[Federal Register Volume 62, Number 235 (Monday, December 8, 1997)]
[Notices]
[Pages 64606-64611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32029]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22922; 812-10458]
Janus Investment Fund, et al.; Notice of Application
December 2, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (the ``Act'') under (i) section 6(c) of the Act granting an
exemption from sections 18(f) and 21(b) of the Act; (ii) section
12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of
the Act; (iii) sections 6(c) and 17(b) of the Act granting an exemption
from sections 17(a)(1) and 17(a)(3) of the Act, and (iv) section 17(d)
of the Act and rule
[[Page 64607]]
17d-1 under the Act to permit certain joint arrangements.
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Summary of Application: Applicants request an order that would
permit certain registered investment companies to participate in a
joint lending and borrowing facility.
Applicants: Janus Investment Fund, Janus Aspen Series, Janus
Capital Corporation (``Janus Capital''), any person controlling,
controlled by, or under common control with Janus Capital, and any
open-end management investment company registered under the Act for
which Janus Capital or any person controlling, controlled by, or under
common control with Janus Capital serves as investment adviser.\1\
\1\ All existing Funds (defined below) that currently intend to
rely on the order have been named as applicants, and any other
existing or future Funds that subsequently rely on the order will
comply with the terms and conditions in the application.
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FILING DATES: The application was filed on December 9, 1996 and amended
on July 9, 1997, and November 7, 1997. Applicants have agreed to file
an amendment during the notice period, the substance of which is
included in this notice.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the SEC orders a hearing. Interested
persons may request a hearing by writing to the SEC's Secretary and
serving applicants with a copy of the request, personally or by mail.
Hearing requests should be received by the SEC by 5:30 p.m. on December
29, 1997, 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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, DC
20549. Applicants, Janus Capital Corporation, 100 Fillmore Street,
Denver, CO 80206-4923.
FOR FURTHER INFORMATION CONTACT:
Lisa McCrea, Attorney Adviser, (202) 942-0562 (Office of Investment
Company Regulation, Division of Investment Management), or Mercer E.
Bullard, Special Counsel, (202) 942-0659 (Office of Chief Counsel,
Division of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 5th Street, N.W., Washington, DC,
20549 (tel. 202-942-8090).
Applicants' Representations
1. Janus Investment Fund is registered under the Act as an open-end
management investment company and organized as a Massachusetts business
trust. Janus Aspen Series is registered under the Act as an open-end
management investment company and organized as a Delaware business
trust. Janus Investment Fund and Janus Aspen Series have, respectively,
nineteen and nine separate portfolios (each a ``Fund''). Janus Capital
is registered as an investment adviser under the Investment Advisers
Act of 1940. Kansas City Southern Industries, Inc., a publicly traded
holding company whose primary subsidiaries are engaged in asset
management, transportation and information processing, owns
approximately 83% of the outstanding voting stock of Janus Capital.
Each Fund has entered into an investment advisory agreement with Janus
Capital under which Janus Capital exercises discretionary authority to
purchase and sell securities for the Funds. Janus Capital also provides
administrative services to the Funds.
2. In 1995, each Fund, Janus Capital and Janus Service Corporation,
the Funds' transfer agent, obtained an order under section 17(d) and
rule 17d-1 permitting them and certain other registered investment
companies (collectively, ``Joint Account Participants'') to deposit
uninvested cash balances that remain at the end of a trading day in one
or more joint trading accounts (each a ``Joint Account'') to be used to
enter into short-term investments. Janus Capital invests the cash in
the Joint Account as part of its duties under its existing advisory
contract with each Joint Account Participant and does not charge any
additional fee for this service.
3. Some Funds may lend money to banks or other entities by entering
into repurchase agreements or purchasing other short-term instruments,
either directly or through the Joint Account. Other Funds may borrow
money from the same or other banks for temporary purposes to satisfy
redemption requests or to cover unanticipated cash shortfalls such as a
trade ``fail'' in which cash payment for a portfolio security sold by a
Fund has been delayed. Currently, the Funds have credit arrangements
with their custodians (i.e., overdraft protection) under which the
custodians may, but are not obligated to, lend money to the Funds to
meet the Funds' temporary cash needs.
