Wells Fargo Funds Trust, et al.; Notice of Application, 26790-26794 [E6-6913]

Download as PDF 26790 Federal Register / Vol. 71, No. 88 / Monday, May 8, 2006 / Notices 2005, each applicant made a liquidating distribution to its shareholders, based on net asset value. Expenses of $13,000 incurred in connection with each liquidation will be paid by each applicant out of cash assets retained for that purpose. Filing Date: The applications were filed on November 18, 2005. Applicants’ Address: IR Pass-Through Corp., c/o Winthrop Management LLC, 7 Bullfinch Pl., Suite 500, PO Box 9507, Boston, MA 02114. BidFund 2 Percent [File No. 811–21204] Summary: Applicant, a closed-end investment company, seeks an order declaring that it has ceased to be an investment company. Applicant has never made a public offering of its securities and does not propose to make a public offering or engage in business of any kind. Filing Date: The application was filed on April 4, 2006. Applicant’s Address: c/o Financial Foundry, LLC, 301 North Harrison St., Suite 185, Princeton, NJ 08540. NorCap Funds, Inc. [File No. 811– 21345] Summary: Applicant seeks an order declaring that it has ceased to be an investment company. On April 3, 2006, applicant made a liquidating distribution to its shareholders, based on net asset value. Applicant’s investment adviser, Northern Capital Management, LLC, paid all expenses incurred in connection with the liquidation. Filing Date: The application was filed on April 3, 2006. Applicant’s Address: 8010 Excelsior Dr., Suite 300, Madison, WI 53717. Access Variable Insurance Trust [File No. 811–21312] wwhite on PROD1PC61 with NOTICES Summary: Applicant seeks an order declaring that it has ceased to be an investment company. On July 29, 2005, applicant made a liquidating distribution to its shareholders based on net asset value. Applicant incurred no expenses in connection with the liquidation. Filing Dates: The application was filed on December 15, 2005 and amended and restated on March 1, 2006. Applicant’s Address: 28050 U.S. Hwy. 19 N, Suite 301, Clearwater, FL 33761. Mercury V.I. Funds, Inc. [File No. 811– 9159] Summary: Mercury V.I. Funds, Inc. (‘‘Applicant’’) seeks an order declaring that it has ceased to be an investment company. The Applicant was merged into the Merrill Lynch Large Cap VerDate Aug<31>2005 16:05 May 05, 2006 Jkt 208001 Growth V.I. Fund, a series of Merrill Lynch Variable Series Funds, Inc., pursuant to an agreement and plan of reorganization filed with the Commission on October 15, 2003. The Applicant incurred expenses of $68,674.96 (approximately) in connection with the merger. Filing Dates: The application was filed on November 30, 2005, and amended on January 25, 2006. Applicant’s Address: Mercury V.I. Funds, Inc. c/o Merrill Lynch Investment Managers, 800 Scudders Mill Road, Plainsboro, NJ 08536. SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 27309; 812–12974] Wells Fargo Funds Trust, et al.; Notice of Application May 1, 2006. Securities and Exchange Commission. ACTION: Notice of application under section 6(c) of the Investment Company Act of 1940 (‘‘Act’’) for an exemption from sections 18(f) and 21(b) of the Act, under section 12(d)(1)(J) of the Act for an exemption from section 12(d)(1) of Allmerica Investment Trust [File No. the Act, under sections 6(c) and 17(b) of 811–4138] the Act for an exemption from sections Summary: Allmerica Investment Trust 17(a)(1) and 17(a)(3) of the Act, and under section 17(d) of the Act and rule (‘‘Applicant’’) seeks an order declaring 17d-1 under the Act to permit certain that it has ceased to be an investment joint arrangements. company. The Applicant was merged into the Goldman Sachs Variable SUMMARY OF APPLICATION: Applicants Insurance Trust, pursuant to an request an order that would permit agreement and plan of reorganization certain registered open-end management filed with the Commission on October investment companies to participate in 31, 2005. Expenses in connection with the merger were shared equally between a joint lending and borrowing facility the merged fund and the surviving fund. (‘‘Credit Facility’’). APPLICANTS: Wells Fargo Funds Trust Filing Dates: The application was (‘‘Funds Trust’’), Wells Fargo Variable filed on February 14, 2006, and Trust (‘‘Variable Trust’’), and Wells amended on April 7, 2006. Fargo Master Trust (‘‘Master Trust’’) Applicant’s Address: Allmerica (collectively, the ‘‘Trusts’’) and Wells Investment Trust, 440 Lincoln Street, Fargo Funds Management, LLC (‘‘Funds Worcester, MA 01653. Management’’). FILING DATES: The application was filed Mercury Variable Trust [File No. 811– on May 14, 2003 and amended on 8163] April 27, 2006. Summary: Mercury Variable Trust. HEARING OR NOTIFICATION OF HEARING: An (‘‘Applicant’’) seeks an order declaring order granting the application will be that it has ceased to be an investment issued unless the Commission orders a hearing. Interested persons may request company. The Applicant was merged a hearing by writing to the into the Merrill Lynch International Commission’s Secretary and serving Value V.I. Fund, a series of Merrill applicants with a copy of the request, Lynch Variable Series Funds, Inc., personally or by mail. Hearing requests pursuant to an agreement and plan of should be received by the Commission reorganization filed with the by 5:30 p.m. on May 26, 2006, and Commission on October 15, 2003. The should be accompanied by proof of Applicant incurred expenses of service on applicants, in the form of an $195,735.59 (approximately) in affidavit or, for lawyers, a certificate of connection with the merger. service. Hearing requests should state Filing Dates: The application was the nature of the writer’s interest, the filed on November 30, 2005, and reason for the request, and the issues amended on January 25, 2006. contested. Persons who wish to be Applicant’s Address: Mercury notified of a hearing may request Variable Trust c/o Merrill Lynch notification by writing to the Investment Managers, 800 Scudders Commission’s Secretary. Mill Road, Plainsboro, NJ 08536. ADDRESSES: Secretary, U.S. Securities For the Commission, by the Division of and Exchange Commission, 100 F Investment Management, pursuant to Street, NE., Washington, DC 20549– delegated authority. 