[Federal Register Volume 64, Number 213 (Thursday, November 4, 1999)]
[Notices]
[Pages 60250-60254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28871]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-24116; 812-11726]
T. Rowe Price Associates, Inc., et. al.; Notice of Application
October 29, 1999.
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
supersede an existing order permitting 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
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 Fund, 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 Fund, Inc., T. Rowe Price Tax-Efficient Balanced Fund, T.
Rowe Price Tax-Efficient Growth Fund, 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
[[Page 60251]]
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 July 21, 1999, and amended
on October 6, 1999.
HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief 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 November
22, 1999, 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
20549-0609. 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, N.W., Washington, DC,
20549-0102 (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. Applicants have an existing SEC order that permits the Price
Funds to participate in a joint lending and borrowing facility (the
``Original Order'').\4\ T. Rowe Price administers the credit facility
under its existing advisory agreements with the Funds, and does not
receive any additional compensation for this service. Applicants
request an order that would supersede the Original Order.
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\4\ T. Rowe Price Associates, Inc., Investment Company Act
Release Nos. 23532 (Nov. 12, 1998) (notice) and 23590 (Dec. 8, 1998)
(order).
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4. Applicants state that the credit facility permits the Price
Funds to lend money to each other for temporary purposes, such as when
redemptions exceed anticipated levels. The credit facility can reduce
substantially the Price Funds' borrowing costs and enhance their
ability to earn higher rates of interest on investment of their short-
term cash balances. While bank borrowings are a source of liquidity
pending the sale and settlement of portfolio securities, the rates
charged under the credit facility are normally below those offered by
banks on short-term loans, and Price Funds making loans through the
credit facility are able to earn interest at a rate higher than they
could obtain from investing their cash in short-term repurchase
agreements or, for the Price Funds that invest in them, the Reserve
Investment Fund and the Government Reserve Investment Fund.
5. When the Price Funds lend money to and borrow money from each
other through the credit facility (``Interfund Loans''), interest rates
(``Interfund Loan Rates'') are based on the average of the highest rate
available to the Reserve Investment Funds from investments in overnight
repurchase agreements (the ``Repo Rate'') and a benchmark rate
established periodically by the directors or trustees (``Directors'')
of each Price Fund to approximate the lowest interest rate at which
bank short-term loans would be available to the Funds (the ``Bank Loan
Rate'').
6. T. Rowe Price's fund accounting and treasury departments
(collectively, the ``Credit Facility Team'') make cash available for
Interfund Loans only if: (a) the Interfund Loan Rate is more favorable
to the lending Fund than the Repo Rate and, for the Funds that invest
in them, the yield on the Reserve Investment Fund or the Government
Reserve Investment Fund, and (b) more favorable to the borrowing Fund
than the Bank Loan rate.
7. T. Rowe Price on each business day collects data on the
uninvested cash and borrowing requirements of all participating Funds
from the Funds' custodians. T. Rowe Price will not solicit cash for
loans from any Funds or publish or disseminate the amount of current
borrowing demand to portfolio managers. Once it determines the
aggregate amount of cash available for loans and borrowing demand, the
Credit Facility Team allocates loans among borrowing Funds without any
further communication from portfolio managers. The Credit Facility Team
allocated 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. 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.
8. A Fund's participation in the credit facility must be consistent
with its investment policies and limitations and organizational
documents.\5\ The money market Funds typically would not participate as
borrowers because they rarely need to borrow cash to meet redemptions.
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\5\ The T. Rowe Price Spectrum Funds, Inc. (the ``Spectrum
Funds''), all municipal Funds, and all Funds that invest only in
full faith and credit obligations of the U.S. government do not
participate as lenders under the credit facility because that would
be inconsistent with their investment program.
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9. Except as noted above, the prospectus of each Price Fund
discloses that the Funds may borrow money and lend securities and other
assets. The
[[Page 60252]]
Statement of Additional Information (``SAI'') for the Price Funds also
discloses the interfund lending arrangements.
