Document ID: SEC-2006-1293-0001
Agency: sec
Document Type: Notice
Title: RiverSource Diversified Income Series, Inc., et al.; Notice of Application
Posted Date: 2006-10-04T04:00Z

[Federal Register: October 4, 2006 (Volume 71, Number 192)]
[Notices]               
[Page 58640-58644]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04oc06-97]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27506; 812-12799]

 
RiverSource Diversified Income Series, Inc., et al.; Notice of 
Application

September 28, 2006.
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) 
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 transactions.

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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: RiverSource Diversified Income Series, Inc., 
RiverSource California Tax-Exempt Trust, RiverSource Bond Series, Inc., 
RiverSource Equity Series, Inc., RiverSource High Yield Income Series, 
Inc., RiverSource Government Income Series, Inc., RiverSource Global 
Series, Inc., RiverSource Large Cap Series, Inc., RiverSource Tax-
Exempt Income Series, Inc., RiverSource International Series, Inc., 
RiverSource Investment Series, Inc., RiverSource Strategic Allocation 
Series, Inc., RiverSource Market Advantage Series, Inc., RiverSource 
Money Market Series, Inc., RiverSource Dimensions Series, Inc., 
RiverSource International Managers Series, Inc., RiverSource Managers 
Series, Inc., RiverSource Selected Series, Inc., RiverSource Short Term 
Investments Series, Inc., RiverSource Income Series, Inc., RiverSource 
Strategy Series, Inc., RiverSource Special Tax-Exempt Series Trust, 
RiverSource Tax-Exempt Series, Inc., RiverSource Tax-Exempt Money 
Market Series, Inc., RiverSource Sector Series, Inc., RiverSource 
Variable Portfolio-Income Series, Inc., RiverSource Variable Portfolio-
Investment Series, Inc., RiverSource Variable Portfolio-Managed Series, 
Inc., RiverSource Variable Portfolio-Money Market Series, Inc., 
RiverSource Variable Portfolio-Managers Series, Inc., RiverSource 
Variable Portfolio-Select Series, Inc., RiverSource Retirement Series 
Trust (collectively, the ``Companies''), RiverSource Investments, LLC 
(``RiverSource''), and Ameriprise Financial, Inc. (``Ameriprise'').
    Filing Dates: The application was filed on March 26, 2002, and 
amended on September 27, 2006.
    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 October 23, 2006, 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, Commission, U.S. Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-1090. Applicants: 
Companies, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 
55402-3268; and RiverSource and Ameriprise, 200 Ameriprise Financial 
Center, Minneapolis, MN 55474.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel at 
(202) 551-6873 or Nadya B. Roytblat, Assistant Director, 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

[[Page 58641]]

may be obtained for a fee at the Commission's Public Reference Desk, 
100 F Street, NE., Washington, DC 20549-0102 (tel. (202) 551-5850).