1090. Applicants, 525 Market Street, Nancy M. Morris, 12th Floor, San Francisco, California 94105. Secretary. [FR Doc. E6–6912 Filed 5–5–06; 8:45 am] FOR FURTHER INFORMATION CONTACT: Jaea BILLING CODE 8010–01–P F. Hahn, Senior Counsel, at (202) 551– PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 AGENCY: E:\FR\FM\08MYN1.SGM 08MYN1 Federal Register / Vol. 71, No. 88 / Monday, May 8, 2006 / Notices 6870, 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 may be obtained for a fee at the Commission’s Public Reference Branch, 100 F Street, NE., Washington, DC 20549–0102 (tel. 202–551–5850). wwhite on PROD1PC61 with NOTICES Applicants’ Representations 1. Each Trust is registered under the Act as an open-end management investment company and is organized as a Delaware business trust.1 Responsibility for the overall management of the Trusts rests with each Trust’s respective board of trustees (each, a ‘‘Board’’). Funds Management is registered under the Investment Advisers Act of 1940. Funds Management serves as investment adviser to the Funds. An existing Commission order permits certain Funds that are not money market Funds to invest uninvested cash balances in one or more money market Funds that comply with rule 2a-7 under the Act (‘‘Money Market Funds’’).2 2. Some Funds may lend money to banks or other entities by entering into repurchase agreements or other shortterm instruments. Other Funds may 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. Currently, the Funds have an overdraft provision with their custodian bank and committed lines of credit. 3. If the Funds were to borrow money from their custodian bank or through their lines of credit, the Funds would pay interest on the borrowed cash at a 1 Applicants request that the relief apply to (i) the Trusts and their existing and future series (‘‘Funds’’), (ii) Funds Management and any successor entity to Funds Management, and (iii) any other registered open-end management investment company or its series advised by Funds Management or a person controlling, controlled by, or under common control (within the meaning of section 2(a)(9) of the Act) with Funds Management (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 investment companies that currently intend to rely on the requested relief are named as applicants. Any other existing or future Funds that subsequently rely on the requested order will comply with the terms and conditions in the application. 2 In the Matter of Stagecoach Funds, Inc., et al., Investment Company Act Release Nos. 23237 (June 2, 1998) (notice) and 23294 (June 30, 1998) (order). VerDate Aug<31>2005 16:05 May 05, 2006 Jkt 208001 rate that would be higher than the rate that would be earned by other (nonborrowing) Funds on investments in repurchase agreements and other shortterm 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 a lender. In addition, while bank borrowings generally could supply needed cash to cover unanticipated redemptions and sales fails, the borrowing Funds would incur fees, interest and/or other charges involved in obtaining a bank loan. 4. Applicants request an order that would permit the Funds to enter into master interfund lending agreements (‘‘Interfund Lending Agreements’’) that would permit each Fund to lend money directly to and borrow directly from other Funds (‘‘Interfund Loan’’). Applicants believe that the Credit Facility would reduce the Funds’ potential borrowing costs and enhance their ability to earn higher rates of interest on short-term lendings. Although the 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. 5. Applicants anticipate that the Credit Facility would provide a borrowing Fund with cost savings when the cash position of the Fund is insufficient to meet temporary cash requirements. This situation could arise when redemptions exceed anticipated volumes and the Funds have insufficient cash on hand to satisfy such redemptions. When the Funds liquidate portfolio securities to meet redemption requests, which normally are paid immediately, they often do 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, shortterm 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 the Fund’s custodian or improper delivery instructions by the broker effecting the transaction. Sales fails may present a cash shortfall if the Fund has undertaken to purchase a security with the proceeds from securities sold. When the Fund experiences a cash shortfall due to a sales fail, the custodian typically extends temporary credit to cover the shortfall and the Fund incurs overdraft charges. Alternatively, the Fund could PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 26791 fail on its intended purchase due to lack of funds from the previous sale, resulting in additional costs 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 generally supply needed cash to cover unanticipated redemptions and sales fails, under the 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 balances in repurchase agreements or in short-term investments. Thus, applicants believe that the Credit Facility would benefit both borrowing and lending Funds. 