The Managers Funds, et al.; Notice of Application, 26746-26750 [E9-12917]
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26746
Federal Register / Vol. 74, No. 105 / Wednesday, June 3, 2009 / Notices
Secretary of the Board, Julie S. Moore,
at (202) 268–4800.
Julie S. Moore,
Secretary.
[FR Doc. E9–13063 Filed 6–1–09; 4:15 pm]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28748; File No. 812–13551]
The Managers Funds, et al.; Notice of
Application
May 28, 2009.
PWALKER on PROD1PC71 with NOTICES
AGENCY: Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under (a) section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) granting an exemption from
sections 18(f) and 21(b) of the Act; (b)
section 12(d)(1)(J) of the Act granting an
exemption from section 12(d)(1) of the
Act; (c) sections 6(c) and 17(b) of the
Act granting an exemption from sections
17(a)(1), 17(a)(2) and 17(a)(3) of the Act;
and (d) section 17(d) of the Act and rule
17d–1 under the Act to permit certain
joint arrangements.
notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
1090; Applicants, 800 Connecticut
Avenue, Norwalk, CT 06854–2325.
FOR FURTHER INFORMATION CONTACT:
Steven I. Amchan, Attorney Adviser, at
(202) 551–6826, or, Julia Kim Gilmer,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. Each Trust is organized as a
Massachusetts business trust and is
registered under the Act as an open-end
management investment company.1
Each Trust consists of one or more
series (‘‘Funds’’). Managers, a Delaware
limited liability company and an
independently managed subsidiary of
Affiliated Managers Group, Inc., is
Summary of the Application:
registered as an investment adviser
Applicants request an order that would
under the Investment Advisers Act of
permit certain registered open-end
1940, and serves as the investment
management investment companies to
adviser to, and administrator of, each
participate in a joint lending and
Fund.2
borrowing facility.
2. At any particular time, while some
Applicants: The Managers Funds,
Funds invest their cash balances in
Managers AMG Funds, Managers Trust
money market funds or purchase other
I, and Managers Trust II (each, a
short-term instruments, other Funds
‘‘Trust,’’ and collectively, the ‘‘Trusts’’), may need to rely on custodian
and Managers Investment Group LLC
overdrafts for temporary purposes to
(‘‘Managers’’).
satisfy redemption requests, to cover
Filing Dates: The application was
unanticipated cash shortfalls such as a
filed on July 24, 2008, and amended on
trade ‘‘fail’’ in which cash payment for
January 22, 2009, May 11, 2009, and
a security sold by a Fund has been
May 27, 2009.
delayed, or for other temporary
Hearing or Notification of Hearing: An purposes.
order granting the application will be
3. If a Fund were to incur an overdraft
issued unless the Commission orders a
with the custodian bank, the Fund
hearing. Interested persons may request would pay interest on the loan at a rate
a hearing by writing to the
that is significantly higher than the rate
Commission’s Secretary and serving
that is earned by other (non-borrowing)
applicants with a copy of the request,
personally or by mail. Hearing requests
1 Applicants request that the order also apply to
should be received by the Commission
any existing or future registered management
investment company advised by Managers, or any
by 5:30 p.m. on June 22, 2009 and
entity controlling, controlled by, or under common
should be accompanied by proof of
control with Managers, that is in the same ‘‘group
service on applicants, in the form of an
of investment companies’’ as the Trusts, as defined
affidavit or, for lawyers, a certificate of
in section 12(d)(1)(G)(ii) of the Act (included in the
term ‘‘Trusts’’).
service. Hearing requests should state
2 Applicants request that the order also apply to
the nature of the writer’s interest, the
any successor entity to Managers. The term
reason for the request, and the issues
‘‘successor entity’’ is limited to entities that result
contested. Persons who wish to be
from a reorganization into another jurisdiction or a
change in the type of business organization.’’
notified of a hearing may request
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Funds on investments in money market
funds, or if applicable, other short term
instruments of the same maturity as the
overdraft loan. Applicants state that this
differential represents the profit earned
by the lender by way of overdrafts and
is not attributable to any material
difference in the credit quality or risk of
such transactions.
4. Applicants request an order that
would permit the Trusts to enter into
master interfund lending agreements
(‘‘Interfund Lending Agreements’’) with
each other on behalf of the Funds that
would permit each Fund to lend money
directly to and borrow directly from
other Funds through a credit facility for
temporary purposes (‘‘Interfund Loan’’).
Applicants state that the proposed
credit facility would substantially
reduce the Funds’ potential borrowing
costs and enhance the ability of the
lending Funds to earn higher rates of
interest on their short-term lendings.
Although the proposed credit facility
would substantially reduce the Funds’
need to borrow through custodian
overdrafts, the Funds would be free to
establish committed lines of credit or
other borrowing arrangements with
unaffiliated banks.
5. Applicants anticipate that the
proposed credit facility would provide a
borrowing Fund with significant savings
at times when the cash position of the
borrowing Fund is insufficient to meet
temporary cash requirements. This
situation could arise when shareholder
redemptions exceed anticipated
volumes and certain Funds have
insufficient cash on hand to satisfy such
redemptions. When the Funds liquidate
portfolio securities to meet redemption
requests, they often do not receive
payment in settlement for up to three
days (or longer for certain foreign
transactions). However, redemption
requests normally are effected
immediately. The proposed credit
facility would provide a source of
immediate, short-term liquidity pending
settlement of the sale of portfolio
securities.
6. Applicants also propose that a
Fund could use the proposed credit
facility when a sale of securities ‘‘fails’’
due to circumstances beyond the Fund’s
control, such as a delay in the delivery
of cash to the Fund’s custodian bank or
improper delivery instructions by the
broker effecting the transaction. ‘‘Sales
fails’’ may present a cash shortfall if the
Fund has undertaken to purchase a
security using the proceeds from
securities sold. Alternatively, the Fund
could either ‘‘fail’’ on its intended
purchase due to lack of funds from the
previous sale, resulting in additional
cost to the Fund or sell a security on a
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same-day settlement basis, earning a
lower return on the investment. Use of
the proposed credit facility under these
circumstances would enable the Fund to
have access to immediate short-term
liquidity without the Fund incurring
custodian overdraft or other charges.
7. While bank borrowings generally
could supply needed cash to cover
unanticipated redemptions and sales
fails, under the proposed credit facility,
a borrowing Fund would pay lower
interest rates than those that would be
payable under short-term loans offered
by banks. In addition, Funds making
short-term cash loans directly to other
Funds would earn interest at a rate
higher than they otherwise could obtain
from investing their cash in repurchase
agreements or purchasing shares of a
money market Fund. Thus, the
proposed credit facility would benefit
both borrowing and lending Funds.
