RiverSource Diversified Income Series, Inc., et al.; Notice of Application, 58640-58644 [E6-16365]
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Federal Register / Vol. 71, No. 192 / Wednesday, October 4, 2006 / Notices
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provide more specific guidance for
persons registering under the Act than
the information contained in the statute.
For the most part, these procedural rules
do not require the disclosure of
information. Two of the rules, however,
require limited disclosure of
information.1 The information required
by the rules is necessary to ensure that
investors have clear and complete
information upon which to base an
investment decision. The Commission
uses the information that investment
companies provide on registration
statements in its regulatory, disclosure
review, inspection and policy-making
roles. The respondents to the collection
of information are investment
companies filing registration statements
under the Act.
The Commission does not estimate
separately the total annual reporting and
recordkeeping burden associated with
rules 8b–1 to 8b–33 because the burden
associated with these rules are included
in the burden estimates the Commission
submits for the investment company
registration statement forms (e.g., Form
N–1A, Form N–2, Form N–3, and Form
N–4). For example, a mutual fund that
prepares a registration statement on
Form N–1A must comply with the rules
under section 8(b), including rules on
riders, amendments, the form of the
registration statement, and the number
of copies to be submitted. Because the
fund only incurs a burden from the
section 8(b) rules when preparing a
registration statement, it would be
impractical to measure the compliance
burden of these rules separately. The
Commission believes that including the
burden of the section 8(b) rules with the
burden estimates for the investment
company registration statement forms
provides a more accurate and complete
estimate of the total burdens associated
with the registration process.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
1 Rule 8b–3 (17 CFR 270.8b–3) provides that
whenever a registration form requires the title of
securities to be stated, the registrant must indicate
the type and general character of the securities to
be issued. Rule 8b–22 (17 CFR 270.8b–22) provides
that if the existence of control is open to reasonable
doubt, the registrant may disclaim the existence of
control, but it must state the material facts pertinent
to the possible existence of control.
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information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to R. Corey Booth, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Shirley
Martinson 6432 General Green Way,
Alexandria, Virginia, 22312; or send an
e-mail to: PRA_Mailbox@sec.gov.
Dated: September 27, 2006.
Nancy M. Morris,
Secretary.
[FR Doc. E6–16330 Filed 10–3–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
27506; 812–12799]
RiverSource Diversified Income Series,
Inc., et al.; Notice of Application
September 28, 2006.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under (a) section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) granting an exemption from
sections 18(f) and 21(b) of the Act; (b)
section 12(d)(1)(J) of the Act granting an
exemption from section 12(d)(1) of the
Act; (c) sections 6(c) and 17(b) of the
Act granting an exemption from sections
17(a)(1) and 17(a)(3) of the Act; and (d)
section 17(d) of the Act and rule 17d–
1 under the Act to permit certain joint
transactions.
AGENCY:
Summary of the Application:
Applicants request an order that would
permit certain registered open-end
management investment companies to
participate in a joint lending and
borrowing facility.
Applicants: RiverSource Diversified
Income Series, Inc., RiverSource
California Tax-Exempt Trust,
RiverSource Bond Series, Inc.,
RiverSource Equity Series, Inc.,
RiverSource High Yield Income Series,
Inc., RiverSource Government Income
Series, Inc., RiverSource Global Series,
Inc., RiverSource Large Cap Series, Inc.,
RiverSource Tax-Exempt Income Series,
Inc., RiverSource International Series,
Inc., RiverSource Investment Series,
Inc., RiverSource Strategic Allocation
Series, Inc., RiverSource Market
Advantage Series, Inc., RiverSource
Money Market Series, Inc., RiverSource
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Dimensions Series, Inc., RiverSource
International Managers Series, Inc.,
RiverSource Managers Series, Inc.,
RiverSource Selected Series, Inc.,
RiverSource Short Term Investments
Series, Inc., RiverSource Income Series,
Inc., RiverSource Strategy Series, Inc.,
RiverSource Special Tax-Exempt Series
Trust, RiverSource Tax-Exempt Series,
Inc., RiverSource Tax-Exempt Money
Market Series, Inc., RiverSource Sector
Series, Inc., RiverSource Variable
Portfolio-Income Series, Inc.,
RiverSource Variable PortfolioInvestment Series, Inc., RiverSource
Variable Portfolio-Managed Series, Inc.,
RiverSource Variable Portfolio-Money
Market Series, Inc., RiverSource
Variable Portfolio-Managers Series, Inc.,
RiverSource Variable Portfolio-Select
Series, Inc., RiverSource Retirement
Series Trust (collectively, the
‘‘Companies’’), RiverSource
Investments, LLC (‘‘RiverSource’’), and
Ameriprise Financial, Inc.
(‘‘Ameriprise’’).
Filing Dates: The application was
filed on March 26, 2002, and amended
on September 27, 2006.
Hearing or Notification of Hearing: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on October 23, 2006, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Hearing requests should state
the nature of the writer’s interest, the
reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, Commission, U.S.
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090. Applicants: Companies,
901 Marquette Avenue South, Suite
2810, Minneapolis, MN 55402–3268;
and RiverSource and Ameriprise, 200
Ameriprise Financial Center,
Minneapolis, MN 55474.
FOR FURTHER INFORMATION CONTACT:
Laura J. Riegel, Senior Counsel at (202)
551–6873 or Nadya B. Roytblat,
Assistant Director, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
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may be obtained for a fee at the
Commission’s Public Reference Desk,
100 F Street, NE., Washington, DC
20549–0102 (tel. (202) 551–5850).
Applicants’ Representations
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1. The Companies are organized as
Minnesota corporations or
Massachusetts business trusts and are
registered under the Act as open-end
management investment companies.1
Most Companies offer one or more
series, each with a different investment
objective and different investment
policies. RiverSource is registered as an
investment adviser under the
Investment Advisers Act of 1940.
RiverSource has entered into an
investment management services
agreement with each Fund. Ameriprise
serves as the administrator to each Fund
under the terms of its administrative
services agreement with the Fund.
RiverSource is a wholly-owned
subsidiary of Ameriprise.
2. The Funds may lend cash to banks
or other entities by entering into
repurchase agreements either directly or
through the ‘‘Joint Accounts’’ (as
defined below), purchasing short-term
investments or under arrangements
whereby custodian fees are reduced.
Each Fund may deposit uninvested
daily balances into one or more joint
trading accounts administered by
RiverSource and its affiliates (‘‘Joint
Accounts’’) and invest the daily balance
of the Joint Accounts in repurchase
agreements. An existing Commission
order also permits each Fund to invest
uninvested cash and cash collateral in
one or more money market Funds that
comply with rule 2a–7 under the Act.
3. Currently, the Funds have a
committed line of credit from a bank.
Each Fund can borrow money from the
bank to complete security transactions
suspended by the closing of the
electronic money transfer systems or to
meet redemptions on a timely basis
regardless of whether sale transactions
are awaiting settlement. The amount of
each Fund’s borrowing under the
committed line of credit is limited to the
amount permitted by the Fund’s
fundamental investment policies.