8. The interest rate 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 on any day would be the highest rate available to the Funds from investments in overnight repurchase agreements. The Bank Loan Rate for any day would be calculated by the Interfund Lending Committee, as defined below, on each day an Interfund Loan is made according to a formula approved by the Boards 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 25 basis points) and would vary with this rate so as to reflect changing bank loan rates. Each Board periodically would review the continuing appropriateness of using the publicly available rate used to determine the Bank Loan Rate, as well as the relationship between the Bank Loan Rate and current bank loan rates that would be available to the Funds. The initial formula and any subsequent modifications to the formula would be subject to the approval of each Board. 9. The Credit Facility would be administered by investment professionals and administrative personnel from Funds Management (the ‘‘Interfund Lending Committee’’). No portfolio manager of any Fund will serve as a member of the Interfund Lending Committee. Under the Credit Facility, the portfolio managers for each participating Fund could provide E:\FR\FM\08MYN1.SGM 08MYN1 wwhite on PROD1PC61 with NOTICES 26792 Federal Register / Vol. 71, No. 88 / Monday, May 8, 2006 / Notices standing instructions to participate daily as a borrower or lender. On each business day, the Interfund Lending Committee would collect data on the uninvested cash and borrowing requirements of all participating Funds from the Funds’ custodian(s). The Money Market Funds would not participate as borrowers. Once it has determined the aggregate amount of cash available for loans and borrowing demand, the Interfund Lending Committee 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 allocating cash for Interfund Loans, the Interfund Lending Committee will invest any remaining cash in accordance with the standing instructions of portfolio managers or return remaining amounts for investment directly by the portfolio manager of the applicable Fund. 10. The Interfund Lending Committee would allocate borrowing demand and cash available for lending among the Funds on what the Interfund Lending Committee 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 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. 11. The Interfund Lending Committee would (a) monitor the interest rates charged and the other terms and conditions of the 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 each Board concerning any transactions by the Funds under the Credit Facility and the interest rates charged. The method of allocation and related administrative procedures would be approved by each 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 Trustees’’), to ensure that both borrowing and lending Funds participate on an equitable basis. 12. Funds Management, through the Interfund Lending Committee, would administer the Credit Facility as part of its duties under its advisory contract and administrative contract with each VerDate Aug<31>2005 16:05 May 05, 2006 Jkt 208001 Fund and would receive no compensation for its services. 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 organizational documents and its investment policies and limitations. 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) 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) 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 Funds Management as their common investment adviser, and\or by reason of having common officers and/or trustees. 2. Section 6(c) of the Act provides that an exemptive order may be granted where an exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 17(b) 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 PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 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 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 that person and that are detrimental to the best interests of the investment company and its shareholders. Applicants assert that the Credit Facility transactions do not raise these concerns because (a) Funds Management, through the Interfund Lending Committee, 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 shortterm 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) of the Act 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) 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. 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) 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 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) of the Act are satisfied for all the reasons set forth above in support of their request for relief from sections 17(a)(3) and E:\FR\FM\08MYN1.SGM 08MYN1 wwhite on PROD1PC61 with NOTICES Federal Register / Vol. 71, No. 88 / Monday, May 8, 2006 / Notices 21(b) of the Act and for the reasons discussed below. 5. Applicants state that section 12(d)(1) of the Act was intended to prevent the pyramiding of investment companies in order to avoid duplicative costs and fees attendant upon multiple layers of investments. Applicants submit that the Credit Facility does not involve those abuses. Applicants note that there would be no duplicative costs or fees to the Funds or to Fund shareholders, and that Funds Management would receive no additional compensation for its services in administering the Credit Facility. Applicants also note that the purpose of the Credit Facility is to provide economic benefits for all the participating Funds. 