4. If the Funds were to borrow money from their custodians under
their current arrangements or under other credit arrangements with a
bank, the Funds would pay interest on the borrowed cash at a rate which
would 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 a middleman between a borrower and lender. Other bank loan
arrangements, such as committed lines of credit, would require the
Funds to pay substantial commitment fees in addition to the interest
rate to be paid by the borrowing Fund.
5. Applicants request an order that would permit the Funds to enter
into lending agreements (``Interfund Lending Agreements'') under which
the Funds would lend money directly to and borrow money directly from
each other through a credit facility for temporary purposes
(``Interfund Loan''). Applicants believe that the proposed credit
facility would substantially reduce the Funds' potential borrowing
costs and enhance their ability to earn higher rates of interest on
short-term lendings. Although the proposed credit facility would
substantially reduce the Funds' need to borrow from banks, the Funds
might also continue to maintain committed lines of credit or other
borrowing arrangements with banks. The Funds also would continue to
maintain overdraft protection currently provided by their custodians.
6. Applicants anticipate that the credit facility would provide a
borrowing Fund with significant savings when the cash position of the
Fund is insufficient to meet temporary cash requirements. This
situation could arise when redemptions exceed anticipated volumes and
the Funds have insufficient cash on hand to satisfy such redemptions.
When the Funds liquidate portfolio securities to meet redemption
requests, which normally are effected immediately, they often do not
receive payment in settlement for up to three days (or longer for
certain foreign transactions). The credit facility would provide a
source of immediate, short-term liquidity pending settlement of the
sale of portfolio securities.
7. Applicants also propose using the credit facility when a sale of
securities fails due to circumstances such as a delay in the delivery
of cash to the Fund's custodian or improper delivery instructions by
the broker effecting the transaction. Sales fails may present a cash
shortfall if the Fund has
[[Page 64608]]
undertaken to purchase a security with the proceeds from securities
sold. When the Fund experiences a cash shortfall due to a sales fail,
the custodian typically extends temporary credit to cover the shortfall
and the Fund incurs overdraft charges. Alternatively, the Fund could
fail on its intended purchase due to lack of funds from the previous
sale, resulting in additional cost to the Fund, or sell a security on a
same day settlement basis, earning a lower return on the investment.
Use of the credit facility under these circumstances would enable the
Fund to have access to immediate short-term liquidity without incurring
custodian overdraft or other charges.
8. While borrowing arrangements with banks will continue to be
available 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 or short-terms loans. In addition,
Funds making short-term cash loans directly to other Funds would earn
interest at a rather higher than they otherwise could obtain from
investing their cash through the Joint Account in repurchase
agreements. Thus, applicants believe that the proposed credit facility
would benefit both borrowing and lending Funds.
9. The interest rate charged to the Funds on any Interfund Loan
would be the average of the Repo Rate and the Bank Loan Rate, as
defined below. The Repo Rate for any day would be the highest rate
available to the Joint Account Participants from investments in
overnight repurchase agreements. The Bank Loan Rate for any day would
be calculated by Janus Capital each day an Interfund Loan is made
according to a formula established by the trustees of the Funds (the
``Trustees'') designed to approximate the lowest interest rate at which
bank short-term loans would be available to the Funds. The formula
would be based upon a publicly available rate (e.g., Federal Funds plus
25 basis points) and would vary with this rate so as to reflect
changing bank loan rates. Each Fund's Trustees periodically would
review the continuing appropriateness of using the publicly available
rate, as well as the relationship between the benchmark rate and
current bank loan rates that would be available to the Funds. The
initial formula and any subsequent modifications to the formula would
be subject to the approval of each Fund's Trustees.
10. The credit facility would be administered by Janus Capital's
money market investment professionals (including the portfolio manager
for the money market funds (``Money Market Funds'')) and fund
accounting department (collectively, the ``Cash Management Team'').
