[Federal Register Volume 64, Number 230 (Wednesday, December 1, 1999)]
[Notices]
[Pages 67348-67353]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31208]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-24176; 812-11402]
INVESCO Bond Funds, Inc., et al.; Notice of Application
November 24, 1999.
AGENCY: Securities and Exchange commission (``SEC'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (``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 APPLICATION: Applicants request an order that would permit
certain registered investment management companies to participate in a
joint lending and borrowing facility.
APPLICANTS: INVESCO Bonds Funds, Inc., INVESCO Combination Stock and
Bond Funds, Inc., INVESCO Global Health Sciences Fund, INVESCO
International Funds, Inc., INVESCO Money Market Funds, Inc., INVESCO
Sector Funds, Inc., INVESCO Speciality Funds, Inc., INVESCO Stock
Funds, Inc., INVESCO Treasurer's Series Funds, Inc., and INVESCO
Variable Investment Funds, Inc. (collectively, the ``Companies''),
INVESCO Funds Group, Inc. (``INVESCO Funds Group,'' and together with
any entity controlling, controlled by, or under common control with
INVESCO Funds Group, ``INVESCO''), and any other registered open-end
investment company advised by INVESCO (together with the Companies, the
``Funds'').
FILING DATES: The application was filed on November 13, 1998, and
amended on October 15, 1999. Applicants have agreed to file an
additional amendment during the notice period, the substance of which
is reflected in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be
[[Page 67349]]
issued unless the SEC orders a hearing. Interested persons may request
a hearing by writing to the SEC's Secretary and serving applicants with
a copy of the request, personally or by mail. Hearing requests should
be received by the SEC by 5:30 p.m. on December 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, 7800 East Union Avenue, Denver, Colorado 80237.
FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, at
(202) 942-7120, or Christine Y. Greenlees, 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).
Applicants' Representations
1. Each of the named Funds, except INVESCO Global Health Sciences
Funds (``Global''), is registered under the Act as an open-end
management investment company and is organized as a Maryland
corporation. Global, organized as a Massachusetts business trust, is
registered under the Act as a closed-end management investment
company.\1\ INVESCO Funds Group, Inc. is registered under the
Investment Advisers Act of 1940. Each Fund has entered into an
investment advisory agreement with INVESCO under which INVESCO
exercises discretion to purchase and sell securities for the Funds.
INVESCO is an indirect wholly-owned subsidiary of AMVESCAP PLC, a
publicly traded holding company that through its subsidiaries,
including AIM Management Group, Inc., engages in investment management.
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\1\ All Funds that presently intend to rely on the order are
named as applicants. Any other Funds that subsequently rely on the
order will comply with the terms and conditions in the application.
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2. Some Funds may lend money to banks or other entities by entering
into repurchase agreements or purchasing other short-term instruments.
Other Funds may borrow money from the same or other banks for temporary
purposes to satisfy redemption requests or to cover unanticipated cash
shortfalls such as a trade ``fail'' in which cash payment for a
portfolio security sold by a Fund has been delayed. Currently, the
Funds have credit arrangements with their custodians (i.e., overdraft
protection) under which the custodians may, but are not obligated to,
lend money to the Funds to meet the Funds' temporary cash needs.
3. If the Funds were to borrow money from their custodians under
their current arrangements or under other credit arrangements with a
bank, the Funds would pay interest on the borrowed cash at a rate which
would be significantly higher than the rate that would be earned by
other (non-borrowing) Funds on investments in repurchase agreements and
other short-term instruments of the same maturity as the bank loan.
Applicants believe this differential represents the bank's profit.
Other bank loan arrangements, such as committed lines of credit, would
require the Funds to pay substantial commitment fees in addition to the
interest rate to be paid by the borrowing Fund.
4. Applicants request an order that would permit the Funds to enter
into lending agreements (``Interfund Lending Agreements'') under which
the Funds would lend and borrow money for temporary purposes directly
to and from each other through a credit facility (``Interfund Loan'').
Applicants believe that the proposed credit facility would
substantially reduce the Funds' potential borrowing costs and enhance
their ability to earn higher rates of interest on short-term lendings.