Applicants' Representations

    1. The Companies are organized as Minnesota corporations or 
Massachusetts business trusts and are registered under the Act as open-
end management investment companies.\1\ Most Companies offer one or 
more series, each with a different investment objective and different 
investment policies. RiverSource is registered as an investment adviser 
under the Investment Advisers Act of 1940. RiverSource has entered into 
an investment management services agreement with each Fund. Ameriprise 
serves as the administrator to each Fund under the terms of its 
administrative services agreement with the Fund. RiverSource is a 
wholly-owned subsidiary of Ameriprise.
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    \1\ Applicants request that the order also apply to any existing 
or future series of the Companies and to any other registered open-
end management investment company or its series for which 
RiverSource or a person controlling, controlled by, or under common 
control with RiverSource serves as investment adviser (collectively, 
together with the Companies, the ``Funds''). All existing registered 
investment companies that currently intend to rely on the requested 
order have been named as applicants. Any other existing or future 
Fund that relies on the requested order in the future will comply 
with the terms and conditions of the application.
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    2. The Funds may lend cash to banks or other entities by entering 
into repurchase agreements either directly or through the ``Joint 
Accounts'' (as defined below), purchasing short-term investments or 
under arrangements whereby custodian fees are reduced. Each Fund may 
deposit uninvested daily balances into one or more joint trading 
accounts administered by RiverSource and its affiliates (``Joint 
Accounts'') and invest the daily balance of the Joint Accounts in 
repurchase agreements. An existing Commission order also permits each 
Fund to invest uninvested cash and cash collateral in one or more money 
market Funds that comply with rule 2a-7 under the Act.
    3. Currently, the Funds have a committed line of credit from a 
bank. Each Fund can borrow money from the bank to complete security 
transactions suspended by the closing of the electronic money transfer 
systems or to meet redemptions on a timely basis regardless of whether 
sale transactions are awaiting settlement. The amount of each Fund's 
borrowing under the committed line of credit is limited to the amount 
permitted by the Fund's fundamental investment policies.
    4. If the Funds were to borrow money from the bank under their 
committed line of credit, the Funds would pay interest on the borrowed 
cash at a rate which would likely be significantly higher than the rate 
that would be earned by other non-borrowing Funds on investments in 
repurchase agreements and other short-term instruments of the same 
maturity as the bank loan. Applicants believe this differential 
represents the bank's profit for serving as the middleman between a 
borrower and a lender. The Funds pay an annual commitment fee for the 
committed line of credit.
    5. Applicants request an order that would permit the Funds to enter 
into a master interfund lending agreement (``Interfund Lending 
Agreement'') under which the Funds would lend and borrow money for 
temporary purposes directly to and from each other through a credit 
facility (``Interfund Loan''). Applicants state that the proposed 
credit facility would reduce potential borrowing Funds' costs and 
enhance lending Funds' ability to earn higher rates of interest on 
short-term loans. Although the proposed credit facility would reduce 
the Funds' need to borrow from banks, the Funds would be free to 
establish and/or continue committed lines of credit or other borrowing 
arrangements with banks.
    6. The credit facility may be used when the cash position of a Fund 
is insufficient to meet a day's cash requirements, such as when 
shareholder redemptions exceed anticipated volumes. When a Fund sells 
portfolio securities to meet redemption requests, it may not receive 
payment in settlement for up to three days, or longer in the case of 
certain foreign transactions, even though redemption requests are 
normally satisfied immediately. Other reasons that cash may not be 
available in a timely fashion to meet redemptions or settle 
transactions are: circumstances such as following September 11, 2001; 
when a sale of securities fails; or improper delivery instructions by 
the broker effecting the transaction delays delivery of cash to the 
custodian. In such cases, the credit facility could provide a source of 
immediate, short-term liquidity pending receipt of cash and result in 
savings to the borrowing Fund and increased returns to the lending 
Funds.
    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 offered by banks on short-term loans. 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. Thus, applicants believe that the proposed 
credit facility would benefit both borrowing and lending Funds. The 
interest rate charged to a Fund on any loan made pursuant to the 
proposed credit facility (``Interfund Loan Rate'') would be determined 
daily and would be the average of the ``Joint Accounts Repo Rate'' and 
the ``Bank Loan Rate,'' both as defined below. The Joint Accounts Repo 
Rate for any day would be the current overnight repurchase agreement 
rate available through the Joint Accounts. The Bank Loan Rate for any 
day would be calculated by the ``Credit Facility Team'' (as defined 
below) on each day an Interfund Loan is made according to a formula 
established by each Fund's board of directors or trustees (``Board'') 
intended to approximate the lowest interest rate at which a bank short-
term loan would be available to the Fund. The formula would be based 
upon a publicly available rate (e.g., Federal funds plus 25 basis 
points) and would vary with this rate so as to reflect changing bank 
loan rates. The Board of each Fund would periodically review the 
continuing appropriateness of using the publicly available rate, as 
well as the relationship between the Bank Loan Rate and current bank 
loan rates that would be available to the Fund. The initial formula and 
any subsequent modifications to the formula would be subject to the 
approval of each Fund's Board.
    8. The credit facility would be administered by the Fund's 
treasurer, a representative from Ameriprise's treasury department, and 
a representative from compliance, all of whom are employees of 
Ameriprise (collectively, 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 from the Funds' custodians. 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 portfolio managers. Applicants expect 
far more available uninvested cash each day than borrowing demand. 
After the Credit Facility Team has allocated cash for

[[Page 58642]]