6. Section 18(f)(1) of the Act prohibits open-end investment companies from issuing any senior security except that a company is permitted to borrow from any bank, if immediately after the borrowing, there is an asset coverage of at least 300% 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 exemptive 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 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 Credit Facility is consistent with the purposes and policies of section 18(f)(1) of the Act. 8. Section 17(d) of the Act and rule 17d–1 under the Act generally prohibit any affiliated person of a registered investment company, or 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 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 VerDate Aug<31>2005 16:05 May 05, 2006 Jkt 208001 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 would be on terms 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 Interfund Lending Committee will compare the Bank Loan Rate with the Repo Rate and will make cash available for Interfund Loans only if the Interfund Loan Rate is (a) more favorable to the lending Fund than the Repo Rate and (b) more favorable to the borrowing Fund than the Bank Loan Rate. 3. If a Fund has outstanding 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 PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 26793 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 on a secured basis only. 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 be more than 331⁄3% of its total assets. 5. Before any Fund that has outstanding interfund borrowings may, through additional borrowings, cause its outstanding borrowings from all sources to exceed 10% of its total assets, the Fund must first secure each outstanding Interfund Loan by the pledge of segregated collateral with a market value at least equal to 102% of the outstanding principal value of the loan. If the total outstanding borrowings of a Fund with outstanding Interfund Loans exceeds 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 E:\FR\FM\08MYN1.SGM 08MYN1 wwhite on PROD1PC61 with NOTICES 26794 Federal Register / Vol. 71, No. 88 / Monday, May 8, 2006 / Notices 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 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 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 Interfund Lending Committee will calculate total Fund borrowing and lending demand through the Credit Facility, and allocate loans on an equitable basis among the Funds without the intervention of any portfolio manager of the Funds. The Interfund Lending Committee will not solicit cash for the Credit Facility from any Fund or prospectively publish or disseminate loan demand data to portfolio managers. The Interfund Lending Committee will invest any amounts remaining after satisfaction of borrowing demand in accordance with the standing instructions from portfolio managers or return remaining amounts to Funds for investment directly by the Funds. 13. The Interfund Lending Committee 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 facility. 14. The Boards of the Funds, including a majority of the Independent Trustees: (a) will review no less frequently than quarterly each Fund’s participation in the Credit Facility during the preceding quarter for compliance with the conditions of any order permitting such transactions; (b) will establish the Bank Loan Rate formula used to determine the interest rate on Interfund Loans, approve any modifications thereto, and review no less frequently than annually the continuing appropriateness of the Bank VerDate Aug<31>2005 16:05 May 05, 2006 Jkt 208001 Loan Rate formula; and (c) will review no less frequently than annually the continuing appropriateness of the Fund’s participation in the Credit Facility. 15. In the event an Interfund Loan is not paid according to its terms and the default is not cured within two business days from its maturity or from the time the lending Fund makes a demand for payment under the provisions of the Interfund Lending Agreement, the Interfund Lending Committee will promptly refer such 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.3 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. 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 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. 17. The Interfund Lending Committee will prepare and submit to the Boards 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 operation of the Credit Facility, the Interfund Lending Committee 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 Interfund Lending Committee’s assertion that it has established procedures reasonably designed to achieve compliance with the conditions 3 If the dispute involves Funds with different Boards, the respective Board of each Fund will select an independent arbitrator that is satisfactory to each of them. PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 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 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 each Board; and (e) that the interest rate on any Interfund Loan does not exceed the interest rate on any outstanding third party borrowings of a borrowing Fund at the time of the Interfund Loan. After the final report is filed, the independent public accountant for the Fund in connection with 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. 18. No Fund will participate in the Credit Facility unless it has fully disclosed in its prospectus or SAI all material facts about its intended participation. 19. The Board of each Fund will satisfy the fund governance standards as defined in Rule 0–1(a)(7) under the Act. For the Commission, by the Division of Investment Management, under delegated authority. Nancy M. Morris, Secretary. [FR Doc. E6–6913 Filed 5–5–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [File No. 500–1] MCSi, Inc.; Order of Suspension of Trading May 4, 2006. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of MCSi, Inc., because it has not filed a periodic report since the quarter ending September 30, 2002. E:\FR\FM\08MYN1.SGM 08MYN1