Although the proposed credit facility would substantially reduce the
Funds' need to borrow from banks, the Funds would be free to establish
committed lines of credit or other borrowing arrangements with banks.
The Funds also would continue to maintain overdraft protection
currently provided by their custodians.
5. Applicants anticipate that the credit facility would provide a
borrowing Fund with significant savings when the cash position of the
Fund is insufficient to meet temporary cash requirements. This
situation could arise when redemptions exceed anticipated volumes and
the Funds have insufficient cash on hand to satisfy such redemptions.
When the Funds liquidate portfolio securities to meet redemption
requests, which normally are effected immediately, they often do not
receive payment in settlement for up to three days (or longer for
certain foreign transactions). The credit facility would provide a
source of immediate, short-term liquidity pending settlement of the
sale of portfolio securities.
6. Applicants also propose using the credit facility when a sale of
securities fails due to circumstances such as a delay in the delivery
of cash to the Fund's custodian or improper delivery instructions by
the broker effecting the transaction. Sales fails may present a cash
shortfall if the Fund has undertaken to purchase security with the
proceeds from securities sold. When the Fund experiences a cash
shortfall due to a sales fail, the custodian typically extends
temporary credit to cover the shortfall and the Fund incurs overdraft
charges. Alternatively, the Fund could fail on its intended purchase
due to lack of funds from the previous sale, resulting in additional
cost to the Fund, or sell a security on a same day settlement basis,
earning a lower return on the investment. Use of the credit facility
under these circumstances would enable the Fund to have access to
immediate short-term liquidity without incurring custodian overdraft or
other charges.
7. While borrowing arrangements with banks will continue to be
available to cover unanticipated redemptions and sales fails, under the
proposed credit facility a borrowing Fund would pay lower interest
rates than those offered by banks on short-terms loans. In addition,
Funds making short-term cash loans directly to other Funds would earn
interest at a rate higher than they otherwise could obtain from
investing their cash in repurchase agreements. Thus, applicants believe
that the proposed credit facility would benefit both borrowing and
lending Funds.
8. The interest rate charged to the Funds on any Interfund Loan
(the ``Interfund Loan Rate'') would be the average of the ``Repo Rate''
and the ``Bank Loan Rate,'' both as defined below. The Repo Rate for
any day would be the highest rate available from investments in
overnight repurchase agreements to the Cash Reserves Fund, a series of
INVESCO Money Market Funds, Inc. or any general money market fund
registered under the Act and advised by any entity controlling,
controlled by, or under common control with INVESCO having the greatest
amount of assets (the ``Money Market Fund''). The Bank Loan Rate for
any day would be calculated by INVESCO each day an Interfund Loan is
made according to a formula established by the Funds' directors or
trustees (the ``Trustees'') designed to approximate the lowest interest
rate at which bank short-term loans would be available to the Funds.
The formula would be based
[[Page 67350]]
upon a publicly available rate (e.g., Federal Funds plus 25 basic
points) and would vary with this rate so as to reflect changing bank
loan rates. Each Fund's Trustees periodically would review the
continuing appropriateness of using the publicly available rate, as
well as the relationship between the Bank Loan Rate and current bank
loan rates that would be available to the Funds. The initial formula
and any subsequent modifications to the formula would be subject to the
approval of each Fund's Trustees.
9. The credit facility would be administered by INVESCO money
market investment professionals (including the portfolio manager for
the Money Market Fund) and fund accounting department (collectively,
the ``Cash Management Team''). Under the proposed credit facility, the
portfolio managers for each participating Fund may provide standing
instructions to participate daily as a borrower or lender. INVESCO on
each business day would collect data on the uninvested cash and
borrowing requirements of all participating Funds from the Funds'
custodians. Once it had determined the aggregate amount of cash
available for loans and borrowing demand, the Cash Management Team
would allocate loans among borrowing Funds without any further
communication from portfolio managers (other than the Money Market
Fund's portfolio management on the Cash Management Team). Applicants
expect far more available uninvested cash each day than borrowing
demand. All allocations will require approval of at least one member of
the Cash Management Team who is not the Money Market Fund portfolio
manager. After allocating cash for Interfund Loans, INVESCO will invest
any remaining cash in accordance with the standing instructions of
portfolio managers or return remaining amounts for investment directly
by the portfolio manager of the Money Market Fund.\2\ The money market
Funds typically would not participate as borrowers because they rarely
need to borrow cash to meet redemptions, and Global will participate in
the credit facility only as a lender.