8. The interest rate to be charged to
the Funds on any Interfund Loan (the
‘‘Interfund Loan Rate’’) would be the
average of the ‘‘Repo Rate’’ and the
‘‘Bank Loan Rate,’’ both as defined
below. The Repo Rate for any day would
be the highest or best (after giving effect
to factors such as the credit quality of
the issuer) rate available to a lending
Fund from investment in overnight
repurchase agreements. The Bank Loan
Rate for any day would be calculated by
Managers each day an Interfund Loan is
made according to a formula established
by each Trust’s board of trustees
(‘‘Trustees’’) intended to approximate
the lowest interest rate at which bank
short-term loans would be available to
the Funds. The formula would be based
upon a publicly available rate (e.g.,
federal funds plus 200 basis points) and
would vary with this rate so as to reflect
changing bank loan rates. The initial
formula and any subsequent
modifications to the formula would be
subject to the approval of each Trust’s
Trustees. Each Trust’s Trustees would
periodically review the continuing
appropriateness of using the formula to
determine the Bank Loan Rate, as well
as the relationship between the Bank
Loan Rate and current bank loan rates
that would be available to the Funds.
The initial formula and any subsequent
modifications to it would subject to the
approval of each Trust’s Trustees.
9. The proposed credit facility would
be administered by Managers’s fund
administration department (the ‘‘Credit
Facility Team’’), and no portfolio
manager for any Fund would serve on
the Credit Facility Team. Under the
proposed credit facility, the portfolio
managers for each participating Fund
could provide standing instructions to
participate daily as a borrower or
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lender. The Credit Facility Team on
each business day would collect data on
the uninvested cash and borrowing
requirements of all participating Funds.
Once it determined the aggregate
amount of cash available for loans and
borrowing demand, the Credit Facility
Team would allocate loans among
borrowing Funds without any further
communication from the portfolio
managers of the Funds. After the
allocating cash for Interfund Loans, the
Credit Facility Team would invest any
remaining cash in accordance with the
standing instructions of the portfolio
managers or such remaining amounts
will be invested directly by the portfolio
managers of the Funds.
10. The Credit Facility Team would
allocate borrowing demand and cash
available for lending among the Funds
on what the Credit Facility Team
believes to be an equitable basis, subject
to certain administrative procedures
applicable to all Funds, such as the time
of filing requests to participate,
minimum loan lot sizes and the need to
minimize the number of transactions
and associated administrative costs. To
reduce transaction costs, each loan
normally would be allocated in a
manner intended to minimize the
number of participants necessary to
complete the loan transaction. The
method of allocation and related
administrative procedures would be
approved by each Trust’s Trustees,
including a majority of Trustees who are
not ‘‘interested persons’’ of the Trust, as
that term is defined in Section 2(a)(19)
of the Act (‘‘Independent Trustees’’), to
ensure that both borrowing and lending
Funds participate on an equitable basis.
11. Managers, through the Credit
Facility Team, would administer the
proposed credit facility as a
disinterested fiduciary as part of its
duties under the relevant management,
advisory or administrative contract with
each Fund and would receive no
additional fee as compensation for its
services in connection with the
administration of the proposed credit
facility. Managers would: (i) Monitor the
Interfund Loan Rate and the other terms
and conditions of the loans; (ii) limit the
borrowings and loans entered into by
each Fund to ensure that they comply
with the Fund’s investment policies and
limitations; (iii) ensure equitable
treatment of each Fund; and (iv) make
quarterly reports to the Trustees
concerning any transactions by the
Funds under the proposed credit facility
and the Interfund Loan Rate charged.
12. No Fund may participate in the
proposed credit facility unless: (i) The
Fund has obtained shareholder approval
for its participation, if such approval is
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required by law; (ii) the Fund has fully
disclosed all material information
concerning the credit facility in its
prospectus and/or statement of
additional information; and (iii) the
Fund’s participation in the credit
facility is consistent with its investment
objectives, limitations and
organizational documents.
13. In connection with the credit
facility, applicants request an order
under (a) section 6(c) of the Act granting
relief from sections 18(f) and 21(b) of
the Act; (b) section 12(d)(1)(J) of the Act
granting relief from section 12(d)(1) of
the Act; (c) sections 6(c) and 17(b) of the
Act granting relief from sections
17(a)(1), 17(a)(2) and 17(a)(3) of the Act;
and (d) under section 17(d) of the Act
and rule 17d–1 under the Act to permit
certain joint arrangements.
Applicants’ Legal Analysis
1. Section 17(a)(3) of the Act generally
prohibits any affiliated person, or
affiliated person of an affiliated person,
from borrowing money or other property
from a registered investment company.
Section 21(b) of the Act generally
prohibits any registered management
company from lending money or other
property to any person, directly or
indirectly, if that person controls or is
under common control with that
company. Section 2(a)(3)(C) of the Act
defines an ‘‘affiliated person’’ of another
person, in part, to be any person directly
or indirectly controlling, controlled by,
or under common control with, such
other person. Section 2(a)(9) of the Act
defines ‘‘control’’ as the ‘‘power to
exercise a controlling influence over the
management or policies of a company,’’
but excludes circumstances in which
‘‘such power is solely the result of an
official position with such company.’’
Applicants state that the Funds could be
deemed to be under common control by
virtue of having Managers as their
common investment adviser and/or by
reason of having common officers and
Trustees.
2. Section 6(c) of the Act provides that
an exemptive order may be granted
where an exemption is necessary or
appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act. Section 17(b) of the Act
authorizes the Commission to exempt a
proposed transaction from the
provisions of section 17(a) of the Act
provided that the terms of the
transaction, including the consideration
to be paid or received, are fair and
reasonable and do not involve
overreaching on the part of any person
concerned, and the transaction is
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consistent with the policy of the
investment company as recited in its
registration statement and with the
general purposes of the Act. Applicants
assert that the proposed arrangements
satisfy these standards for the reasons
discussed below.
3. Applicants assert that sections
17(a)(3) and 21(b) were intended to
prevent a person with strong potential
adverse interests to, and some influence
over the investment decisions of, a
registered investment company from
causing or inducing the investment
company to engage in lending
transactions that unfairly inure to the
benefit of such person and that are
detrimental to the best interests of the
investment company and its
shareholders. Applicants assert that the
proposed credit facility transactions do
not raise these concerns because: (a)
Managers, through the Credit Facility
Team, would administer the program as
a disinterested fiduciary; (b) all
Interfund Loans would consist only of
uninvested cash reserves that a Fund
otherwise would invest in short-term
repurchase agreements or other shortterm instruments either directly or
through a money market fund; (c) the
Interfund Loans would not involve a
significantly greater risk than such other
investments; (d) the lending Fund
would receive interest at a rate higher
than it could otherwise obtain through
such other investments; and (e) the
borrowing Fund would pay interest at a
rate lower than otherwise available to it
through custodian overdrafts and avoid
the up-front commitment fees generally
associated with committed lines of
credit. Moreover, applicants believe that
the other terms and conditions in the
application would effectively preclude
the possibility of any Fund obtaining an
undue advantage over any other Fund.
