at which bank short-term loans would be available
to the Funds.
The formula would be based upon a publicly available rate (e.g.,
federal funds plus 125 basis points), which rate would vary so as to
reflect changing bank loan rates. The initial formula and any
subsequent modifications to the formula would be subject to the
approval of the Board of each Fund. In addition, the Board of each Fund
periodically would review the continuing appropriateness of reliance on
the publicly available rate 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 Funds. Applicants assert that
the continual adjustment of the Bank Loan Rate to reflect changes to
prevailing bank loan rates and the periodic review by the Board of each
Fund of the relationship between current bank rates and the Bank Loan
Rate, as well as the method of determining the Bank Loan Rate, should
ensure that the Bank Loan Rate reflects current market rates.
9. The Facility would be administered by officers and employees of
the Calvert Fund Administration Department (the ``Fund Administration
Department''), which is a part of Calvert Investment Administrative
Services, Inc., an affiliate of CIM. The Fund Administration Department
is responsible for, among other things, ensuring accurate calculation
of Fund net asset values, and preparing Fund financial statements and
other reports. No portfolio manager of any Fund will serve in the Fund
Administration Department. The Facility would be available to any Fund.
On any day on which a Fund intends to borrow money, the Fund
Administration Department would make an Interfund Loan from a lending
Fund to a borrowing Fund only if the Interfund Loan Rate is: (1) More
favorable to the lending Fund than the Repo Rate and (2) more favorable
to the borrowing Fund than the Bank Loan Rate. Under the Facility, the
portfolio managers for each participating Fund could provide standing
instructions to participate in the Facility daily as a borrower or
lender. The Fund Administration Department on each business day would
collect data on the uninvested cash and borrowing requirements of all
participating Funds. The Fund Administration Department would not
solicit cash for loans from any Fund or prospectively publish or
disseminate the amount of current borrowing demand to portfolio
managers. Once it had determined the aggregate amount of cash available
for loans and borrowing demand, the Fund Administration Department
would allocate loans among borrowing Funds without any further
communication from the portfolio managers of the Funds. Applicants
anticipate that there typically will be far more available uninvested
cash each day than borrowing demand. Therefore, after the Fund
Administration Department has allocated cash for Interfund Loans, any
remaining cash will be invested 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.
10. The Fund Administration Department would allocate borrowing
demand and cash available for lending among the Funds on what the Fund
Administration Department believes to be an equitable basis, subject to
certain administrative procedures applicable to all Funds, such as: (1)
The time of filing requests to participate, (2) minimum loan lot sizes,
and (3) the need to minimize the number of transactions and associated
administrative costs. To reduce transaction costs, each 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 Board of each Fund, including a majority of the members of the
Board 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.
11. The Fund Administration Department would: (1) Monitor the
interest rates charged and the other terms and conditions of the loans;
(2) limit the borrowings and loans entered into by each Fund to ensure
that they comply with the Fund's investment policies and limitations;
(3) ensure equitable treatment of each Fund; and (4) make quarterly
reports to each Fund's Board concerning any transactions by the Fund
under the Facility and the Interfund Loan Rate charged.
12. CIM, through the Fund Administration Department, would
administer the Facility as a disinterested fiduciary as part of its
duties under the investment management and administrative agreements
with each Fund and would receive no additional fee as compensation in
connection with the administration of the Facility.
13. No Fund may participate in the Facility unless: (1) The Fund
has obtained shareholder approval for its participation, if such
approval is required by law; (2) the Fund has fully disclosed all
material information concerning the Facility in its prospectus and/or
statement of additional information; and (3) the Fund's participation
in the credit facility is consistent with its investment objective,
limitations, and organizational documents.
14. As part of the Board's review of the continuing appropriateness
of a Fund's participation in the Facility as required by condition 14,
the Board of each Fund, including a majority of 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 Facility, applicants seek an order
pursuant to section 6(c) of the Act exempting them from the provisions
of section 18(f) and 21(b) of the Act; pursuant to section 12(d)(1)(J)
of the Act exempting them from the provisions of section 12(d)(1) of
the Act; pursuant to sections 6(c) and 17(b) of the Act exempting them
from the provisions of 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
thereunder, to permit certain joint arrangements and to allow them to
participate in the Facility.