10. Applicants seek to amend the Original Order to reduce certain
administrative burdens associated with the credit facility and give
participating Funds greater flexibility consistent with the purposes of
the credit facility and investor protection. Applicants state that the
anticipated benefits of the Original Order may not be realized because
of administrative burdens and related costs of complying with certain
conditions of the Original Order. Applicants assert that modifying
these conditions would benefit both those Funds that are borrowers and
those Funds that are lenders.
11. Applicants seek to modify the condition in the Original Order
that permitted an equity, taxable bond, or money market fund to lend
through the credit facility only if the Fund's aggregate outstanding
loans through the credit facility do not exceed 5%, 7.5%, and 10%,
respectively, of the Fund's net assets at the time of the loan.
Applicants seek to permit any type of Fund to make loans through the
credit facility up to 15% of its current net assets at the time of the
loan. Applicants state that the percentage limitations in the Original
Order created artificial distinctions that are not related to a Fund's
particular circumstances and unnecessarily restrict a Fund's ability to
effectively manage its cash balances. Applicants further state that, if
a Fund has large cash balances, its ability to invest the cash at a
more attractive rate should not be limited unnecessarily.
12. Applicants also seek to remove the condition in the Original
Order that provided that a Fund's borrowing through the credit facility
will not exceed 125% of the Fund's total net cash redemptions for the
preceding seven calendar days. Applicants assert that this condition is
difficult to monitor and ineffective. Applicants state that the
condition was designed to protect the Funds from the dangers of
borrowing for investment, and the resulting leverage, especially in a
declining securities market. Applicants assert that this condition may
be ineffective in addressing a Fund's need for cash in the case of
unanticipated levels of redemption (such as in the event of a sharp
market correction). Applicants also assert that the condition may not
necessarily prevent a Fund from borrowing for investment. Applicants
state that each Fund's fundamental investment limitations provide that
Fund borrowings be for non-leveraging purposes and temporary or
emergency in nature. Applicants contend that this fundamental policy is
a more effective safeguard that will prevent inappropriate use of the
credit facility. Applicants propose as a condition to the requested
order that each Fund borrowing through the facility have this
fundamental policy.
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 it 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 content 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 purpose of the proposed credit
facility is to provide economic benefits for all the participating
Funds.
[[Page 60253]]
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 percent 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 interset 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, or such lesser amount permitted under the
Fund's fundamental policies.
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 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 15% of its 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.
[[Page 60254]]
9. Each Interfund Loans may be called on one business day's notice
by the lending Fund and may be repaid on any day by the borrowing Fund.
10. A Fund's participation in the credit facility must be
consistent with its investment policies and limitations and
organizational documents. No Fund may borrow through the credit
facility unless the Fund has a fundamental policy that required Fund
borrowings to be for non-leveraging purposes and temporary or emergency
in nature.
11. T. Rowe 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. T. Rowe
price will invest any amounts remaining after satisfaction of borrowing
demand in accordance with the standing instructions from portfolio
managers or return remaining amounts to the Funds.
12. T. Rowe 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 Funds
in the credit facility and the terms and other conditions of any
extensions of credit under the facility.
13. The Directors of each Fund, including a majority of Directors
who are not ``interested persons'' of the Fund as the term is defined
in section 2(a)(19) of the Act: (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.
14. 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 tie the lending Fund makes a demand for payment
under the provisions of the Interfund Lending Agreement, T. Rowe Price
will promptly refer the loan for arbitration to an independent
arbitrator selected by the Directors of any Funds involved in the loan
who will serve as arbitrator of disputes concerning Interfund Loans.\6\
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 Directors 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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\6\ If the dispute involves Funds with separate Boards of
Directors, the Directors, the Direction of each Fund will select an
independent arbitrator that is satisfactory to each Fund.
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15. Each Fund will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which any transaction
under the credit facility occurred, the first two years in an easily
accessible place, written records of all such transactions setting
forth a description of the terms of the transaction, including the
amount, the maturity, and the rate of interest on the loan, the rate of
interest available at the time on short-term repurchase agreements and
bank borrowings, and such other information presented to the Fund's
Directors in connection with the review required by conditions 13 and
14.
16. T. Rowe 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, T. Rowe 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 (c) 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.
17. 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. 99-28871 Filed 11-3-99; 8:45 am]
BILLING CODE 8010-01-M