4. Section 17(a)(1) of the Act generally
prohibits any affiliated person of a
registered investment company, or any
affiliated person of such a person, from
selling securities or other property to
the investment company. Section
17(a)(2) of the Act generally prohibits an
affiliated person of a registered
investment company, or any affiliated
person of such a person, from
purchasing securities or other property
from the investment company. Section
12(d)(1) of the Act generally makes it
unlawful for a registered investment
company to purchase or otherwise
acquire any security issued by any other
investment company except in
accordance with the limitations set forth
in that section.
5. Applicants state that the obligation
of a borrowing Fund to repay an
Interfund Loan may constitute a security
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under sections 17(a)(1) and 12(d)(1).
Applicants also state that any pledge of
assets in connection with an Interfund
Loan could be construed as a purchase
of those assets from the borrowing
Fund, and therefore a purchase of the
borrowing Fund’s securities or other
property for the purposes of section
17(a)(2) of the Act. Section 12(d)(1)(J) of
the Act provides that the Commission
may exempt persons or transactions
from any provision of section 12(d)(1) if
and to the extent that such exemption
is consistent with the public interest
and the protection of investors.
Applicants contend that the standards
under sections 6(c), 17(b), and
12(d)(1)(J) are satisfied for all the
reasons set forth above in support of
their request for relief from sections
17(a)(3) and 21(b) and for the reasons
discussed below. Applicants also state
that the requested relief from section
17(a)(2) of the Act meets the standards
of section 6(c) and 17(b) because any
collateral pledged to secure an Interfund
Loan would be subject to the same
conditions imposed by any other lender
to a Fund that imposes conditions on
the quality of or access to collateral for
a borrowing (if the other lender is
another Fund) or the same or better
conditions (in any other circumstance).
6. Applicants state that section
12(d)(1) was intended to prevent the
pyramiding of investment companies in
order to avoid imposing on investors
additional and duplicative costs and
fees attendant upon multiple layers of
investment companies. Applicants
assert that the proposed credit facility
does not involve these abuses.
Applicants note that there will be no
duplicative costs or fees to the Funds or
to the Funds’ shareholders and that
Managers will receive no additional
compensation for its services in
administering the credit facility.
Applicants also note that the purpose of
the proposed credit facility is to provide
economic benefits for all of the
participating Funds.
7. Section 18(f)(1) of the Act prohibits
registered open-end investment
companies from issuing any senior
security except that a company is
permitted to borrow from any bank, if
immediately after the borrowing, there
is asset coverage of at least 300 per
centum for all borrowings of the
company. Under section 18(g) of the
Act, the term ‘‘senior security’’ generally
includes any bond, debenture, note or
similar obligation or instrument
constituting a security and evidencing
indebtedness. Applicants request relief
from section 18(f)(1) to the limited
extent necessary to implement the credit
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facility (because the lending Funds are
not banks).
8. Applicants assert that granting
relief under section 6(c) of the Act is
appropriate because the Funds would
remain subject to the requirement of
section 18(f)(1) of the Act that all
borrowings of a Fund, including
combined Interfund Loans and bank
borrowings, have at least 300 per
centum asset coverage. Based on the
conditions and safeguards described in
the application, applicants also assert
that to allow the Funds to borrow from
other Funds pursuant to the proposed
credit facility is consistent with the
purposes and policies of section 18(f)(1)
of the Act.
9. Section 17(d) and rule 17d–1
generally prohibit any affiliated person
of a registered investment company, or
any affiliated person of an affiliated
person, when acting as principal, from
effecting any joint transaction in which
the company participates unless the
transaction is approved by the
Commission. Rule 17d–1(b) provides
that in passing upon applications filed
under the rule, the Commission will
consider whether the participation of a
registered investment company in a
joint enterprise on the basis proposed is
consistent with the provisions, policies,
and purposes of the Act and the extent
to which the company’s participation is
on a basis different from or less
advantageous than that of other
participants.
10. Applicants assert that the purpose
of section 17(d) is to avoid overreaching
by and unfair advantage to investment
company insiders. Applicants believe
that the credit facility is consistent with
the provisions, policies and purposes of
the Act in that it offers both reduced
borrowing costs and enhanced returns
on loaned funds to all participating
Funds and their shareholders.
Applicants note that each Fund would
have an equal opportunity to borrow
and lend on equal terms consistent with
its investment policies and fundamental
investment limitations. Applicants
therefore believe that each Fund’s
participation in the credit facility will
be on terms that are no different from
or less advantageous than that of other
participating Funds.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
1. The Interfund Loan Rate will be the
average of the Repo Rate and the Bank
Loan Rate.
2. On each business day, the Credit
Facility Team will compare the Bank
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Loan Rate with the Repo Rate and will
make cash available for Interfund Loans
only if the Interfund Loan Rate is: (i)
More favorable to the lending Fund than
the Repo Rate and, if applicable, the
yield of any money market fund in
which the lending Fund could
otherwise invest; and (ii) more favorable
to the borrowing Fund than the Bank
Loan Rate.
3. If a Fund has outstanding
borrowings, any Interfund Loans to the
Fund: (i) Will be at an interest rate equal
to or lower than any outstanding bank
loan; (ii) will be secured at least on an
equal priority basis with at least an
equivalent percentage of collateral to
loan value as any outstanding bank loan
that requires collateral; (iii) will have a
maturity no longer than any outstanding
bank loan (and in any event not over
seven days); and (iv) will provide that,
if an event of default by the Fund occurs
under any agreement evidencing an
outstanding bank loan to the Fund, that
event of default will automatically
(without need for action or notice by the
lending Fund) constitute an immediate
event of default under the Interfund
Lending Agreement entitling the
lending Fund to call the Interfund Loan
(and exercise all rights with respect to
any collateral) and that such call will be
made if the lending bank exercises its
right to call its loan under its agreement
with the borrowing Fund.
4. A Fund may make an unsecured
borrowing through the proposed credit
facility if its outstanding borrowings
from all sources immediately after the
interfund borrowing total 10% or less of
its total assets, provided that if the Fund
has a secured loan outstanding from any
other lender, including but not limited
to another Fund, the Fund’s interfund
borrowing will be secured on at least an
equal priority basis with at least an
equivalent percentage of collateral to
loan value as any outstanding loan that
requires collateral. If a Fund’s total
outstanding borrowings immediately
after an interfund borrowing would be
greater than 10% of its total assets, the
Fund may borrow through the proposed
credit facility only on a secured basis.
A Fund may not borrow through the
proposed credit facility or from any
other source if its total outstanding
borrowings immediately after such
borrowing would exceed the limits
imposed by section 18 of the Act.
5. Before any Fund that has
outstanding interfund borrowings may,
through additional borrowings, cause its
outstanding borrowings from all sources
to exceed 10% of its total assets, the
Fund must first secure each outstanding
Interfund Loan by the pledge of
segregated collateral with a market
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value at least equal to 102% of the
outstanding principal value of the loan.