Agencies

[Federal Register Volume 71, Number 88 (Monday, May 8, 2006)]
[Notices]
[Pages 26790-26794]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-6913]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27309; 812-12974]


Wells Fargo Funds Trust, et al.; Notice of Application

May 1, 2006.
AGENCY: Securities and Exchange Commission.

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from sections 18(f) and 
21(b) of the Act, under section 12(d)(1)(J) of the Act for an exemption 
from section 12(d)(1) of the Act, under sections 6(c) and 17(b) of the 
Act for an exemption from sections 17(a)(1) and 17(a)(3) of the Act, 
and under section 17(d) of the Act and rule 17d-1 under the Act to 
permit certain joint arrangements.

-----------------------------------------------------------------------

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 (``Credit 
Facility'').

Applicants: Wells Fargo Funds Trust (``Funds Trust''), Wells Fargo 
Variable Trust (``Variable Trust''), and Wells Fargo Master Trust 
(``Master Trust'') (collectively, the ``Trusts'') and Wells Fargo Funds 
Management, LLC (``Funds Management'').

Filing Dates: The application was filed on May 14, 2003 and amended on 
April 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 May 26, 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, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, 525 Market Street, 
12th Floor, San Francisco, California 94105.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
551-

[[Page 26791]]

6870, 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 may be obtained for a fee at the 
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. Each Trust is registered under the Act as an open-end management 
investment company and is organized as a Delaware business trust.\1\ 
Responsibility for the overall management of the Trusts rests with each 
Trust's respective board of trustees (each, a ``Board''). Funds 
Management is registered under the Investment Advisers Act of 1940. 
Funds Management serves as investment adviser to the Funds. An existing 
Commission order permits certain Funds that are not money market Funds 
to invest uninvested cash balances in one or more money market Funds 
that comply with rule 2a-7 under the Act (``Money Market Funds'').\2\
---------------------------------------------------------------------------

    \1\ Applicants request that the relief apply to (i) the Trusts 
and their existing and future series (``Funds''), (ii) Funds 
Management and any successor entity to Funds Management, and (iii) 
any other registered open-end management investment company or its 
series advised by Funds Management or a person controlling, 
controlled by, or under common control (within the meaning of 
section 2(a)(9) of the Act) with Funds Management (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 investment 
companies that currently intend to rely on the requested relief are 
named as applicants. Any other existing or future Funds that 
subsequently rely on the requested order will comply with the terms 
and conditions in the application.
    \2\ In the Matter of Stagecoach Funds, Inc., et al., Investment 
Company Act Release Nos. 23237 (June 2, 1998) (notice) and 23294 
(June 30, 1998) (order).
---------------------------------------------------------------------------

