[Federal Register Volume 64, Number 230 (Wednesday, December 1, 1999)]
[Notices]
[Pages 67353-67357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31161]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 24175, 812-11816]
MAS Funds, et al.; Notice of Application
November 23, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from sections 18(f)
and 21(b) of the Act, under section 12(d)(1)(J) of the Act for an
exemption from section 12(d)(1) of the Act, under sections 6(c) and
17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(3)
of the Act, and under section 17(d) of the Act and rule 17d-1 under the
Act to permit certain joint arrangements.
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SUMMARY OF THE APPLICATION: Applicants request an order that would
permit series of a registered open-end management investment company to
participate in a joint leading and borrowing facility.
APPLICANTS: MAS Funds (the ``Fund'') and Miller Anderson & Sherrerd,
LLP (the ``Adviser'').
FILING DATES: The application was filed on October 14, 1999. Applicants
have agreed to file an amendment, the substance of which is reflected
in this notice, during the notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant 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 20,
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, D.C.
20549-0609. Applicants, One Tower Bridge, West Conshohocken, PA 19428.
FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202)
942-0582, or Mary Kay Frech, Branch Chief, at (202) 942-0564 (Division
of Investment Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549-0102 (tel. 202-942-8090).
Applicant's Representations
1. The Fund is registered under the Act as an open-end management
investment company and currently consists of the following investment
portfolios: Equity Portfolio, Mid Cap Growth Portfolio, Mid Cap Value
Portfolio, Small Cap Growth Portfolio, Small Cap Value Portfolio, Value
Portfolio, Cash Reserves Portfolio, Domestic Fixed Income Portfolio,
Fixed Income Portfolio, Fixed Income II Portfolio, Global Fixed Income
Portfolio, High Yield Portfolio, Intermediate Duration Portfolio,
International Fixed Income Portfolio, Limited Duration Portfolio,
Multi-Market Fixed Income Portfolio, Municipal Portfolio, Special
Purpose Fixed Income Portfolio, Targeted Duration Portfolio, Balanced
Portfolio, Multi-Asset-Class Portfolio, Advisory Mortgage Portfolio,
Advisory Foreign Fixed Income Portfolio, Growth Portfolio, Value II
Portfolio, Balanced Plus Portfolio and New York Municipal Portfolio
(the ``Portfolios''). Applicants request that any relief granted
pursuant to the application also apply to future investment portfolios
of the Fund.
2. The Adviser serves as investment adviser to each Portfolio.
Morgan Stanley Dean Witter Advisory, Inc. (the ``Sub-Adviser'') acts as
investment sub-adviser to the Cash Reserves Portfolio. The Adviser and
the Sub-Adviser are subsidiaries of Morgan Stanley Dean Witter & Co.
and are registered under the Investment Advisers Act of 1940. The Fund
has entered into an investment advisory agreement with the Adviser
under which the Adviser oversees each Portfolio's investments and
manages its business affairs, subject to the oversight of the Board of
Trustees of the Fund (the ``Board''). The Adviser and, with respect to
the Cash Reserves Portfolio only, the Sub-Adviser, exercises
discretionary authority to purchase and sell securities for the
Portfolios.
3. Some Portfolios may lend money to banks or other entities by
entering into repurchase agreements, either directly or through a joint
account, or purchasing other short-term instruments. Applicants have
obtained an order permitting them to deposit uninvested cash balances
that remain at the end of a trading day in one or more joint trading
accounts (``Joint Accounts'') to be used to enter into
[[Page 67354]]
repurchase agreements.\1\ Other Portfolios may need to borrow money
from a bank to satisfy redemption requests, cover unanticipated cash
shortfalls such as a trade ``fail'' in which cash payment for a
portfolio security sold by a Fund has been delayed, or for other
temporary purposes. Currently, if a Portfolio has a temporary cash need
it would incur an overdraft with the custodian bank.
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\1\ MAS Pooled Trust Fund, Investment Company Act Release Nos.