1 Applicants request that the order also apply to
any existing or future series of the Companies and
to any other registered open-end management
investment company or its series for which
RiverSource or a person controlling, controlled by,
or under common control with RiverSource serves
as investment adviser (collectively, together with
the Companies, the ‘‘Funds’’). All existing
registered investment companies that currently
intend to rely on the requested order have been
named as applicants. Any other existing or future
Fund that relies on the requested order in the future
will comply with the terms and conditions of the
application.
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4. If the Funds were to borrow money
from the bank under their committed
line of credit, the Funds would pay
interest on the borrowed cash at a rate
which would likely be significantly
higher than the rate that would be
earned by other non-borrowing Funds
on investments in repurchase
agreements and other short-term
instruments of the same maturity as the
bank loan. Applicants believe this
differential represents the bank’s profit
for serving as the middleman between a
borrower and a lender. The Funds pay
an annual commitment fee for the
committed line of credit.
5. Applicants request an order that
would permit the Funds to enter into a
master interfund lending agreement
(‘‘Interfund Lending Agreement’’) under
which the Funds would lend and
borrow money for temporary purposes
directly to and from each other through
a credit facility (‘‘Interfund Loan’’).
Applicants state that the proposed
credit facility would reduce potential
borrowing Funds’ costs and enhance
lending Funds’ ability to earn higher
rates of interest on short-term loans.
Although the proposed credit facility
would reduce the Funds’ need to
borrow from banks, the Funds would be
free to establish and/or continue
committed lines of credit or other
borrowing arrangements with banks.
6. The credit facility may be used
when the cash position of a Fund is
insufficient to meet a day’s cash
requirements, such as when shareholder
redemptions exceed anticipated
volumes. When a Fund sells portfolio
securities to meet redemption requests,
it may not receive payment in
settlement for up to three days, or longer
in the case of certain foreign
transactions, even though redemption
requests are normally satisfied
immediately. Other reasons that cash
may not be available in a timely fashion
to meet redemptions or settle
transactions are: circumstances such as
following September 11, 2001; when a
sale of securities fails; or improper
delivery instructions by the broker
effecting the transaction delays delivery
of cash to the custodian. In such cases,
the credit facility could provide a source
of immediate, short-term liquidity
pending receipt of cash and result in
savings to the borrowing Fund and
increased returns to the lending Funds.
7. While bank borrowings generally
could supply needed cash to cover
unanticipated redemptions and sales
fails, under the proposed credit facility
a borrowing Fund would pay lower
interest rates than those offered by
banks on short-term loans. In addition,
Funds making short-term cash loans
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directly to other Funds would earn
interest at a rate higher than they
otherwise could obtain from investing
their cash in repurchase agreements.
Thus, applicants believe that the
proposed credit facility would benefit
both borrowing and lending Funds. The
interest rate charged to a Fund on any
loan made pursuant to the proposed
credit facility (‘‘Interfund Loan Rate’’)
would be determined daily and would
be the average of the ‘‘Joint Accounts
Repo Rate’’ and the ‘‘Bank Loan Rate,’’
both as defined below. The Joint
Accounts Repo Rate for any day would
be the current overnight repurchase
agreement rate available through the
Joint Accounts. The Bank Loan Rate for
any day would be calculated by the
‘‘Credit Facility Team’’ (as defined
below) on each day an Interfund Loan
is made according to a formula
established by each Fund’s board of
directors or trustees (‘‘Board’’) intended
to approximate the lowest interest rate
at which a bank short-term loan would
be available to the Fund. The formula
would be based upon a publicly
available rate (e.g., Federal funds plus
25 basis points) and would vary with
this rate so as to reflect changing bank
loan rates. The Board of each Fund
would periodically review the
continuing appropriateness of using the
publicly available rate, as well as the
relationship between the Bank Loan
Rate and current bank loan rates that
would be available to the Fund. The
initial formula and any subsequent
modifications to the formula would be
subject to the approval of each Fund’s
Board.
8. The credit facility would be
administered by the Fund’s treasurer, a
representative from Ameriprise’s
treasury department, and a
representative from compliance, all of
whom are employees of Ameriprise
(collectively, the ‘‘Credit Facility
Team’’). Under the proposed credit
facility, the portfolio managers for each
participating Fund could provide
standing instructions to participate
daily as a borrower or lender. The Credit
Facility Team on each business day
would collect data on the uninvested
cash and borrowing requirements of all
participating Funds from the Funds’
custodians. Once it determined the
aggregate amount of cash available for
loans and borrowing demand, the Credit
Facility Team would allocate loans
among borrowing Funds without any
further communication from portfolio
managers. Applicants expect far more
available uninvested cash each day than
borrowing demand. After the Credit
Facility Team has allocated cash for
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Interfund Loans, the Credit Facility
Team would invest any remaining cash
in accordance with the standing
instructions of portfolio managers or
return remaining amounts to the Funds.
The money market Funds typically
would not participate as borrowers
because they rarely need to borrow cash
to meet redemptions.
9. The Credit Facility Team would
allocate borrowing demand and cash
available for lending among the Funds
on what the Credit Facility Team
believes to be an equitable basis, subject
to certain administrative procedures
applicable to all Funds, such as the time
of filing requests to participate,
minimum loan lot sizes, and the need to
minimize the number of transactions
and associated administrative costs. To
reduce transaction costs, each Interfund
Loan normally would be allocated in a
manner intended to minimize the
number of participants necessary to
complete the loan transaction.
10. The Credit Facility Team would
(a) Monitor the interest rates charged
and the other terms and conditions of
the Interfund Loans; (b) limit the
borrowings and loans entered into by
each Fund to ensure that they comply
with the Fund’s investment policies and
limitations; (c) ensure equitable
treatment of each Fund; and (d) make
quarterly reports to the Board of each
Fund concerning any transactions by
the Fund under the credit facility and
the interest rates charged. The method
of allocation and related administrative
procedures would be approved by each
Fund’s Board, including a majority of
directors or trustees who are not
‘‘interested persons’’ of the Fund, as
defined in section 2(a)(19) of the Act
(‘‘Independent Board Members’’), to
ensure that both borrowing and lending
Funds participate on an equitable basis.
11. Ameriprise, through the Credit
Facility Team, would administer the
credit facility as part of its duties under
its existing administrative services
agreement with each Fund and would
receive no additional compensation for
its services. No Fund may participate in
the credit facility unless: (a) The Fund
has obtained shareholder approval for
its participation, if such approval is
required by law; (b) the Fund has fully
disclosed all material information
concerning the credit facility in its
prospectus or statement of additional
information (‘‘SAI’’); and (c) the Fund’s
participation in the credit facility is
consistent with its investment
objectives, limitations, and
organizational documents.