Applicants' Legal Analysis

1. Section 17(a)(3) of the Act generally prohibits any affiliated
person of a registered investment company, or any affiliated person of
such a 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 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 situations 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
and thus ``affiliated persons'' of

[[Page 59691]]

each other within the meaning of that term under section 2(a)(3) of the
Act by virtue of having CIM as their common investment adviser and/or
by reason of having common officers, directors and/or trustees.
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 generally provides that the Commission may
exempt a proposed transaction from the provisions of section 17(a)
provided that: (i) 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; (ii) the
transaction is consistent with the policy of the investment company as
recited in its registration statement and reports filed under the Act;
and (iii) the transaction is consistent 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
Facility transactions do not raise these concerns because: (i) CIM,
through the Fund Administration Department, would administer the
program as a disinterested fiduciary as part of its duties under the
investment management and administrative service agreements with each
Fund; (ii) all Interfund Loans would consist only of uninvested cash
reserves that the lending Fund otherwise would invest in short-term
repurchase agreements or other short-term instruments; (iii) the
Interfund Loans would not involve a significantly greater risk than
other such investments; (iv) the lending Fund would earn interest at a
rate higher than it could otherwise obtain through such other
investments; and (v) the borrowing Fund would pay interest at a rate
lower than otherwise available to it under its bank loan agreements and
avoid the up-front commitment fees 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 any 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 any
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 any 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) of the Act. Applicants
also state that a pledge of assets in connection with an Interfund Loan
could be construed as a purchase of the borrowing Fund's securities or
other property for purposes of section 17(a)(2) of the Act. Section
12(d)(1)(J) of the Act provides that the Commission may exempt persons
or transactions from any provision of section 12(d)(1) if and to the
extent that such exemption is consistent with the public interest and
the protection of investors. Applicants contend that the standards
under sections 6(c), 17(b), and 12(d)(1)(J) are satisfied for all the
reasons set forth above in support of their request for relief from
sections 17(a)(3) and 21(b) and for the reasons discussed below.
Applicants 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 investments. Applicants submit that the Facility
does not involve these abuses. Applicants note that there will be no
duplicative costs or fees to the Funds or their shareholders, and that
CIM, through the Fund Administration Department, will receive no
additional compensation for their services in connection with the
administration of the Facility. Applicants also note that the purpose
of the Facility is to provide economic benefits for all the
participating Funds and their shareholders.
7. Section 18(f)(1) of the Act prohibits any open-end investment
company from issuing any senior security except that any such 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 permit a Fund
to borrow directly from other Funds.
8. Applicants believe that granting relief under section 6(c) is
appropriate because the Funds would remain subject to the requirement
of section 18(f)(1) that all borrowings of a Fund, including combined
interfund 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 Facility is consistent with the purposes and
policies of section 18(f)(1).
9. Section 17(d) of the Act and rule 17d-1 under the Act generally
prohibit any affiliated person of a registered investment company, or
any affiliated person of such a person, when acting as principal, from
effecting any transaction in which the investment company is a joint,
or joint and several participant, unless, upon application, the
transaction has been approved by an order of the Commission. Rule 17d-
1(b) under the Act provides that in passing upon an application filed
under the rule, the Commission will consider whether the participation
of the registered investment company in a joint enterprise, joint
arrangement, or profit-sharing plan on the basis proposed is consistent
with the provisions, policies and purposes of the Act and the extent to
which such participation is on a basis different from or less
advantageous than that of the other participants.
10. Applicants assert that the purpose of section 17(d) is to avoid
overreaching