18081 (Apr. 8, 1991) (notice) and 18135 (May 6, 1991) (order); MAS
Pooled Trust Fund, Investment Company Act Release Nos. 19377 (Apr.
1, 1993) (notice) and 19437 (Apr. 27, 1993) (amended order).
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4. If the Portfolios were to borrow money from a bank under their
current arrangements or under other credit arrangements, they would pay
interest on the borrowed cash at a rate which would be higher than the
rate that would be earned by other (non-borrowing) Portfolios on
investments in repurchase agreements and other short-term instruments
of the same maturity as the bank loan. Applicants state that 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 portfolios to pay
substantial commitment fees in addition to the interest rate to be paid
by the borrowing Portfolio.
5. Applicants request an order that would permit the Portfolios to
enter into lending agreements (``Interfund Lending Agreements'') under
which the Portfolios would lend and borrow money for temporary purposes
directly to and from each other (``Interfund Loans'') through a credit
facility (``Credit Facility''). Applicants believe that the proposed
Credit Facility would substantially reduce the Portfolios' potential
borrowing costs and enhance their ability to earn higher rates of
interests on short-term loans. Although the proposed Credit Facility
would substantially reduce the Portfolios' needs to borrow from banks,
the Portfolios would still be free to establish committed lines of
credit or other borrowing arrangements with banks.
6. Applicants anticipate that the Credit Facility would provide a
borrowing Portfolio with savings when the cash position of the
Portfolio is insufficient to meet temporary cash requirements. This
situation could arise when redemptions exceed anticipated volumes and
certain Portfolios have insufficient cash on hand to satisfy such
redemptions. When the Portfolios 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 Portfolio's custodian or improper delivery instructions
by the broker affecting the transaction. Sales fails may present a cash
shortfall if the Portfolio has undertaken to purchase a security with
the proceeds from securities sold. When the Portfolio experiences a
cash shortfall due to a sales fail, the custodian typically extends
temporary credit to cover the shortfall and the Portfolio incurs
overdraft charges. Alternatively the Portfolio could fail on its
intended purchase due to lack of funds from the previous sale,
resulting in additional cost to the Portfolio, 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
portfolio 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 Portfolio would pay lower interest
rates than those offered by banks on short-term loans. In addition,
Portfolios making short-term cash loans directly to other Portfolios
would earn interest at a rate higher than they otherwise could obtain
from investing their cash in repurchase agreements. Thus, applicants
believe that the proposed Credit Facility would benefit both borrowing
and lending Portfolios.
9. The interest rate charged to the Portfolios 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 Portfolios from
investments in overnight repurchase agreements through a Joint Account.
The Bank Loan Rate for any day would be calculated by the Adviser on
each day an Interfund loan is made according to a formula established
by the Board. The formula would be designed to approximate the lowest
interest rate at which bank short-term loans would be available to the
Portfolios, and would be based upon a publicly available rate (e.g.,
the Federal Funds rate) plus a certain premium reflecting the spread
over the publicly available rate typically paid by the Portfolios
(e.g., 25 basis points). In accordance with this formula, the Interfund
Loan Rate would vary with the publicly available rate so as to reflect
changing bank loan rates. The Board 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 Portfolios. The initial
formula and any subsequent modifications to the formula would be
subject to the approval of the Board.
10. The Credit Facility would be administered by employees of the
Adviser (the ``Cash Management Team''). Under the proposed Credit
Facility, the portfolio managers for each participating Portfolio could
provide standing instructions to participate daily as a borrower or
lender. The Cash Management Team on each business day would collect
data on the uninvested cash and borrowing requirements of all
participating Portfolios from the Portfolios' custodian. Once it had
determined the aggregate amount of cash available for loans and
borrowing demand, the Cash Management Team would allocate loans among
borrowing Portfolios without any further communication from portfolio
managers. After the Cash Management Team has allocated cash for
Interfund Loans, the Adviser will invest any remaining cash in
accordance with the standing instructions of portfolio managers. The
money market Portfolios typically would not participate as borrowers
because they rarely need to borrow cash to meet redemptions.