12. In connection with the credit
facility, applicants request an order
under (a) section 6(c) of the Act granting
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relief from sections 18(f) and 21(b) of
the Act; (b) section 12(d)(1)(J) of the Act
granting relief from section 12(d)(1) of
the Act; (c) sections 6(c) and 17(b) of the
Act granting relief from sections 17(a)(1)
and 17(a)(3) of the Act; and (d) under
section 17(d) of the Act and rule 17d–
1 under the Act to permit certain joint
arrangements.
Applicants’ Legal Analysis
1. Section 17(a)(3) generally prohibits
any affiliated person, or affiliated
person of an affiliated person, from
borrowing money or other property from
a registered investment company.
Section 21(b) generally prohibits any
registered management company from
lending money or other property to any
person if that person controls or is
under common control with the
company. Section 2(a)(3)(C) of the Act
defines an ‘‘affiliated person’’ of another
person, in part, to be any person directly
or indirectly controlling, controlled by,
or under common control with, the
other person. Applicants state that the
Funds may be under common control by
virtue of having RiverSource as their
common investment adviser and/or by
reason of having common officers and/
or directors or trustees.
2. Section 6(c) provides that an
exemptive order may be granted where
an exemption is necessary or
appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act. Section 17(b) authorizes the
Commission to exempt a proposed
transaction from section 17(a) provided
that the terms of the transaction,
including the consideration to be paid
or received, are reasonable and fair and
do not involve overreaching on the part
of any person concerned, and the
transaction is consistent with the policy
of the investment company as recited in
its registration statement and with the
general purposes of the Act. Applicants
believe that the proposed arrangements
satisfy these standards for the reasons
discussed below.
3. Applicants submit that sections
17(a)(3) and 21(b) were intended to
prevent a person with strong potential
adverse interests to, and some influence
over the investment decisions of, a
registered investment company from
causing or inducing the investment
company to engage in lending
transactions that unfairly inure to the
benefit of such person and that are
detrimental to the best interests of the
investment company and its
shareholders. Applicants assert that the
proposed credit facility transactions do
not raise these concerns because: (a)
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Ameriprise, through the Credit Facility
Team, would administer the program as
a disinterested party; (b) all Interfund
Loans would consist only of uninvested
cash reserves that a Fund otherwise
would invest in short-term repurchase
agreements or other short-term
instruments; (c) the Interfund Loans
would not involve a greater risk than
such other investments; (d) the lending
Fund would receive interest at a rate
higher than it could obtain through such
other investments; and (e) the borrowing
Fund would pay interest at a rate lower
than otherwise available to it under its
bank loan agreements and avoid the
quarterly commitment fees associated
with committed lines of credit.
Moreover, applicants believe that the
other conditions in the application
would effectively preclude the
possibility of any Fund obtaining an
undue advantage over any other Fund.
4. Section 17(a)(1) generally prohibits
an affiliated person of a registered
investment company, or an affiliated
person of an affiliated person, from
selling any securities or other property
to the company. Section 12(d)(1)
generally makes it unlawful for a
registered investment company to
purchase or otherwise acquire any
security issued by any other investment
company except in accordance with the
limitations set forth in that section.
Applicants state that the obligation of a
borrowing Fund to repay an Interfund
Loan may constitute a security under
sections 17(a)(1) and 12(d)(1). Section
12(d)(1)(J) provides that the Commission
may exempt persons or transactions
from any provision of section 12(d)(1) if
and to the extent that such exemption
is consistent with the public interest
and the protection of investors.
Applicants contend that the standards
under sections 6(c), 17(b), and
12(d)(1)(J) are satisfied for all the
reasons set forth above in support of
their request for relief from sections
17(a)(3) and 21(b) and for the reasons
discussed below.
5. Applicants state that section
12(d)(1) was intended to prevent the
pyramiding of investment companies in
order to avoid imposing on investors
additional and duplicative costs and
fees attendant upon multiple layers of
investment companies. Applicants
submit that the proposed credit facility
does not involve these abuses.
Applicants note that there will be no
duplicative costs or fees to the Funds or
to the Funds’ shareholders, and that
Ameriprise will receive no additional
compensation for its services in
administering the credit facility.
Applicants also note that the purpose of
the proposed credit facility is to provide
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economic benefits for all of the
participating Funds.
6. Section 18(f)(1) of the Act prohibits
registered open-end investment
companies from issuing any senior
security except that a company is
permitted to borrow from any bank, if
immediately after the borrowing, there
is asset coverage of at least 300 per
centum for all borrowings of the
company. Under section 18(g) of the
Act, the term ‘‘senior security’’ includes
any bond, debenture, note or similar
obligation or instrument constituting a
security and evidencing indebtedness.
Applicants request relief from section
18(f)(1) to the limited extent necessary
to implement the credit facility (because
the lending Funds are not banks).
7. Applicants believe that granting
relief under section 6(c) of the Act is
appropriate because the Funds would
remain subject to the requirement of
section 18(f)(1) of the Act that all
borrowings of a Fund, including
combined Interfund Loans and bank
borrowings, have at least 300 per
centum asset coverage. Based on the
conditions and safeguards described in
the application, applicants also submit
that to allow the Funds to borrow from
other Funds pursuant to the proposed
credit facility is consistent with the
purposes and policies of section 18(f)(1)
of the Act.
8. Section 17(d) and rule 17d–1
generally prohibit any affiliated person
of a registered investment company, or
any affiliated person of an affiliated
person, when acting as principal, from
effecting any joint transaction in which
the company participates unless the
transaction is approved by the
Commission. Rule 17d–1(b) provides
that in passing upon applications filed
under the rule, the Commission will
consider whether the participation of a
registered investment company in a
joint enterprise on the basis proposed is
consistent with the provisions, policies,
and purposes of the Act and the extent
to which the company’s participation is
on a basis different from or less
advantageous than that of other
participants.
9. Applicants submit that the purpose
of section 17(d) is to avoid overreaching
by and unfair advantage to investment
company insiders. Applicants believe
that the credit facility is consistent with
the provisions, policies, and purposes of
the Act in that it offers both reduced
borrowing costs and enhanced returns
on loaned funds to all participating
Funds and their shareholders.
Applicants note that each Fund would
have an equal opportunity to borrow
and lend on equal terms consistent with
its investment policies and fundamental
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investment limitations. Applicants
therefore believe that each Fund’s
participation in the credit facility will
be on terms that are no different from
or less advantageous than that of other
participating Funds.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. The Interfund Loan Rate to be
charged to the Funds under the credit
facility will be the average of the Joint
Accounts Repo Rate and the Bank Loan
Rate.
2. On each business day, the Credit
Facility Team will compare the Bank
Loan Rate with the Joint Accounts Repo
Rate and will make cash available for
Interfund Loans only if the Interfund
Loan Rate is (a) more favorable to the
lending Fund than the Joint Accounts
Repo Rate and (b) more favorable to the
borrowing Fund than the Bank Loan
Rate.
