[Federal Register Volume 63, Number 223 (Thursday, November 19, 1998)]
[Notices]
[Pages 64292-64297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30893]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23532; 812-11340]


T. Rowe Price Associates, Inc., et al.; Notice of Application

November 12, 1998.
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 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: Price Blue Chip Growth Fund, Inc., T. Rowe Price Capital 
Appreciation Fund, T. Rowe Price Capital Opportunity Fund, Inc., T. 
Rowe Price Diversified Small-Cap Growth Fund, Inc., T. Rowe Price 
Dividend Growth Fund, Inc., T. Rowe Price Equity Income Fund, T. Rowe 
Price Equity Series, Inc., T. Rowe Price Equity Income Portfolio, T. 
Rowe Price Mid-Cap Growth Portfolio, T. Rowe Price New America Growth 
Portfolio, T. Rowe Price Personal Strategy Balanced Portfolio, T. Rowe 
Price Financial Services Fund, Inc., T. Rowe Price Growth & Income 
Fund, Inc., T. Rowe Price Growth Stock Fund, Inc., T. Rowe Price Health 
Sciences Fund, Inc., T. Rowe Price Index Trust, Inc., T. Rowe Price 
Equity Index 500 Fund, T. Rowe Price Extended Equity Market Index Fund, 
T. Rowe Price Total Equity Market Index Fund, Institutional

[[Page 64293]]

International Funds, Inc., Foreign Equity Fund, T. Rowe Price 
International Funds, Inc., T. Rowe Price International Discovery Fund, 
T. Rowe Price International Stock Fund, T. Rowe Price European Stock 
Fund, T. Rowe Price New Asia Fund, T. Rowe Price Japan Fund, T. Rowe 
Price Latin America Fund, T. Rowe Price Emerging Markets Stock Fund, T. 
Rowe Price Global Stock Fund, T. Rowe Price International Bond Fund, T. 
Rowe Price Global Government Bond Fund, T. Rowe Price Emerging Markets 
Bond Fund, T. Rowe Price International Series, Inc., T. Rowe Price 
International Stock Portfolio, T. Rowe Price Mid-Cap Growth, Inc., T. 
Rowe Price Mid-Cap Value Fund, Inc., T. Rowe Price New America Growth 
Fund, T. Rowe Price New Era Fund, Inc., T. Rowe Price New Horizons 
Fund, Inc., T. Rowe Price Real Estate Fund, Inc., T. Rowe Price Small 
Cap Stock Fund, Inc., T. Rowe Price Small Cap Stock Fund, T. Rowe Price 
Science & Technology Fund, Inc., T. Rowe Price Small-Cap Value Fund, 
Inc., T. Rowe Price Spectrum Fund, Inc., Spectrum Growth Fund, Spectrum 
Income Fund, Spectrum International Fund, T. Rowe Price Value Fund, 
Inc., T. Rowe Price Media & Telecommunications Fund, Inc., T. Rowe 
Price California Tax-Free Income Trust, California Tax-Free Bond Fund, 
California Tax-Free Money Fund, T. Rowe Price Corporate Income Fund, 
Inc., T. Rowe Price Fixed Income Series, Inc. T. Rowe Price Limited-
Term Bond Portfolio, T. Rowe Price Prime Reserve Portfolio, T. Rowe 
Price GNMA Fund, T. Rowe Price High Yield Fund, Inc., T. Rowe Price New 
Income Fund, Inc., T. Rowe Price Personal Strategy Funds, Inc., T. Rowe 
Price Personal Strategy Balanced Fund, T. Rowe Price Personal Strategy 
Growth Fund, T. Rowe Price Personal Strategy Income Fund, T. Rowe Price 
Prime Reserve Fund, Inc., Reserve Investment Funds, Inc., Government 
Reserve Investment Fund, Reserve Investment Fund, T. Rowe Price Short-
Term Bond Fund, Inc., T. Rowe Price Short-Term U.S. Government Fund, 
Inc., T. Rowe Price Tax Efficient Balanced Fund, Inc., T. Rowe Price 
State Tax-Free Income Trust, Maryland Tax-Free Bond Fund, Maryland 
Short-Term Tax-Free Bond Fund, New York Tax-Free Bond Fund, New York 
Tax-Free Money Fund, Virginia Tax-Free Bond Fund, Virginia Short-Term 
Tax-Free Bond Fund, New Jersey Tax-Free Bond Fund, Georgia Tax-Free 
Bond Fund, Florida Insured Intermediate Tax-Free Fund, T. Rowe Price 
Summit Funds, Inc., T. Rowe Price Summit Cash Reserves Fund, T. Rowe 
Price Summit Limited-Term Bond Fund, T. Rowe Price Summit GNMA Fund, T. 
Rowe Price Summit Municipal Funds, Inc., T. Rowe Price Summit Municipal 
Money Market Fund, T. Rowe Price Summit Municipal Intermediate Fund, T. 
Rowe Price Summit Municipal Income Fund, T. Rowe Price Tax-Exempt Money 
Fund, Inc., T. Rowe Price Tax-Free High Yield Fund, Inc., T. Rowe Price 
Tax-Free Income Fund, Inc., T. Rowe Price Tax-Free Insured Intermediate 
Bond Fund, Inc., T. Rowe Price Tax-Free Short-Intermediate Fund, Inc., 
T. Rowe Price U.S. Treasury Funds, Inc., U.S. Treasury Intermediate 
Fund, U.S. Treasury Long-Term Fund, U.S. Treasury Money Fund, 
Institutional Domestic Equity Funds, Inc., and Mid-Cap Equity Growth 
Fund (collectively, the ``Price Funds''); T. Rowe Price Associates, 
Inc. (``T. Rowe Price'') and Rowe Price-Fleming International, Inc. 
(``Price-Fleming''); and all other registered investment companies and 
their series that are advised or subadvised by T. Rowe Price or Price-
Fleming or a person controlling, controlled by, or under common control 
with T. Rowe Price or Price-Fleming, and all other registered 
investment companies and their series for which T. Rowe Price or Price-
Fleming in the future acts as an investment adviser or subadviser, 
other than funds which are not sponsored by T. Rowe Price or Price-
Fleming (together with the Price Funds, the ``Funds'' or the ``Price 
Funds'').