11. The Cash Management Team will allocate borrowing demand and
cash available for lending among the Portfolios on what the Cash
Management Team believes to be an equitable basis, subject to certain
administrative procedures applicable to all Portfolios, 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 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 transactions.
The method of allocation and related administrative procedures would be
approved by the Board, including a majority of Trustees who are not
``interested persons'' of the Fund, as
[[Page 67355]]
defined in section 2(a)(19) of the Act (``Independent Trustees''), to
ensure that both borrowing and lending Portfolios participate on an
equitable basis.
12. The Adviser 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 Portfolio to ensure that they comply
with the Portfolio's investment policies and limitations, (iii) ensure
equitable treatment of each Portfolio, and (iv) make quarterly reports
to the Board concerning any transactions by the Portfolios under the
Credit Facility and the interest rates charged.
13. The Adviser would administer the Credit Facility as part of its
duties under its existing advisory contract with each Portfolio and
would receive no additional fee as compensation for its services. The
Adviser 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 Portfolio's participation in the proposed Credit facility
will be consistent with its organizational documents and its investment
policies and limitations. The statement of additional information of
each Portfolio participating in the interfund lending arrangements will
disclose the existence of such arrangements.
15. 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. Because the Adviser may be
deemed to control the Portfolios, the Portfolios might be deemed to be
under common control and thus affiliated persons of each other.
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.
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) the Adviser would administer the program as a disinterested
fiduciary; (ii) all Interfund Loans would consist only of uninvested
cash reserves that the Portfolios otherwise would invest in short-term
repurchase agreements or other short-term instruments either directly
or through the Joint Accounts; (iii) the Interfund Loans would not
involve a greater risk than other similar investments; (iv) the lending
Portfolios would receive interest at a rate higher than they could
obtain through other similar investments; and (v) the borrowing
Portfolios would pay interest at a rate lower than otherwise available
to them 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 Portfolio obtaining an
undue advantage over any other Portfolio.
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 Portfolio 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)(1) 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 Portfolios or shareholders, and that the Adviser 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 Portfolios.
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 Portfolios are
not banks).
7. Applicants believe that granting relief under section 6(c) is
appropriate because the Portfolios would remain subject to the
requirement of section 18(f)(1) that all borrowings of the Portfolio,
including combined Credit Facility and bank borrowings, have at least
300% asset coverage. Based on the
[[Page 67356]]
conditions and safeguard described in the application, applicants also
submit that to allow the Portfolios to borrow from other Portfolios
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 Portfolios and their shareholders. Applicants note that
each Portfolio 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
Portfolio's participation in the Credit Facility will be on terms which
are no different from or less advantageous than that of other
participating Portfolios.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The interest rates to be charged to the Portfolios under the
Credit Facility will be the average of the Repo Rate and the Bank Loan
Rate.
2. On each business day, the Adviser 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 Portfolio than the Repo Rate, and (b) more favorable to the
borrowing Portfolio than the Bank Loan Rate.
3. If a Portfolio has outstanding borrowings, any Interfund Loans
to the Portfolio (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
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 (7) days), and (d) will provide that, if an event of
default occurs under any agreement evidencing an outstanding bank loan
to the Portfolio, that event of default will automatically (without
need for action or notice by the lending Portfolio) constitute an
immediate event of default under the Interfund Lending Agreement
entitling the lending Portfolio to call the Interfund Loan (and
exercise all rights with respect to collateral, if any) and that such
call will be made if the lending bank exercises its right to call its
loan under its agreement with the borrowing Portfolio.