3. If a Fund has outstanding
borrowings, any Interfund Loans to the
Fund (a) will be at an interest rate equal
to or lower than any outstanding bank
loan; (b) will be secured at least on an
equal priority basis with at least an
equivalent percentage of collateral to
loan value as any outstanding bank loan
that requires collateral; (c) will have a
maturity no longer than any outstanding
bank loan (and in any event not over
seven days); and (d) will provide that,
if an event of default occurs under any
agreement evidencing an outstanding
bank loan to the Fund, that event of
default will automatically (without need
for action or notice by the lending Fund)
constitute an immediate event of default
under the Interfund Lending Agreement
entitling the lending Fund to call the
Interfund Loan (and exercise all rights
with respect to any collateral) and that
such call will be made if the lending
bank exercises its right to call its loan
under its agreement with the borrowing
Fund.
4. A Fund may make an unsecured
borrowing through the credit facility if
its outstanding borrowings from all
sources immediately after the interfund
borrowing total 10% or less of its total
assets, provided that if the Fund has a
secured loan outstanding from any other
lender, including but not limited to
another Fund, the Fund’s interfund
borrowing will be secured on at least an
equal priority basis with at least an
equivalent percentage of collateral to
loan value as any outstanding loan that
requires collateral. If a Fund’s total
outstanding borrowings immediately
after an interfund borrowing would be
greater than 10% of its total assets, the
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Fund may borrow through the credit
facility only on a secured basis. A Fund
may not borrow through the credit
facility or from any other source if its
total outstanding borrowings
immediately after the interfund
borrowing would exceed the limits
imposed by section 18 of the Act.
5. Before any Fund that has
outstanding interfund borrowings may,
through additional borrowings, cause its
outstanding borrowings from all sources
to exceed 10% of its total assets, the
Fund must first secure each outstanding
Interfund Loan by the pledge of
segregated collateral with a market
value at least equal to 102% of the
outstanding principal value of the loan.
If the total outstanding borrowings of a
Fund with outstanding Interfund Loans
exceed 10% of its total assets for any
other reason (such as a decline in net
asset value or because of shareholder
redemptions), the Fund will within one
business day thereafter (a) repay all its
outstanding Interfund Loans; (b) reduce
its outstanding indebtedness to 10% or
less of its total assets; or (c) secure each
outstanding Interfund Loan by the
pledge of segregated collateral with a
market value at least equal to 102% of
the outstanding principal value of the
loan until the Fund’s total outstanding
borrowings cease to exceed 10% of its
total assets, at which time the collateral
called for by this condition (5) shall no
longer be required. Until each Interfund
Loan that is outstanding at any time that
a Fund’s total outstanding borrowings
exceed 10% of its total assets is repaid
or the Fund’s total outstanding
borrowings cease to exceed 10% of its
total assets, the Fund will mark the
value of the collateral to market each
day and will pledge such additional
collateral as is necessary to maintain the
market value of the collateral that
secures each outstanding Interfund Loan
at least equal to 102% of the
outstanding principal value of the loan.
6. No Fund may lend to another Fund
through the credit facility if the loan
would cause the lending Fund’s
aggregate outstanding loans through the
credit facility to exceed 15% of its net
assets at the time of the loan.
7. A Fund’s Interfund Loans to any
one Fund shall not exceed 5% of the
lending Fund’s current net assets.
8. The duration of Interfund Loans
will be limited to the time required to
receive payment for securities sold, but
in no event more than seven days. Loans
effected within seven days of each other
will be treated as separate loan
transactions for purposes of this
condition.
9. A Fund’s borrowings through the
credit facility, as measured on the day
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58644
Federal Register / Vol. 71, No. 192 / Wednesday, October 4, 2006 / Notices
when the most recent loan was made,
will not exceed the greater of 125% of
the Fund’s total net cash redemptions or
102% of sales fails for the preceding
seven calendar days.
10. Each Interfund Loan may be called
on one business day’s notice by a
lending Fund and may be repaid on any
day by a borrowing Fund.
11. A Fund’s participation in the
credit facility must be consistent with
its investment policies and limitations
and organizational documents.
12. The Credit Facility Team will
calculate total Fund borrowing and
lending demand through the credit
facility, and allocate interfund loans on
an equitable basis among the Funds,
without the intervention of any portfolio
manager of the Funds. The Credit
Facility Team will not solicit cash for
the credit facility from any Fund or
prospectively publish or disseminate
loan demand data to portfolio managers.
The Credit Facility Team will invest
amounts remaining after satisfaction of
borrowing demand in accordance with
the standing instructions from portfolio
managers or return remaining amounts
to the Funds.
13. The Credit Facility Team will
monitor the interest rates charged and
the other terms and conditions of the
Interfund Loans and will make a
quarterly report to the Board of each
Fund concerning the participation of the
Fund in the credit facility and the terms
and other conditions of any extensions
of credit under the credit facility.
14. The Board of each Fund,
including a majority of the Independent
Board Members, will: (a) Review no less
frequently than quarterly the Fund’s
participation in the credit facility during
the preceding quarter for compliance
with the conditions of any order
permitting the transactions; (b) establish
the Bank Loan Rate formula used to
determine the Interfund Loan Rate and
review no less frequently than annually
the continuing appropriateness of the
Bank Loan Rate formula; and (c) review
no less frequently than annually the
continuing appropriateness of the
Fund’s participation in the credit
facility.
15. Each Fund will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any transaction under the credit
facility occurred, the first two years in
an easily accessible place, written
records of all such transactions setting
forth a description of the terms of the
transaction, including the amount, the
maturity and the rate of interest on the
loan, the rate of interest available at the
time on short-term repurchase
agreements and bank borrowings, and
VerDate Aug<31>2005
14:45 Oct 03, 2006
Jkt 211001
such other information presented to the
Fund’s Board in connection with the
review required by conditions 13 and
14.
16. In the event an Interfund Loan is
not paid according to its terms and the
default is not cured within two business
days from its maturity or from the time
the lending Fund makes a demand for
payment under the provisions of the
Interfund Lending Agreement, the
Credit Facility Team promptly will refer
the loan for arbitration to an
independent arbitrator selected by the
Board of any Fund involved in the loan
who will serve as the arbitrator of
disputes concerning Interfund Loans.2
The arbitrator will resolve any problem
promptly, and the arbitrator’s decision
will be binding on both Funds. The
arbitrator will submit, at least annually,
a written report to the Board of each
Fund setting forth a description of the
nature of any dispute and the actions
taken by the Funds to resolve the
dispute.
17. The Credit Facility Team will
prepare and submit to the Board of each
Fund for review an initial report
describing the operations of the credit
facility and the procedures to be
implemented to ensure that all Funds
are treated fairly. After the
commencement of operations of the
credit facility, the Credit Facility Team
will report on the operations of the
credit facility at the quarterly meetings
of each Fund’s Board.
