[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