If the total outstanding borrowings of a
Fund with outstanding Interfund Loans
exceed 10% of its total assets for any
other reason (such as a decline in net
asset value or because of shareholder
redemptions), the Fund will within one
business day thereafter: (i) Repay all its
outstanding Interfund Loans; (ii) reduce
its outstanding indebtedness to 10% or
less of its total assets; or (iii) secure each
outstanding Interfund Loan by the
pledge of segregated collateral with a
market value at least equal to 102% of
the outstanding principal value of the
loan until the Fund’s total outstanding
borrowings cease to exceed 10% of its
total assets, at which time the collateral
called for by this condition (5) shall no
longer be required. Until each Interfund
Loan that is outstanding at any time that
a Fund’s total outstanding borrowings
exceed 10% is repaid or the Fund’s total
outstanding borrowings cease to exceed
10% of its total assets, the Fund will
mark the value of the collateral to
market each day and will pledge such
additional collateral as is necessary to
maintain the market value of the
collateral that secures each outstanding
Interfund Loan at least equal to 102% of
the outstanding principal value of the
Interfund Loan.
6. No Fund may lend to another Fund
through the proposed credit facility if
the loan would cause its aggregate
outstanding loans through the proposed
credit facility to exceed 15% of the
lending Fund’s current net assets at the
time of the loan.
7. A Fund’s Interfund Loans to any
one Fund shall not exceed 5% of the
lending Fund’s net assets.
8. The duration of Interfund Loans
will be limited to the time required to
receive payment for securities sold, but
in no event more than seven days. Loans
effected within seven days of each other
will be treated as separate loan
transactions for purposes of this
condition.
9. A Fund’s borrowings through the
proposed credit facility, as measured on
the day when the most recent loan was
made, will not exceed the greater of
125% of the Fund’s total net cash
redemptions for the preceding seven
calendar days or 102% of the Fund’s
sales fails for the preceding seven
calendar days.
10. Each Interfund Loan may be called
on one business day’s notice by a
lending Fund and may be repaid on any
day by a borrowing Fund.
11. A Fund’s participation in the
proposed credit facility must be
consistent with its investment
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26749
objectives, and limitations and
organizational documents.
12. The Credit Facility Team will
calculate total Fund borrowing and
lending demand through the proposed
credit facility, and allocate loans on an
equitable basis among the Funds,
without the intervention of any portfolio
manager of the Funds. The Credit
Facility Team will not solicit cash for
the proposed credit facility from any
Fund or prospectively publish or
disseminate loan demand data to
portfolio managers. The Credit Facility
Team will invest any amounts
remaining after satisfaction of borrowing
demand in accordance with the
standing instructions of the portfolio
managers or such remaining amounts
will be invested directly by the portfolio
managers of the Funds.
13. Managers will monitor the
Interfund Loan Rate and the other terms
and conditions of the Interfund Loans
and will make a quarterly report to the
Trustees of each Trust concerning the
participation of the Funds in the
proposed credit facility and the terms
and other conditions of any extensions
of credit under the credit facility.
14. The Trustees of each Trust,
including a majority of the Independent
Trustees, will: (i) Review, no less
frequently than quarterly, each Fund’s
participation in the proposed credit
facility during the preceding quarter for
compliance with the conditions of any
order permitting such transactions; (ii)
establish the Bank Loan Rate formula
used to determine the interest rate on
Interfund Loans and review, no less
frequently than annually, the continuing
appropriateness of the Bank Loan Rate
formula; and (iii) review, no less
frequently than annually, the continuing
appropriateness of each Fund’s
participation in the proposed credit
facility.
15. In the event an Interfund Loan is
not paid according to its terms and such
default is not cured within two business
days from its maturity or from the time
the lending Fund makes a demand for
payment under the provisions of the
Interfund Lending Agreement, Managers
will promptly refer such loan for
arbitration to an independent arbitrator
selected by the Trustees of each Fund
involved in the loan who will serve as
arbitrator of disputes concerning
Interfund Loans.3 The arbitrator will
resolve any problem promptly, and the
arbitrator’s decision will be binding on
both Funds. The arbitrator will submit,
3 If the dispute involves Funds with different
Trustees, the respective Trustees of each Fund will
select an independent arbitrator that is satisfactory
to each Fund.
E:\FR\FM\03JNN1.SGM
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PWALKER on PROD1PC71 with NOTICES
26750
Federal Register / Vol. 74, No. 105 / Wednesday, June 3, 2009 / Notices
at least annually, a written report to the
Trustees setting forth a description of
the nature of any dispute and the
actions taken by the Funds to resolve
the dispute.
16. Each Fund will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any transaction by it under the
proposed credit facility occurred, the
first two years in an easily accessible
place, written records of all such
transactions setting forth a description
of the terms of the transactions,
including the amount, the maturity and
the Interfund Loan Rate, the rate of
interest available at the time on
overnight repurchase agreements and
commercial bank borrowings, the yield
of any money market fund in which the
lending Fund could otherwise invest,
and such other information presented to
the Fund’s Trustees in connection with
the review required by conditions 13
and 14.
17. Managers will prepare and submit
to the Trustees for review an initial
report describing the operations of the
proposed credit facility and the
procedures to be implemented to ensure
that all Funds are treated fairly. After
the commencement of the proposed
credit facility, Managers will report on
the operations of the proposed credit
facility at the Trustees’ quarterly
meetings.
In addition, for two years following
the commencement of the credit facility,
the independent public accountant for
each Fund shall prepare an annual
report that evaluates Managers’
assertion that it has established
procedures reasonably designed to
achieve compliance with the terms and
conditions of the order. The report will
be prepared in accordance with the
Statements on Standards for Attestation
Engagements No. 10 and it shall be filed
pursuant to Item 77Q3 of Form N–SAR
as such Statements or Form may be
revised, amended or superseded from
time to time. In particular, the report
shall address procedures designed to
achieve the following objectives: (i) That
the Interfund Loan Rate will be higher
than the Repo Rate, and, if applicable,
the yield of the money market funds,
but lower than the Bank Loan Rate; (ii)
compliance with the collateral
requirements as set forth in the
Application; (iii) compliance with the
percentage limitations on interfund
borrowing and lending; (iv) allocation of
interfund borrowing and lending
demand in an equitable manner and in
accordance with procedures established
by the Trustees; and (v) that the
Interfund Loan Rate does not exceed the
interest rate on any third party
VerDate Nov<24>2008
16:08 Jun 02, 2009
Jkt 217001
borrowings of a borrowing Fund at the
time of the Interfund Loan.
After the final report is filed, each
Fund’s independent auditors, in
connection with their audit examination
of the Fund, will continue to review the
operation of the proposed credit facility
for compliance with the conditions of
the Application and their review will
form the basis, in part, of the auditor’s
report on internal accounting controls in
Form N–SAR.
