[Federal Register Volume 67, Number 194 (Monday, October 7, 2002)]
[Notices]
[Pages 62504-62508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25356]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25760; 812-12680]


Oppenheimer Integrity Funds, et al.; Notice of Application

September 30, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

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 
transactions.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: Applicants request an order that would permit 
certain registered open-end management investment companies to 
participate in a joint lending and borrowing facility.

APPLICANTS: Oppenheimer Integrity Funds; Oppenheimer California 
Municipal Fund; Oppenheimer Capital Appreciation Fund; Oppenheimer 
Capital Income Fund; Oppenheimer Capital Preservation Fund; Oppenhimer 
Cash Reserves; Oppenheimer Champion Income Fund; Oppenheimer 
Concentrated Growth Fund; Bond Fund Series; Oppenheimer Discovery Fund; 
Oppenheimer Developing Markets Fund; Oppenheimer Emerging Growth Fund; 
Oppenheimer Emerging Technologies Fund; Oppenheimer Enterprise Fund; 
Oppenheimer Europe Fund; Oppenheimer Multi-State Municipal Trust; 
Oppenheimer Global Fund; Oppenheimer Global Growth & Income Fund; 
Oppenheimer Gold & Special Minerals Fund; Oppenheimer Growth Fund; 
Oppenheimer High Yield Fund; Oppenheimer Municipal Fund; Oppenheimer 
International Bond Fund; Oppenheimer International Growth Fund; 
Oppenheimer International Small Company Fund; Oppenheimer Limited-Term 
Government Fund; Oppenheimer Main Street Funds, Inc.; Oppenheimer Main 
Street Opportunity Fund; Oppenheimer Main Street Small Cap Fund; 
Oppenheimer MidCap Fund; Oppenheimer Special Value Fund; Oppenheimer 
Money Market Fund, Inc.; Oppenheimer Multiple Strategies Fund; 
Oppenheimer Municipal Bond Fund; Oppenheimer New York Municipal Fund; 
Oppenheimer Quest For Value Funds; Oppenheimer Quest Value Fund, Inc.; 
Oppenheimer Quest Global Value Fund, Inc.; Oppenheimer Quest Capital 
Value Fund, Inc.; Oppenheimer Real Asset Fund; Oppenheimer Real Estate 
Fund; Oppenheimer Select Managers; Oppenheimer Series Fund, Inc.; 
Oppenheimer Strategic Income Fund; Oppenheimer Total Return Fund, Inc.; 
Oppenheimer Trinity Core Fund; Oppenheimer Trinity Large Cap Growth 
Fund; Oppenheimer Trinity Value Fund; Oppenheimer U.S. Government 
Trust; Rochester Fund Municipals; Rochester Portfolio Series; 
Oppenheimer Variable Account Funds; Panorama Series Fund, Inc., 
Centennial America Fund, L.P. (each, an ``Oppenheimer Fund''); 
Centennial California Tax Exempt Trust; Centennial Government Trust; 
Centennial Money Market Trust; Centennial New York Tax Exempt Trust; 
Centennial Tax Exempt Trust (each, a ``Centennial Fund,'' and, together 
with the Oppenheimer Funds, the ``Companies''); OppenheimerFunds, Inc. 
(``OFI'') and Centennial Asset Management, Corp (``CAMC'').

FILING DATES: The application was filed on November 14, 2001, and 
amended on May 29, 2002 and August 13, 2002. Applicants have agreed to 
file an 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 issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 21, 2002 and should be accompanied by proof of service 
on the 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609; Applicants, c/o Dina C. Lee, Esq., OppenheimerFunds, Inc., 
498 Seventh Avenue, 14th Floor, New York, NY 10018.