FILING DATES: The application was filed on September 30, 1998. 
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 requested 
relief will be issued unless the SEC orders a hearing. Interested 
person 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 
7, 1998, and should be accompanied by proof of service on applicants, 
in the form of an affidavit or, for lawyers, a certificate of service. 
Hearing request 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, NW, Washington, DC 20549. 
Applicants, T. Rowe Price Associates, Inc., 100 E. Pratt Street, 
Baltimore, Maryland 21202.

FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, 
(202) 942-7120, or Mary Kay Frech, Branch Chief, (202) 942-0564 (Office 
of Investment Company Regulation, 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, NW, Washington, DC 20549 
(tel. 202-942-8090).

Applicants' Representations

    1. Each Price Fund is registered under the Act as an open-end 
management investment company and is organized either as a Maryland 
corporation or a Massachusetts business trust. Additional funds or 
series may be added in the future.\1\ T. Rowe Price and Price Fleming 
(together, ``Price'') are registered under the Investment Advisers Act 
of 1940, and serve as investment advisers to the Price Funds. T. Rowe 
Price also provides the Price Funds with certain administrative 
services. Each Fund has entered into an investment advisory agreement 
with Price under which Price exercises discretionary authority to 
purchase and sell securities for the Funds.
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    \1\ All existing Funds that currently intend to rely on the 
order have been named as applicants, and any other existing or 
future Fund that subsequently may rely on the order will comply with 
the terms and conditions in the application.
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    2. Under an existing order, the Price Funds (other than the 
municipal funds) can use their cash reserves to purchase shares of the 
Reserve Investment Funds, Inc. (``Reserve Investment Funds'').\2\ There 
are two series of the Reserve Investment Funds and each is a money 
market fund that complies with rule 2a-7 under the Act.\3\ Each manages 
the cash reserves of T. Rowe Price clients, principally, the Price 
Funds, and neither is offered to the public. T. Rowe Price receives no 
compensation for managing the Reserve Investment Funds.
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    \2\ Reserve Investment Funds, Inc., Investment Company Act 
Release Nos. 22732 (July 2, 1997) (notice) and 22770 (July 29, 1997) 
(order).
    \3\ The Reserve Investment Fund invests in a variety of taxable 
money market instruments, and the Government Reserve Investment Fund 
invests only in money market securities backed by the full faith and 
credit of the U.S. government and fully collateralized repurchase 
agreements on those securities.
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    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 Reserve Investment Funds. Other Funds 
may borrow money from the same or other

