[Federal Register Volume 74, Number 105 (Wednesday, June 3, 2009)]
[Notices]
[Pages 26746-26750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-12917]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28748; File No. 812-13551]


The Managers Funds, et al.; Notice of Application

May 28, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under (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: The Managers Funds, Managers AMG Funds, Managers Trust 
I, and Managers Trust II (each, a ``Trust,'' and collectively, the 
``Trusts''), and Managers Investment Group LLC (``Managers'').
    Filing Dates: The application was filed on July 24, 2008, and 
amended on January 22, 2009, May 11, 2009, and May 27, 2009.
    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 22, 2009 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 
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, 800 Connecticut 
Avenue, Norwalk, CT 06854-2325.

FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Attorney Adviser, at 
(202) 551-6826, or, Julia Kim Gilmer, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Each Trust is organized as a Massachusetts business trust and is 
registered under the Act as an open-end management investment 
company.\1\ Each Trust consists of one or more series (``Funds''). 
Managers, a Delaware limited liability company and an independently 
managed subsidiary of Affiliated Managers Group, Inc., is registered as 
an investment adviser under the Investment Advisers Act of 1940, and 
serves as the investment adviser to, and administrator of, each 
Fund.\2\
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    \1\ Applicants request that the order also apply to any existing 
or future registered management investment company advised by 
Managers, or any entity controlling, controlled by, or under common 
control with Managers, that is in the same ``group of investment 
companies'' as the Trusts, as defined in section 12(d)(1)(G)(ii) of 
the Act (included in the term ``Trusts'').
    \2\ Applicants request that the order also apply to any 
successor entity to Managers. The term ``successor entity'' is 
limited to entities that result 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 some Funds invest their cash 
balances in money market funds or purchase other short-term 
instruments, other Funds may need to rely on custodian overdrafts for 
temporary purposes to satisfy redemption requests, 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.
    3. If a Fund were to incur an overdraft with the custodian bank, 
the Fund would pay interest on the loan at a rate that is significantly 
higher than the rate that is earned by other (non-borrowing) Funds on 
investments in money market funds, or if applicable, other short term 
instruments of the same maturity as the overdraft loan. Applicants 
state that this differential represents the profit earned by the lender 
by way of overdrafts and is not attributable to any material difference 
in the credit quality or risk of such transactions.
    4. Applicants request an order that would permit the Trusts to 
enter into master interfund lending agreements (``Interfund Lending 
Agreements'') with each other on behalf of the Funds that would permit 
each Fund to lend money directly to and borrow directly from other 
Funds through a credit facility for temporary purposes (``Interfund 
Loan''). Applicants state that the proposed credit facility would 
substantially 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 proposed credit facility would 
substantially reduce the Funds' need to borrow through custodian 
overdrafts, the Funds would be free to establish committed lines of 
credit or other borrowing arrangements with unaffiliated banks.
    5. Applicants anticipate that the proposed credit facility 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 and certain Funds have 
insufficient cash on hand to satisfy such redemptions. When the Funds 
liquidate portfolio securities to meet redemption requests, they often 
do not receive payment in settlement for up to three days (or longer 
for certain foreign transactions). However, redemption requests 
normally are effected immediately. The proposed credit facility would 
provide a source of immediate, short-term liquidity pending settlement 
of the sale of portfolio securities.
    6. Applicants also propose that a Fund could use the proposed 
credit 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 bank or improper delivery 
instructions by the broker effecting the transaction. ``Sales fails'' 
may present a cash shortfall if the Fund has undertaken to purchase a 
security using the proceeds from securities sold. Alternatively, the 
Fund could either ``fail'' on its intended purchase due to lack of 
funds from the previous sale, resulting in additional cost to the Fund 
or sell a security on a