[[Page 59692]]

and unfair advantage to insiders. Applicants assert that the Facility
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 limitations. Applicants assert that each Fund's participation in
the Facility 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
Bank Loan Rate.
2. On each business day, the Fund Administration Department will
compare the Bank Loan Rate with the Repo Rate and will make cash
available for Interfund Loans only if the Interfund Loan Rate is: (i)
More favorable to the lending Fund than the Repo Rate; and (ii) more
favorable to the borrowing Fund than the Bank Loan Rate.
3. If a Fund has outstanding bank borrowings, any Interfund Loans
to the Fund: (i) Will be at an interest rate equal to or lower than the
interest rate of any outstanding bank loan, (ii) will be secured at
least on an equal priority basis with at least an equivalent percentage
of collateral to loan value as any outstanding bank loan that requires
collateral, (iii) will have a maturity no longer than any outstanding
bank loan (and in any event not over seven days), and (iv) will provide
that, if an event of default by the Fund 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 right to call its
loan under its agreement with the borrowing Fund.
4. A Fund may make an unsecured borrowing through the Facility if
its outstanding borrowings from all sources immediately after the
interfund borrowing total 10% or less 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 interfund
borrowing 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 an interfund borrowing would
be greater than 10% of its total assets, the Fund may borrow through
the Facility on a secured basis only. A Fund may not borrow through the
Facility or from any other source if its total outstanding borrowings
immediately after the interfund 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: (i) Repay all its outstanding Interfund Loans,
(ii) reduce its outstanding indebtedness to 10% or less of its total
assets, or (iii) secure each outstanding Interfund Loan by the pledge
of segregated collateral with a market value at least equal to 102% of
the outstanding principal value of the loan until the Fund's total
outstanding borrowings cease to exceed 10% of its total assets, at
which time the collateral called for by this condition 5 shall no
longer be required. Until each Interfund Loan that is outstanding at
any time that a Fund's total outstanding borrowings exceed 10% 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 Facility if the
loan would cause its aggregate outstanding loans through the Facility
to exceed 15% of the lending Fund's 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 the 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 8.
9. A Fund's borrowings through the Facility, 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 Facility must be consistent with
its investment objectives and limitations and organizational documents.
12. The Fund Administration Department will calculate total Fund
borrowing and lending demand through the Facility and allocate loans on
an equitable basis among the Funds without the intervention of any
portfolio manager of the Funds. The Fund Administration Department will
not solicit cash for the Facility from any Fund or prospectively
publish or disseminate loan demand data to portfolio managers. The Fund
Administration Department will invest any 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 Fund Administration Department will monitor the Interfund
Loan Rate and the other terms and conditions of the Interfund Loans
and, CIM, through the Fund Administration Department, will make a
quarterly report to the Board of each Fund concerning the participation
of the Fund in the Facility and the terms and other conditions of any
extension of credit under the Facility.
14. The Board of each Fund, including a majority of Independent
Board Members, will:
(a) Review, no less frequently than quarterly, the relevant Fund's
participation in the Facility during the preceding quarter for
compliance with the conditions of any order permitting such
transactions;
(b) establish the Bank Loan Rate formula used to determine the
interest rate on Interfund Loans and review, no less frequently than
annually, the continuing appropriateness of the Bank Loan Rate formula;
and
(c) review, no less frequently than annually, the continuing

[[Page 59693]]

appropriateness of the relevant Fund's participation in the Facility.
15. 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, CIM will
promptly refer the loan for arbitration to an independent arbitrator
selected by the Board of each Fund involved in the loan who will serve
as arbitrator of disputes concerning Interfund Loans.\2\ 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 involved to resolve the dispute.
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\2\ If the dispute involves Funds with different Boards, the
Board of each Fund will select an independent arbitrator that is
satisfactory to each Fund.
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16. 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 Facility 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 transactions, 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 Fund's Board in connection with the review required by
conditions 13 and 14.
17. The Fund Administration Department will prepare and submit
(through CIM) to the Board of each Fund for review an initial report
describing the operations of the Facility and the procedures to be
implemented to ensure that all Funds are treated fairly. After
commencement of the Facility, the Fund Administration Department will
report on the operations of the credit facility at each Board's
quarterly meetings. In addition, 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
Facility, which report 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 Facility, that certifies
that the Fund and CIM have established 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 of each Fund; and (e) that the
Interfund Loan Rate does not exceed the interest rate on any third
party borrowings of a borrowing Fund at the time of the Interfund Loan.
Additionally, each Fund's independent public accountants, in
connection with their audit examinations of the Fund, will review the
operation of the Facility 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 Facility 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. 2016-20738 Filed 8-29-16; 8:45 am]
BILLING CODE 8011-01-P