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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 any bank under their 
current arrangements or under other credit arrangements, 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 and borrow money for temporary purposes directly 
to and from each other through a credit facility (``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 would be free to establish 
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 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 on short-term loans. In addition, 
funds making short-term cash loans directly to other Funds would earn 
interest at a rate higher than they otherwise could obtain from 
investing their cash in repurchase agreements or the Reserve Investment 
Funds. Thus, applicants believe that the proposed credit facility would 
benefit both borrowing and lending Funds.
    9. The interest rate charges 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 rate available to the Reserve Investment 
Funds from investments in overnight repurchase agreements. The Bank 
Loan Rate for any day would be calculated by Price each day an 
Interfund Loan is made according to a formula established by the Funds' 
directors (the ``Directors'') 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 Directors periodically 
would review the continuing appropriateness of using the publicly 
available rate, as well as the relationship between the Bank Loan Rate 
and current bank loan rates that would be available to the Funds. The 
initial formula and any subsequent modifications to the formula would 
be subject to the approval of each Fund's Directors.
    10. The credit facility would be administered by T. Rowe Price's 
fund accounting and treasury departments (collectively, the ``Credit 
Facility 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 
Reserve Investment Funds, T. Rowe Price 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 Credit Facility Team would allocate loans among borrowing Funds 
without any further communication from portfolio managers. Applicants 
expect far more available uninvested cash each day than borrowing 
demand. After allocating cash for Interfund Loans, T. Rowe Price will 
invest any remaining cash in accordance with the standing instructions 
from portfolio managers or return remaining amounts to the Funds. The 
money market funds typically would not participate as borrowers because 
they rarely need to borrow cash to meet redemptions.
    11. The Credit Facility Team would allocate borrowing demand and 
cash available for lending among the Funds on what the 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.
    12. T. Rowe Price 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 
Directors concerning any transactions by the Funds under the credit 
facility and the interest rates charged. The

[[Page 64295]]

method of allocation and related administrative procedures would be 
approved by each Fund's Directors, including a majority of Directors 
who are not ``interested persons'' of the Funds, as defined in section 
2(a)(19) of the Act (``Independent Directors''), to ensure that both 
borrowing and lending Funds participate on an equitable basis.
    13. T. Rowe Price 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. T. Rowe Price 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 Price Fund discloses 
that the Price Fund (other than the variable annuity and life 
portfolios) may borrow money for temporary purposes in amounts up to 
33\1/3\% of its total assets.\4\ Each Price Fund may mortgage or pledge 
securities as security for borrowings in amounts up to 33\1/3\% of its 
total assets. Each Fund may lend securities or other assets if, as a 
result, no more than 33\1/3\% of its total assets would be lent to 
other parties.
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    \4\ Price Funds used exclusively as funding vehicles for 
variable annuity or life contracts have an operating policy which 
states ``the Fund will limit borrowing for any variable annuity 
separate account to (1) 10% of net asset value when borrowing for 
any general purpose, and (2) 25% of net asset value when borrowing 
as a temporary measure to facilitate redemptions.''
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    15. The prospectus of each Price Fund discloses that the Funds may 
borrow money and lend securities and other assets. The Statement of 
Additional Information (``SAI'') for the Price Funds also provides that 
the Funds will not borrow from or lend to any other Price Fund unless 
each Fund applies for and receives an exemptive order from the SEC or 
the SEC issues rules permitting the transactions. If applicants' 
requested order is granted, each Fund will amend its SAI to reflect its 
ability and intention to engage in interfund lending and borrowing. 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.

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 Price as their common 
investment adviser, and because of the overlap of Directors and 
officers of the Funds.
    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 person with strong potential adverse 
interests to and some influence over the investment decisions of a 
registered investment company from causing or inducing the investment 
company to engage in lending transactions that unfairly inure to the 
benefit of that person and that are detrimental to the best interests 
of the investment company and its shareholders. Applicants assert that 
the proposed credit facility transactions do not raise these concerns 
because (i) Price 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 Reserve Investment Funds; (iii) the Interfund Loans 
would not involve a greater risk than other similar investments; (iv) 
the lending Fund would receive interest at a rate higher than it could 
obtain through other similar 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 Price would receive no 
additional compensation for its services in administering the credit 
facility. Applicants also note that the