[[Page 26747]]

same-day settlement basis, earning a lower return on the investment. 
Use of the proposed credit facility under these circumstances would 
enable the Fund to have access to immediate short-term liquidity 
without the Fund incurring custodian overdraft or other charges.
    7. While bank borrowings generally could supply needed cash to 
cover unanticipated redemptions and sales fails, under the proposed 
credit 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 purchasing shares 
of a money market Fund. Thus, the proposed credit facility would 
benefit both borrowing and lending Funds.
    8. The interest rate to be charged to the Funds on any Interfund 
Loan (the ``Interfund Loan Rate'') would be the average of the ``Repo 
Rate'' and the ``Bank Loan Rate,'' both as defined below. The Repo Rate 
for any day would be the highest or best (after giving effect to 
factors such as the credit quality of the issuer) rate available to a 
lending Fund from investment in overnight repurchase agreements. The 
Bank Loan Rate for any day would be calculated by Managers each day an 
Interfund Loan is made according to a formula established by each 
Trust's board of trustees (``Trustees'') intended to approximate the 
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 200 basis points) and would vary with this 
rate so as to reflect changing bank loan rates. The initial formula and 
any subsequent modifications to the formula would be subject to the 
approval of each Trust's Trustees. Each Trust's Trustees would 
periodically review the continuing appropriateness of using the formula 
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. The initial formula and any subsequent modifications to 
it would subject to the approval of each Trust's Trustees.
    9. The proposed credit facility would be administered by Managers's 
fund administration department (the ``Credit Facility Team''), and no 
portfolio manager for any Fund would serve on the Credit Facility Team. 
Under the proposed credit facility, the portfolio managers for each 
participating Fund could provide standing instructions to participate 
daily as a borrower or lender. The Credit Facility Team on each 
business day would collect data on the uninvested cash and borrowing 
requirements of all participating Funds. Once it determined the 
aggregate amount of cash available for loans and borrowing demand, the 
Credit Facility Team would allocate loans among borrowing Funds without 
any further communication from the portfolio managers of the Funds. 
After the allocating cash for Interfund Loans, the Credit Facility Team 
would invest any remaining cash in accordance with the standing 
instructions of the portfolio managers or such remaining amounts will 
be invested directly by the portfolio managers of the Funds.
    10. The Credit Facility Team would allocate borrowing demand and 
cash available for lending among the Funds on what the Credit Facility 
Team believes to be an equitable basis, subject to certain 
administrative procedures applicable to all Funds, such as the time of 
filing requests to participate, minimum loan lot sizes and the need to 
minimize the number of transactions and associated administrative 
costs. To reduce transaction costs, each 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 each Trust's 
Trustees, including a majority of Trustees who are not ``interested 
persons'' of the Trust, as that term is defined in Section 2(a)(19) of 
the Act (``Independent Trustees''), to ensure that both borrowing and 
lending Funds participate on an equitable basis.
    11. Managers, through the Credit Facility Team, would administer 
the proposed credit facility as a disinterested fiduciary as part of 
its duties under the relevant management, advisory or administrative 
contract with each Fund and would receive no additional fee as 
compensation for its services in connection with the administration of 
the proposed credit facility. Managers would: (i) Monitor the Interfund 
Loan Rate and the other terms and conditions of the loans; (ii) limit 
the borrowings and loans entered into by each Fund to ensure that they 
comply with the Fund's investment policies and limitations; (iii) 
ensure equitable treatment of each Fund; and (iv) make quarterly 
reports to the Trustees concerning any transactions by the Funds under 
the proposed credit facility and the Interfund Loan Rate charged.
    12. No Fund may participate in the proposed credit facility unless: 
(i) The Fund has obtained shareholder approval for its participation, 
if such approval is required by law; (ii) the Fund has fully disclosed 
all material information concerning the credit facility in its 
prospectus and/or statement of additional information; and (iii) the 
Fund's participation in the credit facility is consistent with its 
investment objectives, limitations and organizational documents.
    13. In connection with the credit facility, applicants request an 
order under (a) section 6(c) of the Act granting relief from sections 
18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting 
relief from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of 
the Act granting relief from sections 17(a)(1), 17(a)(2) and 17(a)(3) 
of the Act; and (d) under section 17(d) of the Act and rule 17d-1 under 
the Act to permit certain joint arrangements.