18. No Fund will participate in the
proposed credit facility upon receipt of
requisite regulatory approval unless it
has fully disclosed in its prospectus
and/or statement of additional
information all material facts about its
intended participation.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–12917 Filed 6–2–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, June 4, 2009 at 2 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matters at the Closed
Meeting.
Chairman Schapiro, as duty officer,
voted to consider the items listed for the
Closed Meeting in a closed session and
determined that no earlier notice thereof
was possible.
The subject matter of the Closed
Meeting scheduled for Thursday, June 4,
2009 will be:
Institution and settlement of injunctive
actions;
Institution and settlement of
administrative proceedings;
Consideration of amicus participation;
and
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
Other matters related to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact:
The Office of the Secretary at (202)
551–5400.
Dated: May 29, 2009.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9–12914 Filed 6–2–09; 8:45 am]
BILLING CODE P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59995; File No. SR–Phlx–
2009–32]
Self-Regulatory Organizations;
NASDAQ OMX PHLX, Inc; Notice of
Filing of Amendment No. 3 and Order
Granting Accelerated Approval of
Proposed Rule Change, as Modified by
Amendment Nos. 1, 2, and 3 Thereto,
Relating to the Exchange’s Enhanced
Electronic Trading Platform for
Options, Phlx XL II
May 28, 2009.
I. Introduction
On April 3, 2009, NASDAQ OMX
PHLX, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b-4 thereunder,2 a proposed rule
change to implement several
enhancements to its electronic options
trading system, Phlx XL, the enhanced
system being called Phlx XL II. The
proposed rule change was published for
comment in the Federal Register on
April 14, 2009.3 On April 15, 2009, Phlx
filed with the Commission, pursuant to
Section 19(b)(1) of the Act 4 and Rule
19b–4 thereunder,5 Amendment No. 1
to the proposed rule change.
Amendment No. 1 to the proposed rule
change was published for comment in
the Federal Register on April 23, 2009.6
The Commission received two comment
letters on the proposed rule change and
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 59721
(April 7, 2009), 74 FR 17245 (April 14, 2009)
(‘‘Notice’’).
4 15 U.S.C. 78s(b)(1).
5 17 CFR 240.19b–4.
6 See Securities Exchange Act Release No. 59779
(April 16, 2009), 74 FR 18600 (April 23, 2009)
(‘‘Amendment Notice’’).
2 17
E:\FR\FM\03JNN1.SGM
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]]>Agencies
[Federal Register Volume 74, Number 105 (Wednesday, June 3, 2009)]
[Notices]
[Pages 26746-26750]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-12917]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28748; File No. 812-13551]
The Managers Funds, et al.; Notice of Application
May 28, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under (a) section 6(c) of
the Investment Company Act of 1940 (``Act'') granting an exemption from
sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act
granting an exemption from section 12(d)(1) of the Act; (c) sections
6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1),
17(a)(2) and 17(a)(3) of the Act; and (d) section 17(d) of the Act and
rule 17d-1 under the Act to permit certain joint arrangements.
-----------------------------------------------------------------------
Summary of the Application: Applicants request an order that would
permit certain registered open-end management investment companies to
participate in a joint lending and borrowing facility.
Applicants: The Managers Funds, Managers AMG Funds, Managers Trust
I, and Managers Trust II (each, a ``Trust,'' and collectively, the
``Trusts''), and Managers Investment Group LLC (``Managers'').
Filing Dates: The application was filed on July 24, 2008, and
amended on January 22, 2009, May 11, 2009, and May 27, 2009.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on June 22, 2009 and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090; Applicants, 800 Connecticut
Avenue, Norwalk, CT 06854-2325.
FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Attorney Adviser, at
(202) 551-6826, or, Julia Kim Gilmer, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or an applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. Each Trust is organized as a Massachusetts business trust and is
registered under the Act as an open-end management investment
company.\1\ Each Trust consists of one or more series (``Funds'').
Managers, a Delaware limited liability company and an independently
managed subsidiary of Affiliated Managers Group, Inc., is registered as
an investment adviser under the Investment Advisers Act of 1940, and
serves as the investment adviser to, and administrator of, each
Fund.\2\
---------------------------------------------------------------------------
\1\ Applicants request that the order also apply to any existing
or future registered management investment company advised by
Managers, or any entity controlling, controlled by, or under common
control with Managers, that is in the same ``group of investment
companies'' as the Trusts, as defined in section 12(d)(1)(G)(ii) of
the Act (included in the term ``Trusts'').
\2\ Applicants request that the order also apply to any
successor entity to Managers. The term ``successor entity'' is
limited to entities that result from a reorganization into another
jurisdiction or a change in the type of business organization.''
---------------------------------------------------------------------------
2. At any particular time, while some Funds invest their cash
balances in money market funds or purchase other short-term
instruments, other Funds may need to rely on custodian overdrafts for
temporary purposes to satisfy redemption requests, to cover
unanticipated cash shortfalls such as a trade ``fail'' in which cash
payment for a security sold by a Fund has been delayed, or for other
temporary purposes.
3. If a Fund were to incur an overdraft with the custodian bank,
the Fund would pay interest on the loan at a rate that is significantly
higher than the rate that is earned by other (non-borrowing) Funds on
investments in money market funds, or if applicable, other short term
instruments of the same maturity as the overdraft loan. Applicants
state that this differential represents the profit earned by the lender
by way of overdrafts and is not attributable to any material difference
in the credit quality or risk of such transactions.
4. Applicants request an order that would permit the Trusts to
enter into master interfund lending agreements (``Interfund Lending
Agreements'') with each other on behalf of the Funds that would permit
each Fund to lend money directly to and borrow directly from other
Funds through a credit facility for temporary purposes (``Interfund
Loan''). Applicants state that the proposed credit facility would
substantially reduce the Funds' potential borrowing costs and enhance
the ability of the lending Funds to earn higher rates of interest on
their short-term lendings. Although the proposed credit facility would
substantially reduce the Funds' need to borrow through custodian
overdrafts, the Funds would be free to establish committed lines of
credit or other borrowing arrangements with unaffiliated banks.
5. Applicants anticipate that the proposed credit facility would
provide a borrowing Fund with significant savings at times when the
cash position of the borrowing Fund is insufficient to meet temporary
cash requirements. This situation could arise when shareholder
redemptions exceed anticipated volumes and certain Funds have
insufficient cash on hand to satisfy such redemptions. When the Funds
liquidate portfolio securities to meet redemption requests, they often
do not receive payment in settlement for up to three days (or longer
for certain foreign transactions). However, redemption requests
normally are effected immediately. The proposed credit facility would
provide a source of immediate, short-term liquidity pending settlement
of the sale of portfolio securities.