In addition, for two years following
the commencement of the credit facility,
the independent public accountant for
each Fund shall prepare an annual
report that evaluates the Credit Facility
Team’s assertion that it has established
procedures reasonably designed to
achieve compliance with the conditions
of the order. The report shall be
prepared in accordance with the
Statements on Standards for Attestation
Engagements No. 10 and it shall be filed
pursuant to Item 77Q3 of Form N–SAR
as such Statements or Form may be
revised, amended, or superseded from
time to time. In particular, the report
shall address procedures designed to
achieve the following objectives: (a)
That the Interfund Loan Rate will be
higher than the Joint Accounts Repo
Rate, but lower than the Bank Loan
Rate; (b) compliance with the collateral
requirements as set forth in the
application; (c) compliance with the
percentage limitations on interfund
borrowing and lending; (d) allocation of
2 If the dispute involves Funds with separate
Boards, the Board of each Fund will select an
independent arbitrator that is satisfactory to each
Fund.
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
interfund borrowing and lending
demand in an equitable manner and in
accordance with procedures established
by the Board; and (e) that the Interfund
Loan Rate does not exceed the interest
rate on any third party borrowings of a
borrowing Fund at the time of the
Interfund Loan.
After the final report is filed, each
Fund’s independent public accountant,
in connection with its audit
examinations, will continue to review
the operation of the credit facility for
compliance with the conditions of the
application and its review will form the
basis, in part, of the auditor’s report on
internal accounting controls in Form N–
SAR.
18. No Fund will participate in the
credit facility upon receipt of requisite
regulatory approval unless it has fully
disclosed in its prospectus or SAI all
material facts about its intended
participation.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6–16365 Filed 10–3–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release Nos. 33–8743; 34–54519; File No.
4–526]
SEC Government-Business Forum on
Small Business Capital Formation
Securities and Exchange
Commission.
ACTION: Request for public comment in
connection with Forum on Small
Business Capital Formation.
AGENCY:
SUMMARY: The Securities and Exchange
Commission is providing for additional
public input in connection with its
annual Government-Business Forum on
Small Business Capital Formation, to be
held Friday, September 29, 2006,
beginning at 9 a.m. EDT, at its
Washington, DC headquarters. The
morning sessions of the Forum will be
Webcast on the Commission’s Web site
at www.sec.gov. The public is invited to
submit written statements in connection
with the Forum.
This year’s Forum program will
include two roundtable discussions in
the morning. The first roundtable will
discuss the advantages to smaller public
companies of filing interactive data with
the SEC. The second roundtable will
discuss current issues in capital raising
techniques for small business, such as
the status of the IPO (initial public
E:\FR\FM\04OCN1.SGM
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]]>Agencies
[Federal Register Volume 71, Number 192 (Wednesday, October 4, 2006)]
[Notices]
[Pages 58640-58644]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-16365]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27506; 812-12799]
RiverSource Diversified Income Series, Inc., et al.; Notice of
Application
September 28, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under (a) section 6(c) of
the Investment Company Act of 1940 (``Act'') granting an exemption from
sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act
granting an exemption from section 12(d)(1) of the Act; (c) sections
6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1)
and 17(a)(3) of the Act; and (d) section 17(d) of the Act and rule 17d-
1 under the Act to permit certain joint transactions.
-----------------------------------------------------------------------
Summary of the Application: Applicants request an order that would
permit certain registered open-end management investment companies to
participate in a joint lending and borrowing facility.
Applicants: RiverSource Diversified Income Series, Inc.,
RiverSource California Tax-Exempt Trust, RiverSource Bond Series, Inc.,
RiverSource Equity Series, Inc., RiverSource High Yield Income Series,
Inc., RiverSource Government Income Series, Inc., RiverSource Global
Series, Inc., RiverSource Large Cap Series, Inc., RiverSource Tax-
Exempt Income Series, Inc., RiverSource International Series, Inc.,
RiverSource Investment Series, Inc., RiverSource Strategic Allocation
Series, Inc., RiverSource Market Advantage Series, Inc., RiverSource
Money Market Series, Inc., RiverSource Dimensions Series, Inc.,
RiverSource International Managers Series, Inc., RiverSource Managers
Series, Inc., RiverSource Selected Series, Inc., RiverSource Short Term
Investments Series, Inc., RiverSource Income Series, Inc., RiverSource
Strategy Series, Inc., RiverSource Special Tax-Exempt Series Trust,
RiverSource Tax-Exempt Series, Inc., RiverSource Tax-Exempt Money
Market Series, Inc., RiverSource Sector Series, Inc., RiverSource
Variable Portfolio-Income Series, Inc., RiverSource Variable Portfolio-
Investment Series, Inc., RiverSource Variable Portfolio-Managed Series,
Inc., RiverSource Variable Portfolio-Money Market Series, Inc.,
RiverSource Variable Portfolio-Managers Series, Inc., RiverSource
Variable Portfolio-Select Series, Inc., RiverSource Retirement Series
Trust (collectively, the ``Companies''), RiverSource Investments, LLC
(``RiverSource''), and Ameriprise Financial, Inc. (``Ameriprise'').
Filing Dates: The application was filed on March 26, 2002, and
amended on September 27, 2006.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on October 23, 2006, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Commission, U.S. Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-1090. Applicants:
Companies, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN
55402-3268; and RiverSource and Ameriprise, 200 Ameriprise Financial
Center, Minneapolis, MN 55474.
FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel at
(202) 551-6873 or Nadya B. Roytblat, Assistant Director, at (202) 551-
6821 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application
[[Page 58641]]
may be obtained for a fee at the Commission's Public Reference Desk,
100 F Street, NE., Washington, DC 20549-0102 (tel. (202) 551-5850).
Applicants' Representations
1. The Companies are organized as Minnesota corporations or
Massachusetts business trusts and are registered under the Act as open-
end management investment companies.\1\ Most Companies offer one or
more series, each with a different investment objective and different
investment policies. RiverSource is registered as an investment adviser
under the Investment Advisers Act of 1940. RiverSource has entered into
an investment management services agreement with each Fund. Ameriprise
serves as the administrator to each Fund under the terms of its
administrative services agreement with the Fund. RiverSource is a
wholly-owned subsidiary of Ameriprise.
---------------------------------------------------------------------------
\1\ Applicants request that the order also apply to any existing
or future series of the Companies and to any other registered open-
end management investment company or its series for which
RiverSource or a person controlling, controlled by, or under common
control with RiverSource serves as investment adviser (collectively,
together with the Companies, the ``Funds''). All existing registered
investment companies that currently intend to rely on the requested
order have been named as applicants. Any other existing or future
Fund that relies on the requested order in the future will comply
with the terms and conditions of the application.
---------------------------------------------------------------------------
2. The Funds may lend cash to banks or other entities by entering
into repurchase agreements either directly or through the ``Joint
Accounts'' (as defined below), purchasing short-term investments or
under arrangements whereby custodian fees are reduced. Each Fund may
deposit uninvested daily balances into one or more joint trading
accounts administered by RiverSource and its affiliates (``Joint
Accounts'') and invest the daily balance of the Joint Accounts in
repurchase agreements. An existing Commission order also permits each
Fund to invest uninvested cash and cash collateral in one or more money
market Funds that comply with rule 2a-7 under the Act.