Under the proposed credit facility, the portfolio managers for each
participating Fund may provide standing instructions to participate
daily as a borrower or lender. As in the case of the Joint Account,
Janus Capital on each business day would collect data on the uninvested
cash and borrowing requirements of all participating Funds from the
Funds' custodians. Once it had determined the aggregate amount of cash
available for loans and borrowing demand the Cash Management 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. All allocations will
require approval of at least one member of the Cash Management Team who
is not the Money Market Funds' portfolio manager. After Janus Capital
has allocated cash for Interfund Loans, it will invest any remaining
cash in accordance with the standing instructions from portfolio
managers or return remaining amounts for investment directly by the
portfolio manager of the Money Market Funds. The Money Market Funds
typically would not participate as borrowers because they rarely need
to borrow cash to meet redemptions.
11. The Cash Management Team would allocate borrowing demand and
cash available for lending among the Funds on what the Team believed 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.
12. Janus Capital would: (i) Monitor the interest rates charged 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 credit facility and
the interest rates charged. The method of allocation and related
administrative procedures would be approved by each Fund's Trustees,
including a majority of Trustees who are not ``interested persons'' of
the Funds, as defined in section 2(a)(19) of the Act (``Independent
Trustees''), to ensure that both borrowing and lending Funds
participate on an equitable basis.
13. Janus Capital would administer the credit facility as part of
its duties under its existing management or advisory and service
contract with each Fund and would receive no additional fee as
compensation for its services. Janus Capital or companies affiliated
with it may collect standard pricing, recordkeeping, bookkeeping and
accounting fees applicable to repurchase and lending transactions
generally, including transactions effected through the credit facility.
Fees would be no higher than those applicable for comparable bank loan
transactions.
14. Each Fund's participation in the proposed credit facility will
be consistent with its organizational documents and its investment
policies and limitations. The prospectus of each Fund discloses that
the Fund may borrow money for temporary purposes in amounts up to 25%
of its total assets. Each non-Money Market Fund may mortgage or pledge
securities as security for borrowings in amounts up to 15% of its net
assets. Each of the Money Market Funds may mortgage or pledge
securities only to secure permitted borrowings. As a fundamental
policy, each Fund may lend securities or other assets if, as a result,
no more than 25% of its total assets would be lent to other parties.
15. The prospectus of each Fund currently discloses that Funds
advised by Janus Capital intend to seek permission from the SEC to
borrow money from or lend money to each other. If applicants' requested
order is granted, the Statement of Additional Information (``SAI'') of
each Fund will disclose all material facts about intended participation
in the credit facility. All borrowings and loans by the Funds will be
consistent with the organizational documents and investment policies of
the respective Funds.
16. In connection with the credit facility, applicants request an
order under (i) section 6(c) of the Act granting relief from sections
18(f) and 21(b) of the Act; (ii) section 12(d)(1)(J) of the Act
granting relief from section 12(d)(1) of the Act; (iii) sections 6(c)
and 17(b) of the Act granting relief from sections 17(a)(1) and
17(a)(3) of the Act; and (iv) section 17(d) of the Act and rule 17d-1
under the Act to permit certain joint arrangements.
[[Page 64609]]
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 investment 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 Janus Capital as their
common investment adviser.
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 SEC to exempt a proposed transaction from section 17(a)
provided that the terms of the transaction, including the consideration
to be paid or received, are fair and reasonable and do not involve
overreaching on the part of any person concerned, and the transaction
is consistent with the policy of the investment company as recited in
its registration statement and with the general purposes of the Act.
Applicants believe that the proposed arrangements satisfy these
standards for the reasons discussed below.
3. Applicants submit that sections 17(a)(3) and 21(b) of the Act
were intended to prevent a party with potential adverse interests to
and influence over the investment decisions of a registered investment
company from causing or inducing the investment company to engage in
lending transactions that unfairly inure to the benefit of such party
and that are detrimental to the best interests of the investment
company and its shareholders. Applicants assert that the proposed
credit facility transactions do not raise these concerns because (i)
Janus Capital would administer the program as a disinterested
fiduciary; (ii) all Interfund Loans would consist only of uninvested
cash reserves that the Fund otherwise would invest in short-term
repurchase agreements or other short-term instruments either directly
or through the Joint Account; (iii) the Interfund Loans would not
involve a greater risk than such other investments; (iv) the lending
Fund would receive interest at a rate higher than it could obtain
through such other investments; and (v) the borrowing Fund would pay
interest at a rate lower than otherwise available to it under its bank
loan agreements and avoid the up-front commitment fees associated with
committed lines of credit. Moreover, applicants believe that the other
conditions in the application would effectively preclude the
possibility of any Fund obtaining an undue advantage over any other
Fund.
4. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company, or an affiliated person of an affiliated
person, from selling any securities or other property to the company.
Section 12(d)(1) of the Act generally makes it unlawful for a
registered investment company to purchase or otherwise acquire any
security issued by any other investment company except in accordance
with the limitations set forth in that section. Applicants believe 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 SEC may exempt persons or transactions
from any provision of section 12(d)(1) if and to the extent such
exception 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) 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) was intended to prevent the
pyramiding of investment companies in order to avoid 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 would be no duplicative costs
or fees to the Funds or shareholders, and that Janus Capital would
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 the
participating Funds.
6. Section 18(f)(1) prohibits open-end investment companies from
issuing any senior security except that a company is permitted to
borrow from any bank; provided, that immediately after any such
borrowing there is an 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 exemptive relief from section 18(f)(1)
to the limited extent necessary to implement the credit facility
(because the lending Funds are not banks).
7. Applicants believe that granting relief under section 6(c) is
appropriate because the Funds would remain subject to the requirement
of section 18(f)(1) that all borrowings of the Fund, including combined
credit facility and bank borrowings, have at least 300% asset coverage.
Based on the conditions and safeguards described in the application,
applicants also submit that to allow the Funds to borrow from other
Funds pursuant to the proposed credit facility is consistent with the
purposes and policies of section 18(f)(1).
8. Section 17(d) and rule 17d-1 generally prohibit any affiliated
person of a registered investment company, or affiliated 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 SEC. Rule 17d-1 provides that in passing upon
applications for exemptive relief from section 17(d), the SEC 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 advantages 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 which are no
different from or less advantageous than that of other participating
Funds.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. The interest rates to be charged to the Funds under the credit
facility will
[[Page 64610]]
be the average of the Repo Rate and the Bank Loan Rate.
2. On each business day, Janus Capital will compare the Bank Loan
Rate with the Repo Rate and will make cash available for Interfund
Loans only if the Interfund Loan Rate is more favorable to the lending
Fund than the Repo Rate and more favorable to the borrowing Fund than
the quoted 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 less than 10% 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 interfund borrowing would be
greater than 10% of its total assets, the Fund may borrow through the
credit facility on a secured basis only. A Fund may not borrow through
the credit facility or from any other source if its total outstanding
borrowings immediately after the interfund borrowing would be more than
25% of its total assets.
5. Before any Fund that has outstanding interfund borrowings may,
through additional borrowings, cause its outstanding borrowings from
all sources to exceed 10% of its total assets, the Fund must first
secure each outstanding Interfund Loan by the pledge of segregated
collateral with a market value at least equal to 102% of the
outstanding principal value of the loan. If the total outstanding
borrowings of a Fund with outstanding Interfund Loans exceeds 10% of
its total assets for any other reason (such as decline in net asset
value or because of shareholder redemptions), the Fund will within one
business day thereafter: (a) repay all its outstanding Interfund Loans,
(b) reduce its outstanding indebtedness to 10% or less of its total
assets, or (c) secure each outstanding Interfund Loan by the pledge of
segregated collateral with a market value at least equal to 102% of the
outstanding principal value of the loan until the Fund's total
outstanding borrowings cease to exceed 10% of its total assets, at
which time the collateral called for by this condition (5) shall no
longer be required. Until each Interfund Loan that is outstanding at
any time that a Fund's total outstanding borrowings exceeds 10% is
repaid or the Fund's total outstanding borrowings cease to exceed 10%
of its total assets, the Fund will mark the value of the collateral to
market each day and will pledge such additional collateral as is
necessary to maintain the market value of the collateral that secures
each outstanding Interfund Loan at least equal to 102% of the
outstanding principal value of the loan.