6. Applicants also propose that a Fund could use the proposed
credit facility when a sale of securities ``fails'' due to
circumstances beyond the Fund's control, such as a delay in the
delivery of cash to the Fund's custodian bank or improper delivery
instructions by the broker effecting the transaction. ``Sales fails''
may present a cash shortfall if the Fund has undertaken to purchase a
security using the proceeds from securities sold. Alternatively, the
Fund could either ``fail'' on its intended purchase due to lack of
funds from the previous sale, resulting in additional cost to the Fund
or sell a security on a
[[Page 26747]]
same-day settlement basis, earning a lower return on the investment.
Use of the proposed credit facility under these circumstances would
enable the Fund to have access to immediate short-term liquidity
without the Fund incurring custodian overdraft or other charges.
7. While bank borrowings generally could supply needed cash to
cover unanticipated redemptions and sales fails, under the proposed
credit facility, a borrowing Fund would pay lower interest rates than
those that would be payable under short-term loans offered by banks. In
addition, Funds making short-term cash loans directly to other Funds
would earn interest at a rate higher than they otherwise could obtain
from investing their cash in repurchase agreements or purchasing shares
of a money market Fund. Thus, the proposed credit facility would
benefit both borrowing and lending Funds.
8. The interest rate to be charged to the Funds on any Interfund
Loan (the ``Interfund Loan Rate'') would be the average of the ``Repo
Rate'' and the ``Bank Loan Rate,'' both as defined below. The Repo Rate
for any day would be the highest or best (after giving effect to
factors such as the credit quality of the issuer) rate available to a
lending Fund from investment in overnight repurchase agreements. The
Bank Loan Rate for any day would be calculated by Managers each day an
Interfund Loan is made according to a formula established by each
Trust's board of trustees (``Trustees'') intended to approximate the
lowest interest rate at which bank short-term loans would be available
to the Funds. The formula would be based upon a publicly available rate
(e.g., federal funds plus 200 basis points) and would vary with this
rate so as to reflect changing bank loan rates. The initial formula and
any subsequent modifications to the formula would be subject to the
approval of each Trust's Trustees. Each Trust's Trustees would
periodically review the continuing appropriateness of using the formula
to determine the Bank Loan Rate, as well as the relationship between
the Bank Loan Rate and current bank loan rates that would be available
to the Funds. The initial formula and any subsequent modifications to
it would subject to the approval of each Trust's Trustees.
9. The proposed credit facility would be administered by Managers's
fund administration department (the ``Credit Facility Team''), and no
portfolio manager for any Fund would serve on the Credit Facility Team.
Under the proposed credit facility, the portfolio managers for each
participating Fund could provide standing instructions to participate
daily as a borrower or lender. The Credit Facility Team on each
business day would collect data on the uninvested cash and borrowing
requirements of all participating Funds. Once it determined the
aggregate amount of cash available for loans and borrowing demand, the
Credit Facility Team would allocate loans among borrowing Funds without
any further communication from the portfolio managers of the Funds.
After the allocating cash for Interfund Loans, the Credit Facility Team
would invest any remaining cash in accordance with the standing
instructions of the portfolio managers or such remaining amounts will
be invested directly by the portfolio managers of the Funds.
10. The Credit Facility Team would allocate borrowing demand and
cash available for lending among the Funds on what the Credit Facility
Team believes to be an equitable basis, subject to certain
administrative procedures applicable to all Funds, such as the time of
filing requests to participate, minimum loan lot sizes and the need to
minimize the number of transactions and associated administrative
costs. To reduce transaction costs, each loan normally would be
allocated in a manner intended to minimize the number of participants
necessary to complete the loan transaction. The method of allocation
and related administrative procedures would be approved by each Trust's
Trustees, including a majority of Trustees who are not ``interested
persons'' of the Trust, as that term is defined in Section 2(a)(19) of
the Act (``Independent Trustees''), to ensure that both borrowing and
lending Funds participate on an equitable basis.
11. Managers, through the Credit Facility Team, would administer
the proposed credit facility as a disinterested fiduciary as part of
its duties under the relevant management, advisory or administrative
contract with each Fund and would receive no additional fee as
compensation for its services in connection with the administration of
the proposed credit facility. Managers would: (i) Monitor the Interfund
Loan Rate and the other terms and conditions of the loans; (ii) limit
the borrowings and loans entered into by each Fund to ensure that they
comply with the Fund's investment policies and limitations; (iii)
ensure equitable treatment of each Fund; and (iv) make quarterly
reports to the Trustees concerning any transactions by the Funds under
the proposed credit facility and the Interfund Loan Rate charged.
12. No Fund may participate in the proposed credit facility unless:
(i) The Fund has obtained shareholder approval for its participation,
if such approval is required by law; (ii) the Fund has fully disclosed
all material information concerning the credit facility in its
prospectus and/or statement of additional information; and (iii) the
Fund's participation in the credit facility is consistent with its
investment objectives, limitations and organizational documents.
13. In connection with the credit facility, applicants request an
order under (a) section 6(c) of the Act granting relief from sections
18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting
relief from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of
the Act granting relief from sections 17(a)(1), 17(a)(2) and 17(a)(3)
of the Act; and (d) under section 17(d) of the Act and rule 17d-1 under
the Act to permit certain joint arrangements.
Applicants' Legal Analysis
1. Section 17(a)(3) of the Act generally prohibits any affiliated
person, or affiliated person of an affiliated person, from borrowing
money or other property from a registered investment company. Section
21(b) of the Act generally prohibits any registered management company
from lending money or other property to any person, directly or
indirectly, if that person controls or is under common control with
that company. Section 2(a)(3)(C) of the Act defines an ``affiliated
person'' of another person, in part, to be any person directly or
indirectly controlling, controlled by, or under common control with,
such other person. Section 2(a)(9) of the Act defines ``control'' as
the ``power to exercise a controlling influence over the management or
policies of a company,'' but excludes circumstances in which ``such
power is solely the result of an official position with such company.''
Applicants state that the Funds could be deemed to be under common
control by virtue of having Managers as their common investment adviser
and/or by reason of having common officers and Trustees.
2. Section 6(c) of the Act provides that an exemptive order may be
granted where an exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from the provisions of section 17(a) of the Act provided
that the terms of the transaction, including the consideration to be
paid or received, are fair and reasonable and do not involve
overreaching on the part of any person concerned, and the transaction
is
[[Page 26748]]
consistent with the policy of the investment company as recited in its
registration statement and with the general purposes of the Act.
Applicants assert that the proposed arrangements satisfy these
standards for the reasons discussed below.