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\2\ Certain of the Funds have obtained an order permitting
INVESCO to deposit uninvested cash balances that remain at the end
of the trading day in one or more series of INVESCO Money Market
Funds, Inc., or any other money market series of any of the Funds or
of any other registered investment company advised by INVESCO which
holds itself out to investors as a money market fund subject to rule
2a-7 under the Act. See INVESCO Bond Funds, Inc., Investment Company
Act Release Nos. 23788 (April 16, 1999), and 23833 (May 12,1999)
(order).
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10. The Cash Management Team would allocate borrowing demand and
cash available for lending among the Funds on what the Team believes to
be an equitable basis, subject to certain administrative procedures
applicable to all Funds, such as the time of filing requests to
participate, minimum loan lot sizes, and the need to minimize the
number of transactions and associated administrative costs. To reduce
transaction costs, each loan normally would be allocated in a manner
intended to minimize the number of participants necessary to complete
the loan transactions.
11. INVESCO would (a) monitor the interest rates charged and the
other terms and conditions of the loans, (b) limit the borrowings and
loans entered into by each Fund to ensure that they comply with the
Fund's investment policies and limitations, (c) ensure equitable
treatment of each Fund, and (d) make quarterly reports to the Trustees
concerning any transactions by the Funds under the credit facility and
the interest rates charged. The method of allocation and related
administrative procedures would be approved by each Fund's Trustees,
including a majority of Trustees who are not ``interested persons'' of
the Funds, as defined in section 2(a)(19) of the Act (``Independent
Trustees''), to ensure that both borrowing and lending Funds
participate on an equitable basis.
12. INVESCO would administer the credit facility as part of its
duties under its existing management or advisory and service contract
with each Fund and would receive no additional fee as compensation for
its services. INVESCO or companies affiliated with it may collect
standard pricing, recordkeeping, bookkeeping, and accounting fees
applicable to repurchase and lending transactions generally, including
transactions effected through the credit facility. Fees would be no
higher than those applicable for comparable bank loan transactions.
13. Each Fund's participation in the proposed credit facility will
be consistent with its organizational documents and its investment
policies and limitations. The prospectus of each Fund discloses the
extent to which the respective Fund may borrow money for temporary
purposes and the extent to which the respective Fund is able to
mortgage or pledge securities to secure permitted borrowing. If the
requested relief is granted, the statement of additional information
(``SAI'') for each Fund participating in the interfund lending
arrangements will disclose the existence of the arrangements. The
maximum amount that any Fund may borrow or lend is 33\1/3\% of total
assets, and the maximum amount of securities which any Fund may pledge
or mortgage is 15% of net assets. Each Fund that desires to engage in
interfund lending arrangements, and that has existing fundamental
policies that would restrict participation in such arrangements, will
obtain shareholder approval to amend its policies to the extent
necessary to permit it to participate in such arrangements on the
conditions set forth in the application.
14. In connection with the credit facility, applicants request an
order under (a) section 6(c) of the Act granting relief from sections
18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting
relief from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of
the Act granting relief from sections 17(a)(1) and 17(a)(3) of the Act;
and (d) section 17(d) of the Act and rule 17d-1 under the Act to permit
certain joint arrangements.
Applicants' Legal Analysis
1. Section 17(a)(3) generally prohibits any affiliated person, or
affiliated person of an affiliated person, from borrowing money or
other property from a registered investment company. Section 21(b)
generally prohibits any registered management investment company from
lending money or other property to any person if that person controls
or is under common control with the company. Section 2(a)(3)(C) of the
Act defines an ``affiliated person'' of another person, in part, to be
any person directly or indirectly controlling, controlled by, or under
common control with, the other person. Applicants state that the Funds
may be under common control by virtue of having INVESCO as their common
investment adviser, and because of the overlap of Trustees 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
[[Page 67351]]
satisfy these standards for the reasons discussed below.