3. Currently, the Funds have a committed line of credit from a
bank. Each Fund can borrow money from the bank to complete security
transactions suspended by the closing of the electronic money transfer
systems or to meet redemptions on a timely basis regardless of whether
sale transactions are awaiting settlement. The amount of each Fund's
borrowing under the committed line of credit is limited to the amount
permitted by the Fund's fundamental investment policies.
4. If the Funds were to borrow money from the bank under their
committed line of credit, the Funds would pay interest on the borrowed
cash at a rate which would likely be significantly higher than the rate
that would be earned by other non-borrowing Funds on investments in
repurchase agreements and other short-term instruments of the same
maturity as the bank loan. Applicants believe this differential
represents the bank's profit for serving as the middleman between a
borrower and a lender. The Funds pay an annual commitment fee for the
committed line of credit.
5. Applicants request an order that would permit the Funds to enter
into a master interfund lending agreement (``Interfund Lending
Agreement'') under which the Funds would lend and borrow money for
temporary purposes directly to and from each other through a credit
facility (``Interfund Loan''). Applicants state that the proposed
credit facility would reduce potential borrowing Funds' costs and
enhance lending Funds' ability to earn higher rates of interest on
short-term loans. Although the proposed credit facility would reduce
the Funds' need to borrow from banks, the Funds would be free to
establish and/or continue committed lines of credit or other borrowing
arrangements with banks.
6. The credit facility may be used when the cash position of a Fund
is insufficient to meet a day's cash requirements, such as when
shareholder redemptions exceed anticipated volumes. When a Fund sells
portfolio securities to meet redemption requests, it may not receive
payment in settlement for up to three days, or longer in the case of
certain foreign transactions, even though redemption requests are
normally satisfied immediately. Other reasons that cash may not be
available in a timely fashion to meet redemptions or settle
transactions are: circumstances such as following September 11, 2001;
when a sale of securities fails; or improper delivery instructions by
the broker effecting the transaction delays delivery of cash to the
custodian. In such cases, the credit facility could provide a source of
immediate, short-term liquidity pending receipt of cash and result in
savings to the borrowing Fund and increased returns to the lending
Funds.
7. While bank borrowings generally could supply needed cash to
cover unanticipated redemptions and sales fails, under the proposed
credit facility a borrowing Fund would pay lower interest rates than
those offered by banks on short-term loans. In addition, Funds making
short-term cash loans directly to other Funds would earn interest at a
rate higher than they otherwise could obtain from investing their cash
in repurchase agreements. Thus, applicants believe that the proposed
credit facility would benefit both borrowing and lending Funds. The
interest rate charged to a Fund on any loan made pursuant to the
proposed credit facility (``Interfund Loan Rate'') would be determined
daily and would be the average of the ``Joint Accounts Repo Rate'' and
the ``Bank Loan Rate,'' both as defined below. The Joint Accounts Repo
Rate for any day would be the current overnight repurchase agreement
rate available through the Joint Accounts. The Bank Loan Rate for any
day would be calculated by the ``Credit Facility Team'' (as defined
below) on each day an Interfund Loan is made according to a formula
established by each Fund's board of directors or trustees (``Board'')
intended to approximate the lowest interest rate at which a bank short-
term loan would be available to the Fund. The formula would be based
upon a publicly available rate (e.g., Federal funds plus 25 basis
points) and would vary with this rate so as to reflect changing bank
loan rates. The Board of each Fund would periodically review the
continuing appropriateness of using the publicly available rate, as
well as the relationship between the Bank Loan Rate and current bank
loan rates that would be available to the Fund. The initial formula and
any subsequent modifications to the formula would be subject to the
approval of each Fund's Board.
8. The credit facility would be administered by the Fund's
treasurer, a representative from Ameriprise's treasury department, and
a representative from compliance, all of whom are employees of
Ameriprise (collectively, the ``Credit Facility Team''). Under the
proposed credit facility, the portfolio managers for each participating
Fund could provide standing instructions to participate daily as a
borrower or lender. The Credit Facility Team on each business day would
collect data on the uninvested cash and borrowing requirements of all
participating Funds from the Funds' custodians. Once it determined the
aggregate amount of cash available for loans and borrowing demand, the
Credit Facility Team would allocate loans among borrowing Funds without
any further communication from portfolio managers. Applicants expect
far more available uninvested cash each day than borrowing demand.
After the Credit Facility Team has allocated cash for
[[Page 58642]]
Interfund Loans, the Credit Facility Team would invest any remaining
cash in accordance with the standing instructions of portfolio managers
or return remaining amounts to the Funds. The money market Funds
typically would not participate as borrowers because they rarely need
to borrow cash to meet redemptions.
9. The Credit Facility Team would allocate borrowing demand and
cash available for lending among the Funds on what the Credit Facility
Team believes to be an equitable basis, subject to certain
administrative procedures applicable to all Funds, such as the time of
filing requests to participate, minimum loan lot sizes, and the need to
minimize the number of transactions and associated administrative
costs. To reduce transaction costs, each Interfund Loan normally would
be allocated in a manner intended to minimize the number of
participants necessary to complete the loan transaction.
10. The Credit Facility Team would (a) Monitor the interest rates
charged and the other terms and conditions of the Interfund Loans; (b)
limit the borrowings and loans entered into by each Fund to ensure that
they comply with the Fund's investment policies and limitations; (c)
ensure equitable treatment of each Fund; and (d) make quarterly reports
to the Board of each Fund concerning any transactions by the Fund under
the credit facility and the interest rates charged. The method of
allocation and related administrative procedures would be approved by
each Fund's Board, including a majority of directors or trustees who
are not ``interested persons'' of the Fund, as defined in section
2(a)(19) of the Act (``Independent Board Members''), to ensure that
both borrowing and lending Funds participate on an equitable basis.
11. Ameriprise, through the Credit Facility Team, would administer
the credit facility as part of its duties under its existing
administrative services agreement with each Fund and would receive no
additional compensation for its services. No Fund may participate in
the credit facility unless: (a) The Fund has obtained shareholder
approval for its participation, if such approval is required by law;
(b) the Fund has fully disclosed all material information concerning
the credit facility in its prospectus or statement of additional
information (``SAI''); and (c) the Fund's participation in the credit
facility is consistent with its investment objectives, limitations, and
organizational documents.
12. In connection with the credit facility, applicants request an
order under (a) section 6(c) of the Act granting relief from sections
18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting
relief from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of
the Act granting relief from sections 17(a)(1) and 17(a)(3) of the Act;
and (d) under section 17(d) of the Act and rule 17d-1 under the Act to
permit certain joint arrangements.
Applicants' Legal Analysis
1. Section 17(a)(3) generally prohibits any affiliated person, or
affiliated person of an affiliated person, from borrowing money or
other property from a registered investment company. Section 21(b)
generally prohibits any registered management company from lending
money or other property to any person if that person controls or is
under common control with the company. Section 2(a)(3)(C) of the Act
defines an ``affiliated person'' of another person, in part, to be any
person directly or indirectly controlling, controlled by, or under
common control with, the other person. Applicants state that the Funds
may be under common control by virtue of having RiverSource as their
common investment adviser and/or by reason of having common officers
and/or directors or trustees.