Applicants' Legal Analysis

    1. Section 17(a)(3) of the Act generally prohibits any affiliated 
person, or affiliated person of an affiliated person, from borrowing 
money or other property from a 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 could be deemed to be under common 
control by virtue of having Managers as their common investment adviser 
and/or by reason of having common officers and 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 authorizes the Commission to exempt a proposed 
transaction from the provisions of section 17(a) of the Act 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

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consistent with the policy of the investment company as recited in its 
registration statement and with the general purposes of the Act. 
Applicants assert that the proposed arrangements satisfy these 
standards for the reasons discussed below.
    3. Applicants assert that sections 17(a)(3) and 21(b) were intended 
to prevent a person 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 person and that are detrimental to the best interests of the 
investment company and its shareholders. Applicants assert that the 
proposed credit facility transactions do not raise these concerns 
because: (a) Managers, through the Credit Facility Team, would 
administer the program as a disinterested fiduciary; (b) all Interfund 
Loans would consist only of uninvested cash reserves that a Fund 
otherwise would invest in short-term repurchase agreements or other 
short-term instruments either directly or through a money market fund; 
(c) the Interfund Loans would not involve a significantly greater risk 
than such other investments; (d) the lending Fund would receive 
interest at a rate higher than it could otherwise 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 believe that the other 
terms and conditions in the application 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 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 
makes it unlawful for a registered investment company to purchase or 
otherwise acquire 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 may constitute a security under sections 
17(a)(1) and 12(d)(1). Applicants also state that any pledge of assets 
in connection with an Interfund Loan could be construed as a purchase 
of those assets from the borrowing Fund, and therefore a purchase of 
the borrowing Fund's securities or other property for the 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 other 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 assert that the 
proposed credit facility does not involve these abuses. Applicants note 
that there will be no duplicative costs or fees to the Funds or to the 
Funds' shareholders and that Managers will receive no additional 
compensation for its services in administering the credit facility. 
Applicants also note that the purpose of the proposed credit facility 
is to provide economic benefits for all of the participating Funds.
    7. Section 18(f)(1) of the Act prohibits registered open-end 
investment companies from issuing any senior security except that a 
company is permitted to borrow from any bank, if 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 relief from section 18(f)(1) to the 
limited extent necessary to implement the credit facility (because the 
lending Funds are not banks).
    8. Applicants assert that granting relief under section 6(c) of the 
Act is appropriate because 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 per centum asset coverage. Based on the conditions and 
safeguards described in the application, applicants also assert that to 
allow the Funds to borrow from other Funds pursuant to the proposed 
credit facility is consistent with the purposes and policies of section 
18(f)(1) of the Act.
    9. Section 17(d) and rule 17d-1 generally prohibit any affiliated 
person of a registered investment company, or any affiliated person of 
an affiliated person, when acting as principal, from effecting any 
joint transaction in which the company participates unless the 
transaction is approved by the Commission. Rule 17d-1(b) provides that 
in passing upon applications filed under the rule, the Commission will 
consider whether the participation of a 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 
the company's participation is on a basis different from or less 
advantageous than that of other participants.
    10. Applicants assert that the purpose of section 17(d) is to avoid 
overreaching by and unfair advantage to investment company insiders. 
Applicants believe that the credit 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 fundamental investment 
limitations. Applicants therefore believe that each Fund's 
participation in the credit facility will be on terms that are no 
different from or less advantageous than that of other participating 
Funds.

Applicants' Conditions

    Applicants agree that any order of the Commission 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, the Credit Facility Team will compare the 
Bank