Interfund Loans, the Credit Facility Team would invest any remaining 
cash in accordance with the standing instructions of portfolio managers 
or return remaining amounts to the Funds. The money market Funds 
typically would not participate as borrowers because they rarely need 
to borrow cash to meet redemptions.
    9. 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 Interfund Loan normally would 
be allocated in a manner intended to minimize the number of 
participants necessary to complete the loan transaction.
    10. The Credit Facility Team would (a) Monitor the interest rates 
charged and the other terms and conditions of the Interfund Loans; (b) 
limit the borrowings and loans entered into by each Fund to ensure that 
they comply with the Fund's investment policies and limitations; (c) 
ensure equitable treatment of each Fund; and (d) make quarterly reports 
to the Board of each Fund concerning any transactions by the Fund under 
the credit facility and the interest rates charged. The method of 
allocation and related administrative procedures would be approved by 
each Fund's Board, including a majority of directors or trustees who 
are not ``interested persons'' of the Fund, as defined in section 
2(a)(19) of the Act (``Independent Board Members''), to ensure that 
both borrowing and lending Funds participate on an equitable basis.
    11. Ameriprise, through the Credit Facility Team, would administer 
the credit facility as part of its duties under its existing 
administrative services agreement with each Fund and would receive no 
additional compensation for its services. No Fund may participate in 
the credit facility unless: (a) The Fund has obtained shareholder 
approval for its participation, if such approval is required by law; 
(b) the Fund has fully disclosed all material information concerning 
the credit facility in its prospectus or statement of additional 
information (``SAI''); and (c) the Fund's participation in the credit 
facility is consistent with its investment objectives, limitations, and 
organizational documents.
    12. 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) 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) 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) 
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 the 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, the other person. Applicants state that the Funds 
may be under common control by virtue of having RiverSource as their 
common investment adviser and/or by reason of having common officers 
and/or directors or trustees.
    2. Section 6(c) 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) 
authorizes the Commission to exempt a proposed transaction from section 
17(a) provided that the terms of the transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned, and the 
transaction is consistent with the policy of the investment company as 
recited in its registration statement and with the general purposes of 
the Act. Applicants believe that the proposed arrangements satisfy 
these standards for the reasons discussed below.
    3. Applicants submit 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) Ameriprise, through the Credit Facility Team, would 
administer the program as a disinterested party; (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; (c) the Interfund Loans would not involve a 
greater risk than such other investments; (d) the lending Fund would 
receive interest at a rate higher than it could obtain through such 
other investments; and (e) the borrowing Fund would pay interest at a 
rate lower than otherwise available to it under its bank loan 
agreements and avoid the quarterly commitment fees associated with 
committed lines of credit. Moreover, applicants believe that the other 
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) generally prohibits an affiliated person of a 
registered investment company, or an affiliated person of an affiliated 
person, from selling any securities or other property to the company. 
Section 12(d)(1) 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. 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). Section 
12(d)(1)(J) 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.
    5. Applicants state that section 12(d)(1) was intended to prevent 
the pyramiding of investment companies in order to avoid imposing on 
investors additional and duplicative costs and fees attendant upon 
multiple layers of investment companies. Applicants submit that the 
proposed 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 Ameriprise 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

[[Page 58643]]

economic benefits for all of the participating Funds.
    6. 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'' 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).
    7. Applicants believe 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 submit 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.
    8. 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.
    9. Applicants submit 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 granting the requested relief will 
be subject to the following conditions:
    1. The Interfund Loan Rate to be charged to the Funds under the 
credit facility will be the average of the Joint Accounts Repo Rate and 
the Bank Loan Rate.
    2. On each business day, the Credit Facility Team will compare the 
Bank Loan Rate with the Joint Accounts Repo Rate and will make cash 
available for Interfund Loans only if the Interfund Loan Rate is (a) 
more favorable to the lending Fund than the Joint Accounts Repo Rate 
and (b) more favorable to the borrowing Fund than the Bank Loan Rate.
    3. If a Fund has outstanding borrowings, any Interfund Loans to the 
Fund (a) will be at an interest rate equal to or lower than any 
outstanding bank loan; (b) 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; (c) 
will have a maturity no longer than any outstanding bank loan (and in 
any event not over seven days); and (d) will provide that, if an event 
of default occurs under any agreement evidencing an outstanding bank 
loan to the Fund, that event of default will automatically (without 
need for action or notice by the lending Fund) constitute an immediate 
event of default under the Interfund Lending Agreement entitling the 
lending Fund to call the Interfund Loan (and exercise all rights with 
respect to any collateral) and that such call will be made if the 
lending bank exercises its right to call its loan under its agreement 
with the borrowing Fund.
    4. A Fund may make an unsecured borrowing through the 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 credit facility only on a secured basis. A Fund may not borrow 
through the credit facility or from any other source if its total 
outstanding borrowings immediately after the interfund 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 (a) repay all its outstanding Interfund Loans; 
(b) reduce its outstanding indebtedness to 10% or less of its total 
assets; or (c) secure each outstanding Interfund Loan by the pledge of 
segregated collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan until the Fund's total 
outstanding borrowings cease to exceed 10% of its total assets, at 
which time the collateral called for by this condition (5) shall no 
longer be required. Until each Interfund Loan that is outstanding at 
any time that a Fund's total outstanding borrowings exceed 10% of its 
total assets is repaid or the Fund's total outstanding borrowings cease 
to exceed 10% of its total assets, the Fund will mark the value of the 
collateral to market each day and will pledge such additional 
collateral as is necessary to maintain the market value of the 
collateral that secures each outstanding Interfund Loan at least equal 
to 102% of the outstanding principal value of the loan.
    6. No Fund may lend to another Fund through the credit facility if 
the loan would cause the lending Fund's aggregate outstanding loans 
through the credit facility to exceed 15% of its 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 current 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 credit facility, as measured on 
the day