59690 Federal Register / Vol. 81, No. 168 / Tuesday, August 30, 2016 / Notices

lowest interest rate at which bank short- loans and borrowing demand, the Fund obtained shareholder approval for its
term loans would be available to the Administration Department would participation, if such approval is
Funds. allocate loans among borrowing Funds required by law; (2) the Fund has fully
The formula would be based upon a without any further communication disclosed all material information
publicly available rate (e.g., federal from the portfolio managers of the concerning the Facility in its prospectus
funds plus 125 basis points), which rate Funds. Applicants anticipate that there and/or statement of additional
would vary so as to reflect changing typically will be far more available information; and (3) the Fund’s
bank loan rates. The initial formula and uninvested cash each day than participation in the credit facility is
any subsequent modifications to the borrowing demand. Therefore, after the consistent with its investment objective,
formula would be subject to the Fund Administration Department has limitations, and organizational
approval of the Board of each Fund. In allocated cash for Interfund Loans, any documents.
addition, the Board of each Fund remaining cash will be invested in 14. As part of the Board’s review of
periodically would review the accordance with the instructions of each the continuing appropriateness of a
continuing appropriateness of reliance relevant portfolio manager or such Fund’s participation in the Facility as
on the publicly available rate used to remaining amounts will be invested required by condition 14, the Board of
determine the Bank Loan Rate, as well directly by the portfolio managers of the each Fund, including a majority of
as the relationship between the Bank Funds. Independent Board Members, also will
Loan Rate and current bank loan rates 10. The Fund Administration review the process in place to
that would be available to the Funds. Department would allocate borrowing appropriately assess: (i) If the Fund
Applicants assert that the continual demand and cash available for lending participates as a lender, any effect its
adjustment of the Bank Loan Rate to among the Funds on what the Fund participation may have on the Fund’s
reflect changes to prevailing bank loan Administration Department believes to liquidity risk; and (ii) if the Fund
rates and the periodic review by the be an equitable basis, subject to certain participates as a borrower, whether the
Board of each Fund of the relationship administrative procedures applicable to Fund’s portfolio liquidity is sufficient to
between current bank rates and the all Funds, such as: (1) The time of filing satisfy its obligations under the Facility
Bank Loan Rate, as well as the method requests to participate, (2) minimum along with its other liquidity needs.
of determining the Bank Loan Rate, loan lot sizes, and (3) the need to 15. In connection with the Facility,
should ensure that the Bank Loan Rate minimize the number of transactions applicants seek an order pursuant to
reflects current market rates. and associated administrative costs. To section 6(c) of the Act exempting them
9. The Facility would be administered reduce transaction costs, each loan from the provisions of section 18(f) and
by officers and employees of the Calvert normally would be allocated in a 21(b) of the Act; pursuant to section
Fund Administration Department (the manner intended to minimize the 12(d)(1)(J) of the Act exempting them
‘‘Fund Administration Department’’), number of participants necessary to from the provisions of section 12(d)(1)
which is a part of Calvert Investment complete the loan transaction. The of the Act; pursuant to sections 6(c) and
Administrative Services, Inc., an method of allocation and related 17(b) of the Act exempting them from
affiliate of CIM. The Fund administrative procedures would be the provisions of sections 17(a)(1),
Administration Department is approved by the Board of each Fund, 17(a)(2), and 17(a)(3) of the Act; and
responsible for, among other things, including a majority of the members of pursuant to section 17(d) of the Act and
ensuring accurate calculation of Fund the Board who are not ‘‘interested rule 17d–1 thereunder, to permit certain
net asset values, and preparing Fund persons’’ of the Fund, as that term is joint arrangements and to allow them to
financial statements and other reports. defined in section 2(a)(19) of the Act participate in the Facility.
No portfolio manager of any Fund will (‘‘Independent Board Members’’), to Applicants’ Legal Analysis
serve in the Fund Administration ensure that both borrowing and lending
Department. The Facility would be Funds participate on an equitable basis. 1. Section 17(a)(3) of the Act generally
available to any Fund. On any day on 11. The Fund Administration prohibits any affiliated person of a
which a Fund intends to borrow money, Department would: (1) Monitor the registered investment company, or any
the Fund Administration Department interest rates charged and the other affiliated person of such a person, from
would make an Interfund Loan from a terms and conditions of the loans; (2) borrowing money or other property from
lending Fund to a borrowing Fund only limit the borrowings and loans entered the registered investment company.
if the Interfund Loan Rate is: (1) More into by each Fund to ensure that they Section 21(b) of the Act generally
favorable to the lending Fund than the comply with the Fund’s investment prohibits any registered management
Repo Rate and (2) more favorable to the policies and limitations; (3) ensure company from lending money or other
borrowing Fund than the Bank Loan equitable treatment of each Fund; and property to any person if that person
Rate. Under the Facility, the portfolio (4) make quarterly reports to each controls or is under common control
managers for each participating Fund Fund’s Board concerning any with that company. Section 2(a)(3)(C) of
could provide standing instructions to transactions by the Fund under the the Act defines an ‘‘affiliated person’’ of
participate in the Facility daily as a Facility and the Interfund Loan Rate another person, in part, to be any person
borrower or lender. The Fund charged. directly or indirectly controlling,
Administration Department on each 12. CIM, through the Fund controlled by, or under common control
business day would collect data on the Administration Department, would with, such other person. Section 2(a)(9)
uninvested cash and borrowing administer the Facility as a disinterested of the Act defines ‘‘control’’ as the
requirements of all participating Funds. fiduciary as part of its duties under the ‘‘power to exercise a controlling
mstockstill on DSK3G9T082PROD with NOTICES