3. Applicants submit that sections 17(a)(3) and 21(b) of the Act
were intended to prevent a person with strong potential adverse
interests to and some influence over the investment decisions of a
registered investment company from causing or inducing the investment
company to engage in lending transactions that unfairly inure to the
benefit of that person and that are detrimental to the best interests
of the investment company and its shareholders. Applicants assert that
the proposed credit facility transactions do not raise these concerns
because (a) INVESCO would administer the program as a disinterested
fiduciary; (b) 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; (c) the
Interfund Loans would not involve a greater risk than other similar
investments; (d) the lending Fund would receive interest at a rate
higher than it could obtain through other similar investments; and (e)
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 obatining 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
affilitiated person, from selling any securities or other property to
the company. Section 12(d)(1) of the Act generally makes it unlawful
for a registered investment company to purchase or otherwise acquire
any security issued by any other investment company except in
accordance with the limitations set forth in that section. Applicants
believe that the obligation of a borrowing Fund to repay an Interfund
Loan may constitute a security under sections 17(a)(1) and 12(d)(1).
Section 12(d)(1)(J) provides that the SEC may exempt persons or
transactions from any provision of section 12(d)(1) if and to the
extent such exception is consistent with the public interest and the
protection of investors. Applicants contend that the standards under
sections 6(c), 17(b), and 12(d)(1) are satisfied for all the reasons
set forth above in support of their request for relief from sections
17(a)(3) and 21(b) and for the reasons discussed below.
5. Applicants state that section 12(d) was intended to prevent the
pyramiding of investment companies in order to avoid duplicative costs
and fees attendant upon multiple layers of investment companies.
Applicants submit the 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 INVESCO would receive no
additional compensation for its services in administering the credit
facility. Applicants also note that the purpose of the proposed credit
facility is to provide economic benefits for all the participating
Funds.
6. Section 18(f)(1) prohibits open-end investment companies from
issuing any senior security excpet that a company is permitted to
borrow from any bank, if immediately after the borrowing, there is an
asset coveage of at least 300 percent for all borrowings of the
company. Under section 18(g) of the Act, the term ``senior security''
invludes 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:\3\
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\3\ For purposes of these conditions, the term ``INVESCO''
refers to registered investment advisers.
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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, INVESCO 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, if applicable, the yield on the Money
Market Fund, and (b) more favorable to the borrowing Fund than the Bank
Loan Rate.
3. If a Fund has outstanding borrowings, any Interfund Loans to the
Fund (a) will be at an interest rate equal to or lower than any
outstanding bank loan, (b) will be secured at least on an equal
priority basis with at least an equivalent percentage of collateral to
loan value as any outstanding bank loan that required collateral, (c)
will have a maturity no longer than any outstanding bank loan (and in
any even 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.
[[Page 67352]]
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 an interfund borrowing would
be greater than 10% of its total assets, the Fund may borrow through
the credit facility on a secured basis only. A Fund may not borrow
through the credit facility or from any other source if its total
outstanding borrowings immediately after the interfund borrowing would
be more than 33\1/3\% of its total assets.
5. Before any Fund that has outstanding interfund borrowings may,
through additional borrowings, cause its outstanding borrowings from
all sources to exceed 10% of its total assets, the Fund must first
secure each outstanding Interfund Loan by the pledge of segregated
collateral with a market value at least equal to 102% of the
outstanding principal value of the loan. If the total outstanding
borrowings of a Fund with outstanding Interfund Loans exceeds 10% of
its total assets for any other reason (such as a 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 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.
9. Except as set forth in this condition, no Fund may borrow
through the credit facility unless the Fund has a policy that prevents
the Fund from borrowing for other than temporary or emergency purposes
(and not for leveraging). In the case of a Fund that does not have such
a policy, the Fund's borrowings through the credit facility, as
measured on the day when the most recent loan was made, will not exceed
the greater of 125% of the Fund's total net cash redemptions or 102% of
sales fails for the preceding seven calendar days.