3. Applicants assert that sections 17(a)(3) and 21(b) were intended
to prevent a person with strong potential adverse interests to, and
some influence over the investment decisions of, a registered
investment company from causing or inducing the investment company to
engage in lending transactions that unfairly inure to the benefit of
such person and that are detrimental to the best interests of the
investment company and its shareholders. Applicants assert that the
proposed credit facility transactions do not raise these concerns
because: (a) Managers, through the Credit Facility Team, would
administer the program as a disinterested fiduciary; (b) all Interfund
Loans would consist only of uninvested cash reserves that a Fund
otherwise would invest in short-term repurchase agreements or other
short-term instruments either directly or through a money market fund;
(c) the Interfund Loans would not involve a significantly greater risk
than such other investments; (d) the lending Fund would receive
interest at a rate higher than it could otherwise obtain through such
other investments; and (e) the borrowing Fund would pay interest at a
rate lower than otherwise available to it through custodian overdrafts
and avoid the up-front commitment fees generally associated with
committed lines of credit. Moreover, applicants believe that the other
terms and conditions in the application would effectively preclude the
possibility of any Fund obtaining an undue advantage over any other
Fund.
4. Section 17(a)(1) of the Act generally prohibits any affiliated
person of a registered investment company, or any affiliated person of
such a person, from selling securities or other property to the
investment company. Section 17(a)(2) of the Act generally prohibits an
affiliated person of a registered investment company, or any affiliated
person of such a person, from purchasing securities or other property
from the investment company. Section 12(d)(1) of the Act generally
makes it unlawful for a registered investment company to purchase or
otherwise acquire any security issued by any other investment company
except in accordance with the limitations set forth in that section.
5. Applicants state that the obligation of a borrowing Fund to
repay an Interfund Loan may constitute a security under sections
17(a)(1) and 12(d)(1). Applicants also state that any pledge of assets
in connection with an Interfund Loan could be construed as a purchase
of those assets from the borrowing Fund, and therefore a purchase of
the borrowing Fund's securities or other property for the purposes of
section 17(a)(2) of the Act. Section 12(d)(1)(J) of the Act provides
that the Commission may exempt persons or transactions from any
provision of section 12(d)(1) if and to the extent that such exemption
is consistent with the public interest and the protection of investors.
Applicants contend that the standards under sections 6(c), 17(b), and
12(d)(1)(J) are satisfied for all the reasons set forth above in
support of their request for relief from sections 17(a)(3) and 21(b)
and for the reasons discussed below. Applicants also state that the
requested relief from section 17(a)(2) of the Act meets the standards
of section 6(c) and 17(b) because any collateral pledged to secure an
Interfund Loan would be subject to the same conditions imposed by any
other lender to a Fund that imposes conditions on the quality of or
access to collateral for a borrowing (if the other lender is another
Fund) or the same or better conditions (in any other circumstance).
6. Applicants state that section 12(d)(1) was intended to prevent
the pyramiding of investment companies in order to avoid imposing on
investors additional and duplicative costs and fees attendant upon
multiple layers of investment companies. Applicants assert that the
proposed credit facility does not involve these abuses. Applicants note
that there will be no duplicative costs or fees to the Funds or to the
Funds' shareholders and that Managers will receive no additional
compensation for its services in administering the credit facility.
Applicants also note that the purpose of the proposed credit facility
is to provide economic benefits for all of the participating Funds.
7. Section 18(f)(1) of the Act prohibits registered open-end
investment companies from issuing any senior security except that a
company is permitted to borrow from any bank, if immediately after the
borrowing, there is asset coverage of at least 300 per centum for all
borrowings of the company. Under section 18(g) of the Act, the term
``senior security'' generally includes any bond, debenture, note or
similar obligation or instrument constituting a security and evidencing
indebtedness. Applicants request relief from section 18(f)(1) to the
limited extent necessary to implement the credit facility (because the
lending Funds are not banks).
8. Applicants assert that granting relief under section 6(c) of the
Act is appropriate because the Funds would remain subject to the
requirement of section 18(f)(1) of the Act that all borrowings of a
Fund, including combined Interfund Loans and bank borrowings, have at
least 300 per centum asset coverage. Based on the conditions and
safeguards described in the application, applicants also assert that to
allow the Funds to borrow from other Funds pursuant to the proposed
credit facility is consistent with the purposes and policies of section
18(f)(1) of the Act.
9. Section 17(d) and rule 17d-1 generally prohibit any affiliated
person of a registered investment company, or any affiliated person of
an affiliated person, when acting as principal, from effecting any
joint transaction in which the company participates unless the
transaction is approved by the Commission. Rule 17d-1(b) provides that
in passing upon applications filed under the rule, the Commission will
consider whether the participation of a registered investment company
in a joint enterprise on the basis proposed is consistent with the
provisions, policies, and purposes of the Act and the extent to which
the company's participation is on a basis different from or less
advantageous than that of other participants.
10. Applicants assert that the purpose of section 17(d) is to avoid
overreaching by and unfair advantage to investment company insiders.
Applicants believe that the credit facility is consistent with the
provisions, policies and purposes of the Act in that it offers both
reduced borrowing costs and enhanced returns on loaned funds to all
participating Funds and their shareholders. Applicants note that each
Fund would have an equal opportunity to borrow and lend on equal terms
consistent with its investment policies and fundamental investment
limitations. Applicants therefore believe that each Fund's
participation in the credit facility will be on terms that are no
different from or less advantageous than that of other participating
Funds.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. The Interfund Loan Rate will be the average of the Repo Rate and
the Bank Loan Rate.
2. On each business day, the Credit Facility Team will compare the
Bank
[[Page 26749]]
Loan Rate with the Repo Rate and will make cash available for Interfund
Loans only if the Interfund Loan Rate is: (i) More favorable to the
lending Fund than the Repo Rate and, if applicable, the yield of any
money market fund in which the lending Fund could otherwise invest; and
(ii) more favorable to the borrowing Fund than the Bank Loan Rate.
3. If a Fund has outstanding borrowings, any Interfund Loans to the
Fund: (i) Will be at an interest rate equal to or lower than any
outstanding bank loan; (ii) will be secured at least on an equal
priority basis with at least an equivalent percentage of collateral to
loan value as any outstanding bank loan that requires collateral; (iii)
will have a maturity no longer than any outstanding bank loan (and in
any event not over seven days); and (iv) will provide that, if an event
of default by the Fund occurs under any agreement evidencing an
outstanding bank loan to the Fund, that event of default will
automatically (without need for action or notice by the lending Fund)
constitute an immediate event of default under the Interfund Lending
Agreement entitling the lending Fund to call the Interfund Loan (and
exercise all rights with respect to any collateral) and that such call
will be made if the lending bank exercises its right to call its loan
under its agreement with the borrowing Fund.
4. A Fund may make an unsecured borrowing through the proposed
credit facility if its outstanding borrowings from all sources
immediately after the interfund borrowing total 10% or less of its
total assets, provided that if the Fund has a secured loan outstanding
from any other lender, including but not limited to another Fund, the
Fund's interfund borrowing will be secured on at least an equal
priority basis with at least an equivalent percentage of collateral to
loan value as any outstanding loan that requires collateral. If a
Fund's total outstanding borrowings immediately after an interfund
borrowing would be greater than 10% of its total assets, the Fund may
borrow through the proposed credit facility only on a secured basis. A
Fund may not borrow through the proposed credit facility or from any
other source if its total outstanding borrowings immediately after such
borrowing would exceed the limits imposed by section 18 of the Act.