4. A Portfolio may make an unsecured borrowing through the Credit
Facility if its outstanding borrowings from all sources immediately
after the interfund borrowing total 10% or less of its total assets,
provided that if the Portfolio has a secured loan outstanding from any
other lender, including but not limited to another Portfolio, the
Portfolio'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
Portfolio's total outstanding borrowings immediately after an interfund
borrowing would be greater than 10% of its total assets, the Portfolio
may borrow through the Credit Facility on a secured basis only. A
Portfolio 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 Portfolio that has outstanding interfund borrowings
may, through additional borrowings, cause its outstanding borrowings
from all sources to exceed 10% of its total assets, the Portfolio 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 Portfolio 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 Portfolio will within
one (1) 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
Portfolio'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 Portfolio's total outstanding borrowings
exceed 10% is repaid, or the Portfolio's total outstanding borrowings
cease to exceed 10% of its total assets, the Portfolio 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, fixed income or money market Portfolio may lend to
another Portfolio 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 Portfolio's Interfund Loans to any one Portfolio shall not
exceed 5% of the lending Portfolio'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 (7) days. Loan affected within seven (7) days of each other
will be treated as separate loan transactions for purposes of this
condition.
9. A Portfolio'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 Portfolio's total net cash redemptions and
102% of failed trades for the preceding seven (7) calendar days.
10. Each Interfund Loan may be called on one (1) business day's
notice by a lending Portfolio and may be repaid on any day by a
borrowing Portfolio.
11. A portfolio's participation in the Credit Facility must be
consistent with its investment policies and limitations and
organizational documents.
12. The Cash Management Team will calculate total Portfolio
borrowing and lending demand through the Credit Facility, and allocate
loans on an equitable basis among the Portfolios without the
intervention of any Portfolio manager. The Cash Management Team will
not solicit cash for the Credit Facility from any Portfolio or
prospectively publish or disseminate loan demand data to Portfolio
managers. The Adviser will invest any amounts
[[Page 67357]]
remaining after satisfaction of borrowing demand in accordance with the
standing instructions from Portfolio managers.
13. The Adviser will monitor the interest rates charged and the
other terms and conditions of the Interfund Loans and will make a
quarterly report to the Board concerning the participation of the
Portfolios in the Credit Facility and the terms and other conditions of
any extensions of credit thereunder.
14. The Board, including a majority of the Independent Trustees:
(a) Will review no less frequently than quarterly each Portfolio'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 each Portfolio'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 (2) business days from
its maturity or from the time the lending Portfolio makes a demand of
payment under the provisions of the Interfund Lending Agreement, the
Adviser will promptly refer the loan for arbitration to an independent
arbitrator selected by the Board who will serve as arbitrator of
disputes concerning Interfund Loans. The arbitrator will resolve any
problem promptly, and the arbitrator's decision will be binding on both
Portfolios. The arbitrator will submit at least annually a written
report to the Board setting forth a description of the nature of any
dispute and the actions taken by the Portfolios to resolve the dispute.
16. The Fund will maintain and preserve for a period of not less
than six (6) years from the end of the fiscal year in which any
transaction under the Credit Facility occurred, the first two (2) 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 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 Board in
connection with the review required by conditions 13 and 14.
17. The Adviser will prepare and submit to the Board for review, an
initial report describing the operations of the Credit Facility and the
procedures to be implemented to ensure that all Portfolios are treated
fairly. After the commencement of operations of the Credit Facility,
the Adviser will report on the operations of the Credit Facility at the
Board's quarterly meetings.
In addition, for two (2) years following the commencement of the
Credit Facility, the independent public accountant for the Fund shall
prepare an annual report that evaluates the Adviser's assertions 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 Loan Rate will be higher than the Repo Rate,
but lower than the Bank Loan Rate;
(b) compliance with the collateral requirements as set forth in the
application;
(c) compliance with the percentage limitations on interfund
borrowing and lending;
(d) allocation of interfund borrowing and lending demand in an
equitable manner and in accordance with procedures established by the
Board; and
(e) that the interest rate on any Interfund Loan does not exceed
the interest rate on any third party borrowings of a borrowing
Portfolio at the time of the Interfund Loan.
After the final report is filed, the Fund's 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 Portfolio will participate in the Credit Facility upon
receipt of requisite regulatory approval unless it has fully disclosed
in its statement of additional information all material facts about its
intended participation.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-31161 Filed 11-30-99; 8:45 am]
BILLING CODE 8010-01-M