2. Section 6(c) provides that an exemptive order may be granted
where an exemption is necessary or appropriate in the public interest
and consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act. Section 17(b)
authorizes the Commission to exempt a proposed transaction from section
17(a) provided that the terms of the transaction, including the
consideration to be paid or received, are reasonable and fair and do
not involve overreaching on the part of any person concerned, and the
transaction is consistent with the policy of the investment company as
recited in its registration statement and with the general purposes of
the Act. Applicants believe that the proposed arrangements satisfy
these standards for the reasons discussed below.
3. Applicants submit that sections 17(a)(3) and 21(b) were intended
to prevent a person with strong potential adverse interests to, and
some influence over the investment decisions of, a registered
investment company from causing or inducing the investment company to
engage in lending transactions that unfairly inure to the benefit of
such person and that are detrimental to the best interests of the
investment company and its shareholders. Applicants assert that the
proposed credit facility transactions do not raise these concerns
because: (a) Ameriprise, through the Credit Facility Team, would
administer the program as a disinterested party; (b) all Interfund
Loans would consist only of uninvested cash reserves that a Fund
otherwise would invest in short-term repurchase agreements or other
short-term instruments; (c) the Interfund Loans would not involve a
greater risk than such other investments; (d) the lending Fund would
receive interest at a rate higher than it could obtain through such
other investments; and (e) the borrowing Fund would pay interest at a
rate lower than otherwise available to it under its bank loan
agreements and avoid the quarterly commitment fees associated with
committed lines of credit. Moreover, applicants believe that the other
conditions in the application would effectively preclude the
possibility of any Fund obtaining an undue advantage over any other
Fund.
4. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company, or an affiliated person of an affiliated
person, from selling any securities or other property to the company.
Section 12(d)(1) generally makes it unlawful for a registered
investment company to purchase or otherwise acquire any security issued
by any other investment company except in accordance with the
limitations set forth in that section. Applicants state that the
obligation of a borrowing Fund to repay an Interfund Loan may
constitute a security under sections 17(a)(1) and 12(d)(1). Section
12(d)(1)(J) provides that the Commission may exempt persons or
transactions from any provision of section 12(d)(1) if and to the
extent that such exemption is consistent with the public interest and
the protection of investors. Applicants contend that the standards
under sections 6(c), 17(b), and 12(d)(1)(J) are satisfied for all the
reasons set forth above in support of their request for relief from
sections 17(a)(3) and 21(b) and for the reasons discussed below.
5. Applicants state that section 12(d)(1) was intended to prevent
the pyramiding of investment companies in order to avoid imposing on
investors additional and duplicative costs and fees attendant upon
multiple layers of investment companies. Applicants submit that the
proposed credit facility does not involve these abuses. Applicants note
that there will be no duplicative costs or fees to the Funds or to the
Funds' shareholders, and that Ameriprise will receive no additional
compensation for its services in administering the credit facility.
Applicants also note that the purpose of the proposed credit facility
is to provide
[[Page 58643]]
economic benefits for all of the participating Funds.
6. Section 18(f)(1) of the Act prohibits registered open-end
investment companies from issuing any senior security except that a
company is permitted to borrow from any bank, if immediately after the
borrowing, there is asset coverage of at least 300 per centum for all
borrowings of the company. Under section 18(g) of the Act, the term
``senior security'' includes any bond, debenture, note or similar
obligation or instrument constituting a security and evidencing
indebtedness. Applicants request relief from section 18(f)(1) to the
limited extent necessary to implement the credit facility (because the
lending Funds are not banks).
7. Applicants believe that granting relief under section 6(c) of
the Act is appropriate because the Funds would remain subject to the
requirement of section 18(f)(1) of the Act that all borrowings of a
Fund, including combined Interfund Loans and bank borrowings, have at
least 300 per centum asset coverage. Based on the conditions and
safeguards described in the application, applicants also submit that to
allow the Funds to borrow from other Funds pursuant to the proposed
credit facility is consistent with the purposes and policies of section
18(f)(1) of the Act.
8. Section 17(d) and rule 17d-1 generally prohibit any affiliated
person of a registered investment company, or any affiliated person of
an affiliated person, when acting as principal, from effecting any
joint transaction in which the company participates unless the
transaction is approved by the Commission. Rule 17d-1(b) provides that
in passing upon applications filed under the rule, the Commission will
consider whether the participation of a registered investment company
in a joint enterprise on the basis proposed is consistent with the
provisions, policies, and purposes of the Act and the extent to which
the company's participation is on a basis different from or less
advantageous than that of other participants.
9. Applicants submit that the purpose of section 17(d) is to avoid
overreaching by and unfair advantage to investment company insiders.
Applicants believe that the credit facility is consistent with the
provisions, policies, and purposes of the Act in that it offers both
reduced borrowing costs and enhanced returns on loaned funds to all
participating Funds and their shareholders. Applicants note that each
Fund would have an equal opportunity to borrow and lend on equal terms
consistent with its investment policies and fundamental investment
limitations. Applicants therefore believe that each Fund's
participation in the credit facility will be on terms that are no
different from or less advantageous than that of other participating
Funds.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Interfund Loan Rate to be charged to the Funds under the
credit facility will be the average of the Joint Accounts Repo Rate and
the Bank Loan Rate.
2. On each business day, the Credit Facility Team will compare the
Bank Loan Rate with the Joint Accounts Repo Rate and will make cash
available for Interfund Loans only if the Interfund Loan Rate is (a)
more favorable to the lending Fund than the Joint Accounts Repo Rate
and (b) more favorable to the borrowing Fund than the Bank Loan Rate.
3. If a Fund has outstanding borrowings, any Interfund Loans to the
Fund (a) will be at an interest rate equal to or lower than any
outstanding bank loan; (b) will be secured at least on an equal
priority basis with at least an equivalent percentage of collateral to
loan value as any outstanding bank loan that requires collateral; (c)
will have a maturity no longer than any outstanding bank loan (and in
any event not over seven days); and (d) will provide that, if an event
of default occurs under any agreement evidencing an outstanding bank
loan to the Fund, that event of default will automatically (without
need for action or notice by the lending Fund) constitute an immediate
event of default under the Interfund Lending Agreement entitling the
lending Fund to call the Interfund Loan (and exercise all rights with
respect to any collateral) and that such call will be made if the
lending bank exercises its right to call its loan under its agreement
with the borrowing Fund.