5. Before any Fund that has outstanding interfund borrowings may,
through additional borrowings, cause its outstanding borrowings from
all sources to exceed 10% of its total assets, the Fund must first
secure each outstanding Interfund Loan by the pledge of segregated
collateral with a market value at least equal to 102% of the
outstanding principal value of the loan. If the total outstanding
borrowings of a Fund with outstanding Interfund Loans exceed 10% of its
total assets for any other reason (such as a decline in net asset value
or because of shareholder redemptions), the Fund will within one
business day thereafter: (i) Repay all its outstanding Interfund Loans;
(ii) reduce its outstanding indebtedness to 10% or less of its total
assets; or (iii) secure each outstanding Interfund Loan by the pledge
of segregated collateral with a market value at least equal to 102% of
the outstanding principal value of the loan until the Fund's total
outstanding borrowings cease to exceed 10% of its total assets, at
which time the collateral called for by this condition (5) shall no
longer be required. Until each Interfund Loan that is outstanding at
any time that a Fund's total outstanding borrowings exceed 10% is
repaid or the Fund's total outstanding borrowings cease to exceed 10%
of its total assets, the Fund will mark the value of the collateral to
market each day and will pledge such additional collateral as is
necessary to maintain the market value of the collateral that secures
each outstanding Interfund Loan at least equal to 102% of the
outstanding principal value of the Interfund Loan.
6. No Fund may lend to another Fund through the proposed credit
facility if the loan would cause its aggregate outstanding loans
through the proposed credit facility to exceed 15% of the lending
Fund's current net assets at the time of the loan.
7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of
the lending Fund's net assets.
8. The duration of Interfund Loans will be limited to the time
required to receive payment for securities sold, but in no event more
than seven days. Loans effected within seven days of each other will be
treated as separate loan transactions for purposes of this condition.
9. A Fund's borrowings through the proposed credit facility, as
measured on the day when the most recent loan was made, will not exceed
the greater of 125% of the Fund's total net cash redemptions for the
preceding seven calendar days or 102% of the Fund's sales fails for the
preceding seven calendar days.
10. Each Interfund Loan may be called on one business day's notice
by a lending Fund and may be repaid on any day by a borrowing Fund.
11. A Fund's participation in the proposed credit facility must be
consistent with its investment objectives, and limitations and
organizational documents.
12. The Credit Facility Team will calculate total Fund borrowing
and lending demand through the proposed credit facility, and allocate
loans on an equitable basis among the Funds, without the intervention
of any portfolio manager of the Funds. The Credit Facility Team will
not solicit cash for the proposed credit facility from any Fund or
prospectively publish or disseminate loan demand data to portfolio
managers. The Credit Facility Team will invest any amounts remaining
after satisfaction of borrowing demand in accordance with the standing
instructions of the portfolio managers or such remaining amounts will
be invested directly by the portfolio managers of the Funds.
13. Managers will monitor the Interfund Loan Rate and the other
terms and conditions of the Interfund Loans and will make a quarterly
report to the Trustees of each Trust concerning the participation of
the Funds in the proposed credit facility and the terms and other
conditions of any extensions of credit under the credit facility.
14. The Trustees of each Trust, including a majority of the
Independent Trustees, will: (i) Review, no less frequently than
quarterly, each Fund's participation in the proposed credit facility
during the preceding quarter for compliance with the conditions of any
order permitting such transactions; (ii) establish the Bank Loan Rate
formula used to determine the interest rate on Interfund Loans and
review, no less frequently than annually, the continuing
appropriateness of the Bank Loan Rate formula; and (iii) review, no
less frequently than annually, the continuing appropriateness of each
Fund's participation in the proposed credit facility.
15. In the event an Interfund Loan is not paid according to its
terms and such default is not cured within two business days from its
maturity or from the time the lending Fund makes a demand for payment
under the provisions of the Interfund Lending Agreement, Managers will
promptly refer such loan for arbitration to an independent arbitrator
selected by the Trustees of each Fund involved in the loan who will
serve as arbitrator of disputes concerning Interfund Loans.\3\ The
arbitrator will resolve any problem promptly, and the arbitrator's
decision will be binding on both Funds. The arbitrator will submit,
[[Page 26750]]
at least annually, a written report to the Trustees setting forth a
description of the nature of any dispute and the actions taken by the
Funds to resolve the dispute.
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\3\ If the dispute involves Funds with different Trustees, the
respective Trustees of each Fund will select an independent
arbitrator that is satisfactory to each Fund.
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16. Each Fund will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which any transaction
by it under the proposed credit facility occurred, the first two years
in an easily accessible place, written records of all such transactions
setting forth a description of the terms of the transactions, including
the amount, the maturity and the Interfund Loan Rate, the rate of
interest available at the time on overnight repurchase agreements and
commercial bank borrowings, the yield of any money market fund in which
the lending Fund could otherwise invest, and such other information
presented to the Fund's Trustees in connection with the review required
by conditions 13 and 14.
17. Managers will prepare and submit to the Trustees for review an
initial report describing the operations of the proposed credit
facility and the procedures to be implemented to ensure that all Funds
are treated fairly. After the commencement of the proposed credit
facility, Managers will report on the operations of the proposed credit
facility at the Trustees' quarterly meetings.
In addition, for two years following the commencement of the credit
facility, the independent public accountant for each Fund shall prepare
an annual report that evaluates Managers' assertion that it has
established procedures reasonably designed to achieve compliance with
the terms and conditions of the order. The report will be prepared in
accordance with the Statements on Standards for Attestation Engagements
No. 10 and it shall be filed pursuant to Item 77Q3 of Form N-SAR as
such Statements or Form may be revised, amended or superseded from time
to time. In particular, the report shall address procedures designed to
achieve the following objectives: (i) That the Interfund Loan Rate will
be higher than the Repo Rate, and, if applicable, the yield of the
money market funds, but lower than the Bank Loan Rate; (ii) compliance
with the collateral requirements as set forth in the Application; (iii)
compliance with the percentage limitations on interfund borrowing and
lending; (iv) allocation of interfund borrowing and lending demand in
an equitable manner and in accordance with procedures established by
the Trustees; and (v) that the Interfund Loan Rate does not exceed the
interest rate on any third party borrowings of a borrowing Fund at the
time of the Interfund Loan.
After the final report is filed, each Fund's independent auditors,
in connection with their audit examination of the Fund, will continue
to review the operation of the proposed credit facility for compliance
with the conditions of the Application and their review will form the
basis, in part, of the auditor's report on internal accounting controls
in Form N-SAR.
18. No Fund will participate in the proposed credit facility upon
receipt of requisite regulatory approval unless it has fully disclosed
in its prospectus and/or statement of additional information all
material facts about its intended participation.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-12917 Filed 6-2-09; 8:45 am]
BILLING CODE 8010-01-P