The Fund Administration Department investment management and influence over the management or
would not solicit cash for loans from administrative agreements with each policies of a company,’’ but excludes
any Fund or prospectively publish or Fund and would receive no additional situations in which ‘‘such power is
disseminate the amount of current fee as compensation in connection with solely the result of an official position
borrowing demand to portfolio the administration of the Facility. with such company.’’ Applicants state
managers. Once it had determined the 13. No Fund may participate in the that the Funds may be under common
aggregate amount of cash available for Facility unless: (1) The Fund has control and thus ‘‘affiliated persons’’ of

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Federal Register / Vol. 81, No. 168 / Tuesday, August 30, 2016 / Notices 59691

each other within the meaning of that credit. Moreover, applicants assert that duplicative costs or fees to the Funds or
term under section 2(a)(3) of the Act by the other terms and conditions that their shareholders, and that CIM,
virtue of having CIM as their common applicants propose also would through the Fund Administration
investment adviser and/or by reason of effectively preclude the possibility of Department, will receive no additional
having common officers, directors and/ any Fund obtaining an undue advantage compensation for their services in
or trustees. over any other Fund. connection with the administration of
2. Section 6(c) of the Act provides that 4. Section 17(a)(1) of the Act generally the Facility. Applicants also note that
an exemptive order may be granted prohibits any affiliated person of a the purpose of the Facility is to provide
where an exemption is necessary or registered investment company, or any economic benefits for all the
appropriate in the public interest and affiliated person of such a person, from participating Funds and their
consistent with the protection of selling securities or other property to shareholders.
investors and the purposes fairly the investment company. Section 7. Section 18(f)(1) of the Act prohibits
intended by the policy and provisions of 17(a)(2) of the Act generally prohibits any open-end investment company from
the Act. Section 17(b) of the Act any affiliated person of a registered issuing any senior security except that
generally provides that the Commission investment company, or any affiliated any such company is permitted to
may exempt a proposed transaction person of such a person, from borrow from any bank, provided, that
from the provisions of section 17(a) purchasing securities or other property immediately after the borrowing, there
provided that: (i) The terms of the from the investment company. Section is asset coverage of at least 300 per
transaction, including the consideration 12(d)(1) of the Act generally prohibits centum for all borrowings of the
to be paid or received, are fair and any registered investment company company. Under section 18(g) of the
reasonable and do not involve from purchasing or otherwise acquiring Act, the term ‘‘senior security’’ generally
overreaching on the part of any person any security issued by any other includes any bond, debenture, note or
concerned; (ii) the transaction is investment company except in similar obligation or instrument
consistent with the policy of the accordance with the limitations set forth constituting a security and evidencing
investment company as recited in its in that section. indebtedness. Applicants request
registration statement and reports filed 5. Applicants state that the obligation exemptive relief under section 6(c) from
under the Act; and (iii) the transaction of a borrowing Fund to repay an section 18(f)(1) to the limited extent
