Document ID: SEC-2006-0524-0001
Agency: sec
Document Type: Notice
Title: Bridgeway Funds, Inc., et al.; Notice of Application
Posted Date: 2006-04-24T04:00Z

[Federal Register: April 24, 2006 (Volume 71, Number 78)]
[Notices]               
[Page 21049-21053]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24ap06-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27290; 812-13012]

 
Bridgeway Funds, Inc., et al.; Notice of Application

April 18, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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    Summary of 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: Bridgeway Funds Inc. (``Bridgeway'') and Bridgeway 
Capital Management, Inc. (the ``Adviser'').
    Filing Dates: The application was filed on August 28, 2003, and 
amended on April 12, 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 May 15, 2006 and should be accompanied by proof of service 
on the 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

[[Page 21050]]

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, 5615 Kirby Drive, 
Ste 518, Houston, TX 77005-2448.

FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202) 
551-6878, or Mary Kay Frech, 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 for a fee at the 
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington DC 20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    Bridgeway is organized as a Maryland corporation and is registered 
under the Act as an open-end management investment company.\1\ 
Bridgeway is comprised of multiple series (each a ``Fund'', and 
together the ``Funds''). The Adviser is registered under the Investment 
Advisers Act of 1940 and serves as investment adviser to the Funds.
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    \1\ Applicants request that the relief apply to any other 
existing or future registered open-end management investment company 
or series thereof that is advised by the Adviser or any person 
controlling, controlled by, or under common control with the Adviser 
or its successors (included in the term ``Funds''). The term 
``successor'' is limited to entities that result from a 
reorganization into another jurisdiction or a change in the type of 
business organization. All existing Funds that currently intend to 
rely on the requested order have been named as applicants. Any other 
existing or future Fund that relies on the order in the future will 
comply with the terms and conditions of the application.
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    2. Some Funds may lend money to banks or other entities by entering 
into repurchase agreements or purchasing other short-term instruments. 
Other Funds may need to borrow money from the same or similar banks or 
other entities 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 the Funds were to borrow money from banks, the Funds would 
pay interest on the borrowed cash at a rate that would be higher than 
the rate that would be earned by them on repurchase agreements and 
other short-term instruments of the same maturity as the bank loan. 
Applicants state that this differential represents the profit the banks 
would earn for serving as a middleman between a borrower and lender.
    4. Applicants request an order that would permit the Funds to enter 
into interfund lending agreements (``Interfund Lending Agreements'') 
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 believe that the credit facility would 
reduce the Funds' borrowing costs and enhance their ability to earn 
higher interest rates on short-term investments. Although the credit 
facility would reduce the Funds' need to borrow from banks, the Funds 
would be free to establish new lines of credit or other borrowing 
arrangements with banks.
    5. Applicants anticipate that the credit facility would provide a 
borrowing Fund with significant savings when the cash position of the 
Fund is insufficient to meet temporary cash requirements. This 
situation could arise when redemptions exceed expected volumes and 
certain Funds have insufficient cash to satisfy such redemptions. When 
a Fund liquidates portfolio securities to meet redemption requests, it 
often does not receive payment in settlement for up to three days (or 
longer for certain foreign transactions). The credit facility would 
provide a source of immediate, short-term liquidity pending settlement 
of the sale of portfolio securities.
    6. Applicants also propose using the credit facility when a sale of 
securities fails due to circumstances beyond a Fund's control, such as 
a delay in the delivery of cash to a Fund's custodian or improper 
delivery instructions by the broker effecting the transaction. Sales 
fails may present a cash shortfall if a Fund has undertaken to purchase 
securities using the proceeds from the securities sold. Under such 
circumstances, the Fund could 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 same day settlement basis, earning a 
lower return on the investment. Use of the credit facility under these 
circumstances would enable the Fund to have access to immediate short-
term liquidity without incurring custodian overdraft or other charges.
    7. While bank borrowings 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.
    8. The interest rate charged to the Funds on any Interfund Loan 
(``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 rate available to the Funds from investing in 
overnight repurchase agreements. The Bank Loan Rate for any day would 
be calculated by the Credit Facility Team (as defined below) each day 
an Interfund Loan is made according to a formula established by a 
Fund's board of directors (``Board'') designed 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 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 
Funds. The initial formula and any subsequent modifications to the 
formula would be subject to the approval of the Board.
    9. The credit facility would be administered by a representative of 
Bridgeway's accounting department, an investment professional within 
the Adviser (``Portfolio Manager''), and the compliance officer for 
Bridgeway (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. On each business day, the Credit Facility Team 
would collect data on the uninvested cash and borrowing requirements of 
all participating Funds from the Funds' custodian. 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 (other than 
the Portfolio Manager as a member of the Credit Facility Team). 
Applicants expect far more available uninvested cash each day than 
borrowing demand. All