10. Each Interfund Loan may be called on one business day's notice
by a lending Fund and may be repaid on any day by a borrowing Fund.
11. A Fund'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 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 (except the portfolio manager of the
Money Market Fund acting in his or her capacity as a member of the Cash
Management Team). All allocations will require approval of at least one
member of the Cash Management Team who is not the Money Market Fund's
portfolio manager. The Cash Management Team will not solicit cash for
the credit facility from any Fund or prospectively publish or
disseminate loan demand data to portfolio managers (except to the
extent that the portfolio manager of the Money Market Fund has access
to loan demand data). INVESCO will invest any amounts remaining after
satisfaction of borrowing demand in accordance with the standing
instructions from portfolio managers or return remaining amounts for
investment directly by the portfolio manager of the Money Market Fund.
13. INVESCO will monitor the interest rates charged and the other
terms and conditions of the Interfund Loans and will make a quarterly
report to the Trustees concerning the participation of the Funds in the
credit facility and the terms and other conditions of any extensions of
credit under the facility.
14. The Trustees of each Fund, including a majority of the
Independent Trustees: (a) Will review no less frequently than quarterly
the Fund's participation in the credit facility during the preceding
quarter for compliance with the conditions of any order permitting the
transactions; (b) will establish the Bank Loan Rate formula used to
determine the interest rate on Interfund Loans and review no less
frequently than annually the continuing appropriateness of the Bank
Loan Rate formula; and (c) will review no less frequently than annually
the continuing appropriateness of the Fund's participation in the
credit facility.
15. In the event an Interfund Loan is not paid according to its
terms and the default is not cured within two business days from its
maturity or from the time the lending Fund makes a demand for payment
under the provisions of the Interfund Lending Agreement, INVESCO will
promptly refer the loan for arbitration to an independent arbitrator
selected by the Trustees of the Funds involved in the loan who will
serve as arbitrator of disputes concerning Interfund Loans.\4\ The
arbitrator will resolve any problem promptly, and the arbitrator's
decision will be binding on both Funds. The arbitrator will submit, at
least annually, a written report to the Trustees setting forth a
description of the nature of any dispute and the actions taken by the
Funds to resolve the dispute.
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\4\ If the dispute involves Funds with separate Boards of
Trustees, the Trustees of each Fund will select an independent
arbitrator that is satisfactory to each Fund.
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16. Each Fund will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which any transaction
under the credit facility occurred, the first two years in any 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, the yield on the Money Market Fund, and such other
information presented to the Fund's Trustees in connection with the
review required by conditions 13 and 14.
17. INVESCO will prepare and submit to the Trustees for review an
initial report describing the operations of the
[[Page 67353]]
credit facility and the procedures to be implemented to ensure that all
Funds are treated fairly. After the commencement of operations of the
credit facility, INVESCO will report on the operations of the credit
facility at the Trustees' quarterly meetings.
In addition, for two years following the commencement of the credit
facility, the independent public accountant for each Fund that is a
registered investment company shall prepare an annual report that
evaluates INVESCO'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 the yield
on the Money Market Fund, but lower than the Bank Loan Rate; (b)
compliance with the collateral requirements as set forth in the
application; (c) compliance with the percentage limitations on
interfund borrowing and lending; (d) allocation of interfund borrowing
and lending demand in an equitable manner and in accordance with
procedures established by the Trustees; and (e) that the interest rate
on any Interfund Loan does not exceed the interest rate on any third
party borrowings of a borrowing Fund at the time of the Interfund Loan.
After the final report is filed, the Fund's external auditors, in
connection with their Fund audit examinations, will continue to review
the operation of the credit facility for compliance with the conditions
of the application and their review will form the basis, in part, of
the auditor's report on internal accounting controls in Form N-SAR.
18. No Fund will participate in the credit facility unless it has
fully disclosed in its SAI all material facts about its intended
participation.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-31208 Filed 11-30-99; 8:45 am]
BILLING CODE 8010-01-M