is consistent with the general purposes Interfund Loan could be deemed to necessary to permit a Fund to borrow
of the Act. Applicants believe that the constitute a security for the purposes of directly from other Funds.
proposed arrangements satisfy these sections 17(a)(1) and 12(d)(1) of the Act. 8. Applicants believe that granting
standards for the reasons discussed Applicants also state that a pledge of relief under section 6(c) is appropriate
below. assets in connection with an Interfund because the Funds would remain
3. Applicants assert that sections Loan could be construed as a purchase subject to the requirement of section
17(a)(3) and 21(b) of the Act were of the borrowing Fund’s securities or 18(f)(1) that all borrowings of a Fund,
intended to prevent a party with strong other property for purposes of section including combined interfund and bank
potential adverse interests to, and some 17(a)(2) of the Act. Section 12(d)(1)(J) of borrowings, have at least 300% asset
influence over the investment decisions the Act provides that the Commission coverage. Based on the conditions and
of, a registered investment company may exempt persons or transactions safeguards described in the application,
from causing or inducing the investment from any provision of section 12(d)(1) if applicants also submit that to allow the
company to engage in lending and to the extent that such exemption Funds to borrow from other Funds
transactions that unfairly inure to the is consistent with the public interest pursuant to the Facility is consistent
benefit of such party and that are and the protection of investors. with the purposes and policies of
detrimental to the best interests of the Applicants contend that the standards section 18(f)(1).
investment company and its under sections 6(c), 17(b), and 9. Section 17(d) of the Act and rule
shareholders. Applicants assert that the 12(d)(1)(J) are satisfied for all the 17d–1 under the Act generally prohibit
Facility transactions do not raise these reasons set forth above in support of any affiliated person of a registered
concerns because: (i) CIM, through the their request for relief from sections investment company, or any affiliated
Fund Administration Department, 17(a)(3) and 21(b) and for the reasons person of such a person, when acting as
would administer the program as a discussed below. Applicants also state principal, from effecting any transaction
disinterested fiduciary as part of its that the requested relief from section in which the investment company is a
duties under the investment 17(a)(2) of the Act meets the standards joint, or joint and several participant,
management and administrative service of section 6(c) and 17(b) because any unless, upon application, the
agreements with each Fund; (ii) all collateral pledged to secure an Interfund transaction has been approved by an
Interfund Loans would consist only of Loan would be subject to the same order of the Commission. Rule 17d–1(b)
uninvested cash reserves that the conditions imposed by any other lender under the Act provides that in passing
lending Fund otherwise would invest in to a Fund that imposes conditions on upon an application filed under the
short-term repurchase agreements or the quality of or access to collateral for rule, the Commission will consider
other short-term instruments; (iii) the a borrowing (if the lender is another whether the participation of the
Interfund Loans would not involve a Fund) or the same or better conditions registered investment company in a
significantly greater risk than other such (in any other circumstance). joint enterprise, joint arrangement, or
investments; (iv) the lending Fund 6. Applicants state that section profit-sharing plan on the basis
would earn interest at a rate higher than 12(d)(1) was intended to prevent the proposed is consistent with the
mstockstill on DSK3G9T082PROD with NOTICES