6. No equity, taxable bond or Money Market Fund may lend to another
Fund through the credit facility if the loan would cause its aggregate
outstanding loans through the credit facility to exceed 5%, 7.5% or
10%, respectively, of its net assets at the time of the loan.
7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of
the lending Fund's net assets.
8. The duration of Interfund Loans will be limited to the time
required to receive payment for securities sold to cover either
shareholder redemptions or sales fails, 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 the most recent loan was made, will not exceed the greater of
125% of the fund's total net cash redemptions and 102% of sales fails
for the preceding seven calendar days.
10. Each Interfund Loan may be called on one business day's notice
by the lending Fund and may be repaid on any day by the borrowing Fund.
11. A Fund's participation in the credit facility must be
consistent with its investment policies and limitations and
organizational documents.
12. Janus Capital's Cash Management Team will calculate total Fund
borrowing and lending demand through the credit facility, and allocate
loans on an equitable basis among the Funds without intervention of the
portfolio manager of the Fund (except the portfolio manager of the
Money Market Funds acting in her or his capacity as a member of the
Cash Management Team). All allocations will require approval of at
least one member of the Cash Management Team who is not the Money
Market Funds' portfolio manager. The Cash Management Team will not
solicit cash for the credit facility from any Fund or prospectively
publish or disseminate loan demand data to portfolio managers (except
to the extent that the portfolio manager of the Money Market Funds has
access to loan demand data). Janus Capital will invest any amounts
remaining after satisfaction of borrowing demand in accordance with the
standing instructions from portfolio managers or return remaining
amounts for investment directly by the portfolio manager of the Money
Market Funds.
13. Janus Capital will monitor the interest rates charged and the
other terms and conditions of the Interfund Loans and will make a
quarterly report to the Boards of Trustees concerning the participation
of the Funds in the credit facility and the terms and other conditions
of any extensions of credit thereunder.
14. The Trustees of each Fund, including a majority of the
Independent Trustees: (a) will review no less frequently than quarterly
the Fund's participation in the credit facility during the preceding
quarter for compliance with the conditions of any order permitting such
transactions; (b) will establish the Bank Loan Rate formula used to
determine the interest rate on Interfund Loans and review no less
frequently than annually the continuing appropriateness of such Bank
Loan Rate formula; and (c) will review no less frequently than annually
the continuing appropriateness of the Fund's participation in the
credit facility.
15. In the event an Interfund Loan is not paid according to its
terms and 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, Janus Capital
will promptly refer such loan for arbitration to an independent
arbitrator selected by the Trustees of any Fund involved in the loan
who will serve as arbitrator of disputes concerning
[[Page 64611]]
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
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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\2\ If the dispute involves Funds with separate Boards of
Trustees, the Trustees of each Fund will select an independent
arbitrator that is satisfactory to each party.
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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
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
commercial bank borrowings, and such other information presented to the
Fund's Trustees in connection with the review required by conditions 13
and 14.
17. Janus Capital will prepare and submit to the Trustees 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 credit facility commences operations,
Janus Capital will report on the operations of the 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 that is a
registered investment company shall prepare an annual report that
evaluates Janus Capital'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. 3 and it shall be filed
pursuant to Item 77Q3 of Form N-SAR. In particular, the report shall
address procedures designed to achieve the following objectives: (a)
that the Interfund Rate will be higher than the Repo Rate but lower
than the Bank Loan Rate; (b) compliance with the collateral
requirements as set forth in the application; (c) compliance with the
percentage limitations on interfund borrowing and lending; (d)
allocation of interfund borrowing and lending demand in an equitable
manner and in accordance with procedures established by the Trustees;
and (e) that the interest rate on any Interfund Loan does not exceed
the interest rate on any third party borrowings of a borrowing Fund at
the time of the Interfund Loan.
After the final report is filed, the Fund's external auditors, in
connection with their Fund audit examinations, will continue to review
the operation of the credit facility for compliance with the conditions
of the application and their review will form the basis, in part, of
the auditor's report on internal accounting controls in Form N-SAR.
18. No Fund will participate in the credit facility unless it has
fully disclosed in its SAI all material facts about its intended
participation.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-32029 Filed 12-5-97; 8:45 am]
BILLING CODE 8010-01-M