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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, if immediately after the borrowing, there is an 
asset coverage of at least 300 per cent 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 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 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 be the average of the Repo Rate and the Bank Loan Rate.
    2. On each business day, Price will compare the Bank Loan Rate with 
the Repo Rate and will make cash available for Interfund Loans only if 
the Interfund Loan Rate is (a) more favorable to the lending Fund than 
the Repo Rate and the yield on the Reserve Investment Fund (for Price 
Funds which invest in that Fund) and the yield on the Government 
Reserve Investment Fund (for Price Funds which invest in that fund), 
and (b) more favorable to the borrowing Fund than the Bank Loan Rate.
    3. If a Fund has outstanding borrowings, any Interfund Loans to the 
Fund (a) will be at an interest rate equal to or lower than any 
outstanding bank loan, (b) will be secured at least on an equal 
priority basis with at least an equivalent percentage of collateral to 
loan value as any outstanding bank loan that requires collateral, (c) 
will have a maturity no longer than any outstanding bank loan (and in 
any event not over seven days), and (d) will provide that, if an event 
of default occurs under any agreement evidencing an outstanding bank 
loan to the Fund, that event of default will automatically (without 
need for action or notice by the lending Fund) constitute an immediate 
event of default under the Interfund Lending Agreement entitling the 
lending Fund to call the Interfund Loan (and exercise all rights with 
respect to any collateral) and that such call will be made if the 
lending bank exercises its right to call its loan under its agreement 
with the borrowing Fund.
    4. A Fund may make an unsecured borrowing through the credit 
facility if its outstanding borrowings from all sources immediately 
after the interfund borrowing total 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 
33\1/3\% of its total assets.
    5. Before any Fund that has outstanding interfund borrowings may, 
through additional borrowings, cause its outstanding borrowings from 
all sources to exceed 10% of its total assets, the Fund must first 
secure each outstanding Interfund Loan by the pledge of segregated 
collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan. If the total outstanding 
borrowings of a Fund with outstanding Interfund Loans exceeds 10% of 
its total assets for any other reason (such as 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 last 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, 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.

[[Page 64297]]

    9. A Fund's borrowings through the credit facility, as measured on 
the day when the most recent loan was made, will not exceed the greater 
of 125% of the Fund's total net cash redemptions 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. Price's Credit Facility Team will calculate total Fund 
borrowing and lending demand through the credit facility, and allocate 
loans on an equitable basis among the Funds without the intervention of 
any portfolio manager of the Funds. The Credit Facility Team will not 
solicit cash for the credit facility from any Fund or prospectively 
publish or disseminate loan demand data to portfolio managers. Price 
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 to the Funds.
    13. Price will monitor the interest rates charged and the other 
terms and conditions of the Interfund Loans and will make a quarterly 
report to the Directors concerning the participation of the Funds in 
the credit facility and the terms and other conditions of any 
extensions of credit under the facility.
    14. The Directors of each Fund, including a majority of the 
Independent Directors: (a) will review no less frequently than 
quarterly the Fund's participation in the credit facility during the 
preceding quarter for compliance with the conditions of any order 
permitting the transactions; (b) will establish the Bank Loan Rate 
formula used to determine the interest rate on Interfund Loans and 
review no less frequently than annually the continuing appropriateness 
of the Bank Loan Rate formula; and (c) will review no less frequently 
than annually the continuing appropriateness of the Fund's 
participation in the credit facility.
    15. In the event an Interfund Loan is not paid according to its 
terms and the default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand for payment 
under the provisions of the Interfund Lending Agreement, Price will 
promptly refer the loan for arbitration to an independent arbitrator 
selected by the Directors of the Funds involved in the loan who will 
serve as arbitrator of disputes concerning Interfund Loans.\5\ 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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    \5\ If the dispute involves Funds with separate Boards of 
Directors, the Directors 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 
under the credit facility occurred, the first two years in an easily 
accessible place, written records of all such transactions setting 
forth a description of the terms of the transaction, including the 
amount, the maturity, and the rate of interest on the loan, the rate of 
interest available at the time on short-term repurchase agreements and 
bank borrowings, and such other information presented to the Fund's 
Directors in connection with the review required by conditions 13 and 
14.
    17. Price will prepare and submit to the Directors 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 commencement of operations of the credit facility, Price 
will report on the operations of the credit facility at the Directors' 
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 Price'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, and if 
applicable the yield of the Reserve Investment Funds, but lower than 
the Bank Loan Rate; (b) compliance with the collateral requirements as 
set forth in the application; (c) compliance with the percentage 
limitations on interfund borrowing and lending; (d) allocation of 
interfund borrowing and lending demand in an equitable manner and in 
accordance with procedures established by the Directors; 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 upon receipt of 
requisite regulatory approval 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. 98-30893 Filed 11-18-98; 8:45 am]
BILLING CODE 8010-01-M