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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, if applicable, the yield of any 
money market fund in which the lending Fund could otherwise invest; and 
(ii) more favorable to the borrowing Fund than the Bank Loan Rate.
    3. If a Fund has outstanding borrowings, any Interfund Loans to the 
Fund: (i) Will be at an interest rate equal to or lower than 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 proposed 
credit 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 proposed credit facility only on a secured basis. A 
Fund may not borrow through the proposed credit facility or from any 
other source if its total outstanding borrowings immediately after such 
borrowing would exceed the limits imposed by section 18 of the Act.
    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 proposed credit 
facility if the loan would cause its aggregate outstanding loans 
through the proposed credit 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 Interfund Loans will be limited to the time 
required to receive payment for securities sold, but in no event more 
than seven days. Loans effected within seven days of each other will be 
treated as separate loan transactions for purposes of this condition.
    9. A Fund's borrowings through the proposed credit 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 proposed credit facility must be 
consistent with its investment objectives, and limitations and 
organizational documents.
    12. The Credit Facility Team will calculate total Fund borrowing 
and lending demand through the proposed credit facility, and allocate 
loans on an equitable basis among the Funds, without the intervention 
of any portfolio manager of the Funds. The Credit Facility Team will 
not solicit cash for the proposed credit facility from any Fund or 
prospectively publish or disseminate loan demand data to portfolio 
managers. The Credit Facility Team will invest any amounts remaining 
after satisfaction of borrowing demand in accordance with the standing 
instructions of the portfolio managers or such remaining amounts will 
be invested directly by the portfolio managers of the Funds.
    13. Managers will monitor the Interfund Loan Rate and the other 
terms and conditions of the Interfund Loans and will make a quarterly 
report to the Trustees of each Trust concerning the participation of 
the Funds in the proposed credit facility and the terms and other 
conditions of any extensions of credit under the credit facility.
    14. The Trustees of each Trust, including a majority of the 
Independent Trustees, will: (i) Review, no less frequently than 
quarterly, each Fund's participation in the proposed credit facility 
during the preceding quarter for compliance with the conditions of any 
order permitting such transactions; (ii) 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 (iii) review, no 
less frequently than annually, the continuing appropriateness of each 
Fund's participation in the proposed credit facility.
    15. In the event an Interfund Loan is not paid according to its 
terms and such 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, Managers will 
promptly refer such loan for arbitration to an independent arbitrator 
selected by the Trustees of each Fund involved in the loan who will 
serve as arbitrator of disputes concerning Interfund Loans.\3\ The 
arbitrator will resolve any problem promptly, and the arbitrator's 
decision will be binding on both Funds. The arbitrator will submit,

[[Page 26750]]

at least annually, a written report to the Trustees 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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    \3\ If the dispute involves Funds with different Trustees, the 
respective Trustees 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 proposed credit 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 on overnight repurchase agreements and 
commercial bank borrowings, the yield of any money market fund in which 
the lending Fund could otherwise invest, and such other information 
presented to the Fund's Trustees in connection with the review required 
by conditions 13 and 14.
    17. Managers will prepare and submit to the Trustees for review an 
initial report describing the operations of the proposed credit 
facility and the procedures to be implemented to ensure that all Funds 
are treated fairly. After the commencement of the proposed credit 
facility, Managers will report on the operations of the proposed credit 
facility at the Trustees' quarterly meetings.
    In addition, for two years following the commencement of the credit 
facility, the independent public accountant for each Fund shall prepare 
an annual report that evaluates Managers' assertion that it has 
established procedures reasonably designed to achieve compliance with 
the terms and conditions of the order. The report will be prepared in 
accordance with the Statements on Standards for Attestation Engagements 
No. 10 and it shall be filed pursuant to Item 77Q3 of Form N-SAR as 
such Statements or Form may be revised, amended or superseded from time 
to time. In particular, the report shall address procedures designed to 
achieve the following objectives: (i) That the Interfund Loan Rate will 
be higher than the Repo Rate, and, if applicable, the yield of the 
money market funds, but lower than the Bank Loan Rate; (ii) compliance 
with the collateral requirements as set forth in the Application; (iii) 
compliance with the percentage limitations on interfund borrowing and 
lending; (iv) allocation of interfund borrowing and lending demand in 
an equitable manner and in accordance with procedures established by 
the Trustees; and (v) 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 auditors, 
in connection with their audit examination of the Fund, will continue 
to review the operation of the proposed credit 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 proposed credit 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.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-12917 Filed 6-2-09; 8:45 am]
BILLING CODE 8010-01-P