4. A Fund may make an unsecured borrowing through the credit
facility if its outstanding borrowings from all sources immediately
after the interfund borrowing total 10% or less of its total assets,
provided that if the Fund has a secured loan outstanding from any other
lender, including but not limited to another Fund, the Fund's interfund
borrowing will be secured on at least an equal priority basis with at
least an equivalent percentage of collateral to loan value as any
outstanding loan that requires collateral. If a Fund's total
outstanding borrowings immediately after an interfund borrowing would
be greater than 10% of its total assets, the Fund may borrow through
the credit facility only on a secured basis. A Fund may not borrow
through the credit facility or from any other source if its total
outstanding borrowings immediately after the interfund borrowing would
exceed the limits imposed by section 18 of the Act.
5. Before any Fund that has outstanding interfund borrowings may,
through additional borrowings, cause its outstanding borrowings from
all sources to exceed 10% of its total assets, the Fund must first
secure each outstanding Interfund Loan by the pledge of segregated
collateral with a market value at least equal to 102% of the
outstanding principal value of the loan. If the total outstanding
borrowings of a Fund with outstanding Interfund Loans exceed 10% of its
total assets for any other reason (such as a decline in net asset value
or because of shareholder redemptions), the Fund will within one
business day thereafter (a) repay all its outstanding Interfund Loans;
(b) reduce its outstanding indebtedness to 10% or less of its total
assets; or (c) secure each outstanding Interfund Loan by the pledge of
segregated collateral with a market value at least equal to 102% of the
outstanding principal value of the loan until the Fund's total
outstanding borrowings cease to exceed 10% of its total assets, at
which time the collateral called for by this condition (5) shall no
longer be required. Until each Interfund Loan that is outstanding at
any time that a Fund's total outstanding borrowings exceed 10% of its
total assets is repaid or the Fund's total outstanding borrowings cease
to exceed 10% of its total assets, the Fund will mark the value of the
collateral to market each day and will pledge such additional
collateral as is necessary to maintain the market value of the
collateral that secures each outstanding Interfund Loan at least equal
to 102% of the outstanding principal value of the loan.
6. No Fund may lend to another Fund through the credit facility if
the loan would cause the lending Fund's aggregate outstanding loans
through the credit facility to exceed 15% of its net assets at the time
of the loan.
7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of
the lending Fund's current net assets.
8. The duration of Interfund Loans will be limited to the time
required to receive payment for securities sold, but in no event more
than seven days. Loans effected within seven days of each other will be
treated as separate loan transactions for purposes of this condition.
9. A Fund's borrowings through the credit facility, as measured on
the day
[[Page 58644]]
when the most recent loan was made, will not exceed the greater of 125%
of the Fund's total net cash redemptions or 102% of sales fails for the
preceding seven calendar days.
10. Each Interfund Loan may be called on one business day's notice
by a lending Fund and may be repaid on any day by a borrowing Fund.
11. A Fund's participation in the credit facility must be
consistent with its investment policies and limitations and
organizational documents.
12. The Credit Facility Team will calculate total Fund borrowing
and lending demand through the credit facility, and allocate interfund
loans on an equitable basis among the Funds, without the intervention
of any portfolio manager of the Funds. The Credit Facility Team will
not solicit cash for the credit facility from any Fund or prospectively
publish or disseminate loan demand data to portfolio managers. The
Credit Facility Team will invest amounts remaining after satisfaction
of borrowing demand in accordance with the standing instructions from
portfolio managers or return remaining amounts to the Funds.
13. The Credit Facility Team will monitor the interest rates
charged and the other terms and conditions of the Interfund Loans and
will make a quarterly report to the Board of each Fund concerning the
participation of the Fund in the credit facility and the terms and
other conditions of any extensions of credit under the credit facility.
14. The Board of each Fund, including a majority of the Independent
Board Members, will: (a) Review no less frequently than quarterly the
Fund's participation in the credit facility during the preceding
quarter for compliance with the conditions of any order permitting the
transactions; (b) establish the Bank Loan Rate formula used to
determine the Interfund Loan Rate and review no less frequently than
annually the continuing appropriateness of the Bank Loan Rate formula;
and (c) review no less frequently than annually the continuing
appropriateness of the Fund's participation in the credit facility.
15. Each Fund will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which any transaction
under the credit facility occurred, the first two years in an easily
accessible place, written records of all such transactions setting
forth a description of the terms of the transaction, including the
amount, the maturity and the rate of interest on the loan, the rate of
interest available at the time on short-term repurchase agreements and
bank borrowings, and such other information presented to the Fund's
Board in connection with the review required by conditions 13 and 14.
16. In the event an Interfund Loan is not paid according to its
terms and the default is not cured within two business days from its
maturity or from the time the lending Fund makes a demand for payment
under the provisions of the Interfund Lending Agreement, the Credit
Facility Team promptly will refer the loan for arbitration to an
independent arbitrator selected by the Board of any Fund involved in
the loan who will serve as the arbitrator of disputes concerning
Interfund Loans.\2\ The arbitrator will resolve any problem promptly,
and the arbitrator's decision will be binding on both Funds. The
arbitrator will submit, at least annually, a written report to the
Board of each Fund setting forth a description of the nature of any
dispute and the actions taken by the Funds to resolve the dispute.
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\2\ If the dispute involves Funds with separate Boards, the
Board of each Fund will select an independent arbitrator that is
satisfactory to each Fund.
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17. The Credit Facility Team will prepare and submit to the Board
of each Fund for review an initial report describing the operations of
the credit facility and the procedures to be implemented to ensure that
all Funds are treated fairly. After the commencement of operations of
the credit facility, the Credit Facility Team will report on the
operations of the credit facility at the quarterly meetings of each
Fund's Board.
In addition, for two years following the commencement of the credit
facility, the independent public accountant for each Fund shall prepare
an annual report that evaluates the Credit Facility Team's assertion
that it has established procedures reasonably designed to achieve
compliance with the conditions of the order. The report shall be
prepared in accordance with the Statements on Standards for Attestation
Engagements No. 10 and it shall be filed pursuant to Item 77Q3 of Form
N-SAR as such Statements or Form may be revised, amended, or superseded
from time to time. In particular, the report shall address procedures
designed to achieve the following objectives: (a) That the Interfund
Loan Rate will be higher than the Joint Accounts Repo Rate, but lower
than the Bank Loan Rate; (b) compliance with the collateral
requirements as set forth in the application; (c) compliance with the
percentage limitations on interfund borrowing and lending; (d)
allocation of interfund borrowing and lending demand in an equitable
manner and in accordance with procedures established by the Board; and
(e) that the Interfund Loan Rate does not exceed the interest rate on
any third party borrowings of a borrowing Fund at the time of the
Interfund Loan.
After the final report is filed, each Fund's independent public
accountant, in connection with its audit examinations, will continue to
review the operation of the credit facility for compliance with the
conditions of the application and its review will form the basis, in
part, of the auditor's report on internal accounting controls in Form
N-SAR.
18. No Fund will participate in the credit facility upon receipt of
requisite regulatory approval unless it has fully disclosed in its
prospectus or SAI all material facts about its intended participation.
For the Commission, by the Division of Investment Management,
under delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-16365 Filed 10-3-06; 8:45 am]
BILLING CODE 8010-01-P