it could otherwise obtain through such pyramiding of investment companies in provisions, policies and purposes of the
other investments; and (v) the order to avoid imposing on investors Act and the extent to which such
borrowing Fund would pay interest at a additional and duplicative costs and participation is on a basis different from
rate lower than otherwise available to it fees attendant upon multiple layers of or less advantageous than that of the
under its bank loan agreements and investments. Applicants submit that the other participants.
avoid the up-front commitment fees Facility does not involve these abuses. 10. Applicants assert that the purpose
associated with committed lines of Applicants note that there will be no of section 17(d) is to avoid overreaching

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Federal Register / Vol. 81, No. 168 / Tuesday, August 30, 2016 / Notices 59693

appropriateness of the relevant Fund’s or superseded from time to time, for (’’Act’’),1 and Rule 19b–4 thereunder,2
participation in the Facility. each year that the Fund participates in notice is hereby given that on August
15. In the event an Interfund Loan is the Facility, that certifies that the Fund 12, 2016, NASDAQ PHLX LLC (’’Phlx’’
not paid according to its terms and the and CIM have established procedures or ‘‘Exchange’’) filed with the Securities
default is not cured within two business reasonably designed to achieve and Exchange Commission (’’SEC’’ or
days from its maturity or from the time compliance with the terms and ‘‘Commission’’) the proposed rule
the lending Fund makes a demand for conditions of the order. In particular, change as described in Items I, II, and
payment under the provisions of the such certification will address III, below, which Items have been
Interfund Lending Agreement, CIM will procedures designed to achieve the prepared by the Exchange. The
promptly refer the loan for arbitration to following objectives: (a) That the Commission is publishing this notice to
an independent arbitrator selected by Interfund Loan Rate will be higher than solicit comments on the proposed rule
the Board of each Fund involved in the the Repo Rate, but lower than the Bank change from interested persons.
loan who will serve as arbitrator of Loan Rate; (b) compliance with the I. Self-Regulatory Organization’s
disputes concerning Interfund Loans.2 collateral requirements as set forth in Statement of the Terms of Substance of
The arbitrator will resolve any problem the application; (c) compliance with the the Proposed Rule Change
promptly, and the arbitrator’s decision percentage limitations on interfund
will be binding on both Funds. The borrowing and lending; (d) allocation of The Exchange proposes to amend the
arbitrator will submit, at least annually, interfund borrowing and lending Exchange’s connectivity fees at Chapter
a written report to the Board of each demand in an equitable manner and in VIII of the NASDAQ PHLX LLC Pricing
Fund setting forth a description of the accordance with procedures established Schedule to: (i) limit the total monthly
nature of any dispute and the actions by the Board of each Fund; and (e) that fee a PSX Participant may be assessed
taken by the Funds involved to resolve the Interfund Loan Rate does not exceed for connectivity under the rule; and (ii)
the dispute. the interest rate on any third party provide a waiver of all connectivity fees
16. Each Fund will maintain, and borrowings of a borrowing Fund at the to new PSX Participants for a limited
preserve for a period of not less than six time of the Interfund Loan. time; (iii) eliminate prorated billing; and
years from the end of the fiscal year in Additionally, each Fund’s (iv) change the name of the fees assessed
which any transaction by it under the independent public accountants, in under the rule.
Facility occurred, the first two years in The text of the proposed rule change
connection with their audit
an easily accessible place, written is available on the Exchange’s Web site
examinations of the Fund, will review
records of all such transactions setting at http://nasdaqphlx.cchwallstreet.
the operation of the Facility for