[[Page 58644]]

when the most recent loan was made, will not exceed the greater of 125% 
of the Fund's total net cash redemptions or 102% of 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 credit facility must be 
consistent with its investment policies and limitations and 
organizational documents.
    12. The Credit Facility Team will calculate total Fund borrowing 
and lending demand through the credit facility, and allocate interfund 
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 credit facility from any Fund or prospectively 
publish or disseminate loan demand data to portfolio managers. The 
Credit Facility Team will invest amounts remaining after satisfaction 
of borrowing demand in accordance with the standing instructions from 
portfolio managers or return remaining amounts to the Funds.
    13. The Credit Facility Team will monitor the interest rates 
charged and the other terms and conditions of the Interfund Loans and 
will make a quarterly report to the Board of each Fund concerning the 
participation of the Fund in the credit facility and the terms and 
other conditions of any extensions of credit under the credit facility.
    14. The Board of each Fund, including a majority of the Independent 
Board Members, will: (a) Review no less frequently than quarterly the 
Fund's participation in the credit facility during the preceding 
quarter for compliance with the conditions of any order permitting the 
transactions; (b) establish the Bank Loan Rate formula used to 
determine the Interfund Loan Rate 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 
appropriateness of the Fund's participation in the credit facility.
    15. Each Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any transaction 
under the 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 transaction, including the 
amount, the maturity and the rate of interest on the loan, the rate of 
interest available at the time on short-term 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.
    16. In the event an Interfund Loan is not paid according to its 
terms and the default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand for payment 
under the provisions of the Interfund Lending Agreement, the Credit 
Facility Team promptly will refer the loan for arbitration to an 
independent arbitrator selected by the Board of any Fund involved in 
the loan who will serve as the 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 to resolve the dispute.
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    \2\ If the dispute involves Funds with separate Boards, the 
Board of each Fund will select an independent arbitrator that is 
satisfactory to each Fund.
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    17. The Credit Facility Team will prepare and submit to the Board 
of each Fund for review an initial report describing the operations of 
the credit facility and the procedures to be implemented to ensure that 
all Funds are treated fairly. After the commencement of operations of 
the credit facility, the Credit Facility Team will report on the 
operations of the credit facility at the quarterly meetings of each 
Fund's Board.
    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 the Credit Facility Team's assertion 
that it has established procedures reasonably designed to achieve 
compliance with the conditions of the order. The report shall 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: (a) That the Interfund 
Loan Rate will be higher than the Joint Accounts Repo Rate, but lower 
than the Bank Loan Rate; (b) compliance with the collateral 
requirements as set forth in the application; (c) compliance with the 
percentage limitations on interfund borrowing and lending; (d) 
allocation of interfund borrowing and lending demand in an equitable 
manner and in accordance with procedures established by the Board; and 
(e) that the Interfund Loan Rate does not exceed the interest rate on 
any third party borrowings of a borrowing Fund at the time of the 
Interfund Loan.
    After the final report is filed, each Fund's independent public 
accountant, in connection with its audit examinations, will continue to 
review the operation of the credit facility for compliance with the 
conditions of the application and its 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 credit facility upon receipt of 
requisite regulatory approval unless it has fully disclosed in its 
prospectus or SAI all material facts about its intended participation.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-16365 Filed 10-3-06; 8:45 am]

BILLING CODE 8010-01-P