[[Page 21051]]

allocations would require approval of at least one member of the Credit 
Facility Team who is not the Portfolio Manager. After the Credit 
Facility Team has allocated cash for 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.
    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 Fund's 
Board, including a majority of trustees who are not ``interested 
persons'' of the Fund, as defined in section 2(a)(19) of the Act 
(``Independent Directors''), to ensure that both borrowing and lending 
Funds participate on an equitable basis.
    11. The Credit Facility Team would (a) monitor the interest rates 
charged and 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 concerning any transactions by the Funds under the credit 
facility and the Interfund Loan Rate charged.
    12. The Adviser, through the Credit Facility Team, would administer 
the credit facility as a disinterested fiduciary, and would receive no 
additional fee for its services. The Adviser may collect standard 
recordkeeping, bookkeeping and accounting fees associated with the 
transfer of cash and/or securities in connection with repurchase and 
lending transactions generally, including transactions effected through 
the credit facility. Fees for these services would be no higher than 
those applicable for comparable bank loan transactions.
    13. 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 
and/or statement of additional information (``SAI''); and (c) the 
Fund's participation in the credit facility is consistent with its 
investment policies, limitations, and organizational documents.
    14. 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) 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 the Adviser as their 
common investment advisor and/or by reason of having common officers 
and/or directors.
    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 fair and reasonable and do 
not involve overreaching on the part of any person concerned, and the 
transaction is consistent with the policy of the investment company as 
recited in its registration statement and with the general purposes of 
the Act. Applicants believe that the proposed arrangements satisfy 
these standards for the reasons discussed below.
    3. Applicants submit that sections 17(a)(3) and 21(b) of the Act 
were intended to prevent a party with strong potential adverse 
interests to, and some influence over the investment decisions of, a 
registered investment company from causing or inducing the investment 
company to engage in lending transactions that unfairly inure to the 
benefit of such party and that are detrimental to the best interests of 
the investment company and its shareholders. Applicants assert that the 
proposed credit facility transactions do not raise these concerns 
because: (a) The Adviser 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 the Funds 
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 up-front 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 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.

[[Page 21052]]

Applicants note that there will be no duplicative costs or fees to the 
Funds or shareholders, and that the Adviser will receive no additional 
compensation for its services in administering the credit facility 
through the Credit Facility Team. Applicants also note that the purpose 
of the proposed credit facility is to provide economic benefits for all 
of the participating Funds and their shareholders.
    6. Section 18(f)(1) prohibits 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) is 
appropriate because the Funds would remain subject to the requirement 
of section 18(f)(1) that all borrowings of the 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 proposed credit facility is consistent with the 
purposes and policies of section 18(f)(1).
    8. Section 17(d) and rule 17d-1 generally prohibit any affiliated 
person of a registered investment company, or affiliated persons of an 
affiliated person, when acting as principal, from effecting any joint 
transactions in which the company participates unless the transaction 
is approved by the Commission. Rule 17d-1 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 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 Repo Rate and the Bank Loan 
Rate.
    2. On each business day, the Credit Facility Team will compare the 
Bank Loan Rate with the Repo Rate and will make cash available for 
Interfund Loans only if the Interfund Loan Rate is (a) more favorable 
to the lending Fund than the Repo Rate, and, if applicable, the yield 
of any money market fund in which the lending Fund could otherwise 
invest 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 borrowing from all sources immediately 
after the interfund borrowing total 10% or less than 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 on a secured basis only. A Fund may not borrow 
through the credit facility or from any other source if its total 
borrowings immediately after the interfund borrowing would be more than 
33\1/3\% of its total assets or its maximum borrowing limit set forth 
in the Fund's investment restrictions, whichever is less.
    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 exceeds 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 loan.
    6. No Fund may lend to another Fund through the credit facility if 
the loan would cause its 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 net assets.
    8. The duration of Interfund Loans will be limited to the time 
required to

[[Page 21053]]

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. 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.
    10. A Fund's participation in the credit facility must be 
consistent with its investment policies and limitations and 
organizational documents.
    11. 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 (other than the Portfolio Manager 
acting in his or her capacity as a member of the Credit Facility Team). 
All allocations will require approval of at least one member of the 
Credit Facility Team who is not the Portfolio Manager. 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 (except to the extent that the Portfolio Manager has 
access to loan demand data in his or her capacity as a member of the 
Credit Facility Team). The Credit Facility Team will invest any amounts 
remaining after satisfaction of borrowing demand in accordance with the 
standing instructions from portfolio managers or return remaining 
amounts to the Funds.
    12. The Credit Facility Team will monitor the Interfund Loan Rate 
charged and the other terms and conditions of the Interfund Loans and 
will make a quarterly report to the Board concerning the participation 
of the Funds in the credit facility and the terms and other conditions 
of any extensions of credit under the facility.
    13. The Board of each Fund, including a majority of the Independent 
Directors: (a) Will 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) will 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) will review no less frequently than annually 
the continuing appropriateness of the Fund's participation in the 
credit facility.
    14. 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 will promptly refer the loan for arbitration to an 
independent arbitrator selected by the Board of any Fund involved in 
the loan who will serve as arbitrator of disputes concerning Interfund 
Loans.\2\ The arbitrator will resolve any problems 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 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 a dispute involves Funds with separate Boards, the 
respective Boards will agree on an independent arbitrator that is 
satisfactory to each Fund.
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    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 rate of interest on the loan, the rate of 
interest available at the time on short-term repurchase agreements and 
bank borrowings, the yield on any money market fund in which the 
lending Fund could otherwise invest and such other information 
presented to the Fund's Board in connection with the review required by 
conditions 12 and 13.
    16. The Credit Facility Team will prepare and submit to the Board 
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 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: (a) 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; (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 
interest rate on any Interfund Loan 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, the Fund's external 
auditors, in connection with their Fund audit examinations, will 
continue to review the operation of the 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.
    17. No Fund will participate in the credit facility upon receipt of 
requisite regulatory approval unless all material facts about its 
intended participation are fully disclosed in the Fund's SAI.
    18. A Fund's borrowings through the 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 or 102% of sales fails 
for the preceding seven calendar days.
    19. The Board of each Fund will satisfy the fund governance 
standards as defined in rule 0-1(a)(7) under the Act by the compliance 
date for the rule.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Nancy M. Morris,
Secretary.
 [FR Doc. E6-6068 Filed 4-21-06; 8:45 am]

BILLING CODE 8010-01-P