forth a description of the terms of the com/, at the principal office of the
compliance with the conditions of the Exchange, and at the Commission’s
transactions, including the amount, the application and their review will form Public Reference Room.
maturity and the Interfund Loan Rate, the basis, in part, of the auditor’s report
the rate of interest available at the time on internal accounting controls in Form II. Self-Regulatory Organization’s
each Interfund Loan is made on N–SAR. Statement of the Purpose of, and
overnight repurchase agreements and 18. No Fund will participate in the Statutory Basis for, the Proposed Rule
bank borrowings, and such other Facility upon receipt of requisite Change
information presented to the Fund’s regulatory approval unless it has fully In its filing with the Commission, the
Board in connection with the review disclosed in its prospectus and/or Exchange included statements
required by conditions 13 and 14. statement of additional information all concerning the purpose of and basis for
17. The Fund Administration material facts about its intended the proposed rule change. The text of
Department will prepare and submit participation. these statements may be examined at
(through CIM) to the Board of each Fund the places specified in Item IV below.
For the Commission, by the Division of
for review an initial report describing Investment Management, under delegated The Exchange has prepared summaries,
the operations of the Facility and the authority. set forth in sections A, B, and C below,
procedures to be implemented to ensure Robert W. Errett, of the most significant aspects of such
that all Funds are treated fairly. After statements.
Deputy Secretary.
commencement of the Facility, the Fund
[FR Doc. 2016–20738 Filed 8–29–16; 8:45 am] A. Self-Regulatory Organization’s
Administration Department will report
on the operations of the credit facility at BILLING CODE 8011–01–P Statement of the Purpose of, and
each Board’s quarterly meetings. In Statutory Basis for, the Proposed Rule
addition, each Fund’s chief compliance Change
SECURITIES AND EXCHANGE
officer, as defined in rule 38a–1(a)(4) 1. Purpose
COMMISSION
under the Act, shall prepare an annual
The purpose of the proposed rule
report for its Board each year that the
[Release No. 34–78665; File No. SR–Phlx– change is to amend the Exchange’s
Fund participates in the Facility, which
2016–85) connectivity fees under ‘‘Access
report evaluates the Fund’s compliance
Services Fees’’ at Chapter VIII of the
with the terms and conditions of the Self-Regulatory Organizations; NASDAQ PHLX LLC Pricing Schedule
application and the procedures NASDAQ PHLX LLC; Notice of Filing to: (i) limit the total monthly fee a PSX
established to achieve such compliance. and Immediate Effectiveness of Participant may be assessed for
Each Fund’s chief compliance officer
mstockstill on DSK3G9T082PROD with NOTICES

Proposed Rule Change to Amend the connectivity under the rule; (ii) provide
will also annually file a certification Exchange’s Connectivity Fees at a waiver of all connectivity fees to new
pursuant to Item 77Q3 of Form N–SAR, Chapter VIII of the NASDAQ PHLX LLC PSX Participants for a limited time; (iii)
as such Form may be revised, amended, Pricing Schedule eliminate prorated billing; and (iv)
2 If the dispute involves Funds with different
change the name of the fees assessed
August 24, 2016.
Boards, the Board of each Fund will select an
independent arbitrator that is satisfactory to each
Pursuant to Section 19(b)(1) of the 1 15 U.S.C. 78s(b)(1).
Fund. Securities Exchange Act of 1934 2 17 CFR 240.19b–4.

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Document Created: 2018-02-09 11:42:55
Document Modified: 2018-02-09 11:42:55

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
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.
Dates		The application was filed on August 5, 2015, and amended on January 19, 2016, and April 28, 2016.
Contact		Erin C. Loomis, Senior Counsel, at (202) 551-6721 or Sara Crovitz, Assistant Chief Counsel, at (202) 551- 6862 (Division of Investment Management, Chief Counsel's Office).
FR Citation		81 FR 59688