    2. Some Funds may lend money to banks or other entities by entering 
into repurchase agreements or other short-term instruments. Other Funds 
may 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. Currently, the Funds have an overdraft provision 
with their custodian bank and committed lines of credit.
    3. If the Funds were to borrow money from their custodian bank or 
through their lines of credit, the Funds would pay interest on the 
borrowed cash at a rate that would be higher than the rate that would 
be earned by other (non-borrowing) Funds on investments in 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 a lender. In addition, while bank borrowings generally 
could supply needed cash to cover unanticipated redemptions and sales 
fails, the borrowing Funds would incur fees, interest and/or other 
charges involved in obtaining a bank loan.
    4. Applicants request an order that would permit the Funds to enter 
into master interfund lending agreements (``Interfund Lending 
Agreements'') that would permit each Fund to lend money directly to and 
borrow directly from other Funds (``Interfund Loan''). Applicants 
believe that the Credit Facility would reduce the Funds' potential 
borrowing costs and enhance their ability to earn higher rates of 
interest on short-term lendings. Although the 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.
    5. Applicants anticipate that the Credit Facility would provide a 
borrowing Fund with cost savings when the cash position of the Fund is 
insufficient to meet temporary cash requirements. This situation could 
arise when redemptions exceed anticipated volumes and the Funds have 
insufficient cash on hand to satisfy such redemptions. When the Funds 
liquidate portfolio securities to meet redemption requests, which 
normally are paid immediately, they often do 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 the Fund's custodian or improper 
delivery instructions by the broker effecting the transaction. Sales 
fails may present a cash shortfall if the Fund has undertaken to 
purchase a security with the proceeds from securities sold. When the 
Fund experiences a cash shortfall due to a sales fail, the custodian 
typically extends temporary credit to cover the shortfall and the Fund 
incurs overdraft charges. Alternatively, the Fund could fail on its 
intended purchase due to lack of funds from the previous sale, 
resulting in additional costs 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 generally supply needed cash to 
cover unanticipated redemptions and sales fails, under the 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 
balances in repurchase agreements or in short-term investments. Thus, 
applicants believe that the Credit Facility would benefit both 
borrowing and lending Funds.
    8. The interest rate 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 on any 
day would be the highest rate available to the Funds from investments 
in overnight repurchase agreements. The Bank Loan Rate for any day 
would be calculated by the Interfund Lending Committee, as defined 
below, on each day an Interfund Loan is made according to a formula 
approved by the Boards 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 25 basis points) and would vary with this rate so as to 
reflect changing bank loan rates. Each Board periodically would review 
the continuing appropriateness of using the publicly available rate 
used to determine the Bank Loan Rate, as well as the relationship 
between the Bank Loan Rate and current bank loan rates that would be 
available to the Funds. The initial formula and any subsequent 
modifications to the formula would be subject to the approval of each 
Board.
    9. The Credit Facility would be administered by investment 
professionals and administrative personnel from Funds Management (the 
``Interfund Lending Committee''). No portfolio manager of any Fund will 
serve as a member of the Interfund Lending Committee. Under the Credit 
Facility, the portfolio managers for each participating Fund could 
provide

[[Page 26792]]

standing instructions to participate daily as a borrower or lender. On 
each business day, the Interfund Lending Committee would collect data 
on the uninvested cash and borrowing requirements of all participating 
Funds from the Funds' custodian(s). The Money Market Funds would not 
participate as borrowers. Once it has determined the aggregate amount 
of cash available for loans and borrowing demand, the Interfund Lending 
Committee 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 
allocating cash for Interfund Loans, the Interfund Lending Committee 
will invest any remaining cash in accordance with the standing 
instructions of portfolio managers or return remaining amounts for 
investment directly by the portfolio manager of the applicable Fund.
    10. The Interfund Lending Committee would allocate borrowing demand 
and cash available for lending among the Funds on what the Interfund 
Lending Committee 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 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.
    11. The Interfund Lending Committee would (a) monitor the interest 
rates charged and the other terms and conditions of the 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 each Board concerning any transactions by the Funds under the Credit 
Facility and the interest rates charged. The method of allocation and 
related administrative procedures would be approved by each 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 
Trustees''), to ensure that both borrowing and lending Funds 
participate on an equitable basis.
    12. Funds Management, through the Interfund Lending Committee, 
would administer the Credit Facility as part of its duties under its 
advisory contract and administrative contract with each Fund and would 
receive no compensation for its services.
    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 
organizational documents and its investment policies and limitations.
    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) 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) 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 Funds Management as 
their common investment adviser, and\or by reason of having common 
officers and/or trustees.
    2. Section 6(c) of the Act provides that an exemptive order may be 
granted where an exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) 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 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 that person and that are detrimental to the best interests 
of the investment company and its shareholders. Applicants assert that 
the Credit Facility transactions do not raise these concerns because 
(a) Funds Management, through the Interfund Lending Committee, 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; (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) of the Act 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) 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. 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) 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 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) of the Act 
are satisfied for all the reasons set forth above in support of their 
request for relief from sections 17(a)(3) and

[[Page 26793]]

21(b) of the Act and for the reasons discussed below.
    5. Applicants state that section 12(d)(1) of the Act was intended 
to prevent the pyramiding of investment companies in order to avoid 
duplicative costs and fees attendant upon multiple layers of 
investments. Applicants submit that the Credit Facility does not 
involve those abuses. Applicants note that there would be no 
duplicative costs or fees to the Funds or to Fund shareholders, and 
that Funds Management would receive no additional compensation for its 
services in administering the Credit Facility. Applicants also note 
that the purpose of the Credit Facility is to provide economic benefits 
for all the participating Funds.
    6. Section 18(f)(1) of the Act prohibits open-end investment 
companies from issuing any senior security except that a company is 
permitted to borrow from any bank, if immediately after the borrowing, 
there is an asset coverage of at least 300% 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 
exemptive 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 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 Credit Facility is consistent 
with the purposes and policies of section 18(f)(1) of the Act.
    8. Section 17(d) of the Act and rule 17d-1 under the Act generally 
prohibit any affiliated person of a registered investment company, or 
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 
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 would be on terms 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 Interfund Lending Committee will 
compare the Bank Loan Rate with the Repo Rate and will make cash 
available for Interfund Loans only if the Interfund Loan Rate is (a) 
more favorable to the lending Fund than the Repo Rate and (b) more 
favorable to the borrowing Fund than the Bank Loan Rate.
    3. If a Fund has outstanding 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 on a secured basis only. 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 
be more than 33\1/3\% of its total assets.
    5. Before any Fund that has outstanding interfund borrowings may, 
through additional borrowings, cause its outstanding borrowings from 
all sources to exceed 10% of its total assets, the Fund must first 
secure each outstanding Interfund Loan by the pledge of segregated 
collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan. If the total outstanding 
borrowings of a Fund with outstanding Interfund Loans exceeds 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

[[Page 26794]]

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 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 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 Interfund Lending Committee will calculate total Fund 
borrowing and lending demand through the Credit Facility, and allocate 
loans on an equitable basis among the Funds without the intervention of 
any portfolio manager of the Funds. The Interfund Lending Committee 
will not solicit cash for the Credit Facility from any Fund or 
prospectively publish or disseminate loan demand data to portfolio 
managers. The Interfund Lending Committee will invest any amounts 
remaining after satisfaction of borrowing demand in accordance with the 
standing instructions from portfolio managers or return remaining 
amounts to Funds for investment directly by the Funds.
    13. The Interfund Lending Committee 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 facility.
    14. The Boards of the Funds, including a majority of the 
Independent Trustees: (a) will review no less frequently than quarterly 
each Fund's participation in the Credit Facility during the preceding 
quarter for compliance with the conditions of any order permitting such 
transactions; (b) will establish the Bank Loan Rate formula used to 
determine the interest rate on Interfund Loans, approve any 
modifications thereto, 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.
    15. In the event an Interfund Loan is not paid according to its 
terms and the default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand for payment 
under the provisions of the Interfund Lending Agreement, the Interfund 
Lending Committee will promptly refer such 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.\3\ 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.
---------------------------------------------------------------------------

    \3\ If the dispute involves Funds with different Boards, the 
respective Board of each Fund will select an independent arbitrator 
that is satisfactory to each of them.
---------------------------------------------------------------------------

    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 
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.
    17. The Interfund Lending Committee will prepare and submit to the 
Boards 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 operation of the 
Credit Facility, the Interfund Lending Committee 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 Interfund Lending 
Committee'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 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 each Board; and 
(e) that the interest rate on any Interfund Loan does not exceed the 
interest rate on any outstanding third party borrowings of a borrowing 
Fund at the time of the Interfund Loan. After the final report is 
filed, the independent public accountant for the Fund in connection 
with 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.
    18. No Fund will participate in the Credit Facility unless it has 
fully disclosed in its prospectus or SAI all material facts about its 
intended participation.
    19. The Board of each Fund will satisfy the fund governance 
standards as defined in Rule 0-1(a)(7) under the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Nancy M. Morris,
Secretary.
 [FR Doc. E6-6913 Filed 5-5-06; 8:45 am]
BILLING CODE 8010-01-P