FOR FURTHER INFORMATION CONTACT: John L. Sullivan, Senior Counsel, at 
(202) 942-0681 or Todd F. Kuehl, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. The Companies are organized as Massachusetts business trusts, 
Maryland corporations, or, in the case of Centennial America Fund, 
L.P., a limited partnership under the laws of the state of Delaware, 
and are registered under the Act as open-end management investment 
companies.\1\ The business and affairs of each Company are managed 
under the directions of the board of trustees or directors or, in the 
case of Centennial America Fund, L.P., the managing general partners of 
the relevant Company (``Board'').
---------------------------------------------------------------------------

    \1\ Applicants also request for any other open-end investment 
company registered under the Act for which OFI or any person 
controlling, controlled by or under common control with OFI acts or 
may act in the future as investment adviser (included in the term 
``Companies''). All Companies that presently intend to rely on the 
requested relief are named as applicants. Any other Companies that 
subsequently rely on the requested order will comply with the terms 
and conditions in the application. A Company, if it has no series, 
and each series of a Company, are referred to as a ``Fund.''
---------------------------------------------------------------------------

    2. Each of OFI and CAMC, a wholly owned subsidiary of OFI, is 
registered as an investment adviser under the Investment Advisers Act 
of 1940. Each Oppenheimer Fund has entered into an investment advisory 
agreement with OFI, and each Centennial Fund has entered into an 
investment advisory agreement with CAMC. OFI also provides the Funds 
with certain administrative services.
    3. Each Fund may deposit uninvested daily cash balances into a 
joint account administered by OFI (``Joint Account''). Each Fund may 
lend money to banks or other entities by entering into repurchase 
agreements either directly or through the Joint Account. Other Funds 
may need to borrow money from the same or similar banks for temporary 
purposes to satisfy redemption requests, to cover unanticipated cash 
shortfalls such as a trade ``fail'' in which cash

[[Page 62505]]

payment for a security sold by a Fund has been delayed, or for other 
temporary purposes. 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. Many of the Funds also have 
entered into loan agreements with banks to provide a line of credit for 
temporary funding.
    4. If the Funds were to borrow money from their custodians under 
their current arrangements or under other credit facility arrangements 
with a bank, the Funds 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 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 commitment fees, attorney fees and related 
costs in addition to the interest rate to be paid by the borrowing 
Fund.
    5. Applicants request an order that would permit the Funds to enter 
into master interfund lending agreements (``Interfund Lending 
Agreements'') under which the Funds would lend money and borrow money 
for temporary purposes directly to and from each other (an ``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 continue 
committed lines of credit or other borrowing arrangements with banks. 
The Funds also would continue to maintain overdraft protection 
currently provided by their custodians.
    6. Applicants anticipate that the credit facility would provide a 
borrowing Fund with significant savings when the cash position of the 
Fund is insufficient to meet temporary cash requirements. This 
situation could arise when redemptions exceed anticipated volumes and 
the Funds have insufficient cash on hand to satisfy such redemptions. 
When a Fund liquidates portfolio securities to meet redemption 
requests, which normally are effected immediately, it often does 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 beyond the seller's control, such 
as a delay in the delivery of cash to the Fund's custodian or improper 
delivery instructions by the broker effecting the transaction. Sales 
fails may present a cash shortfall if the Fund has undertaken to 
purchase a security with the proceeds from securities sold. When the 
Fund experiences a cash shortfall due to a sales fail, the custodian 
typically extends temporary credit to cover the shortfall and the Fund 
incurs overdraft charges. Alternatively, the Fund could fail on its 
intended purchase due to lack of funds from the previous sale, 
resulting in additional cost to the Fund, or sell a security on a same 
day settlement basis, earning a lower return on the investment. Use of 
the credit facility under these circumstances would enable the Fund to 
have access to immediate short-term liquidity without incurring 
custodian overdraft or other charges.
    8. While bank borrowings could generally supply needed cash to 
cover unanticipated redemptions and sales fails, under the proposed 
credit facility, a borrowing Fund would pay lower interest rates than 
those offered by banks on short-term loans. In addition, Funds making 
short-term cash loans directly to other Funds would earn interest at a 
rate higher than they otherwise could obtain from investing their cash 
in repurchase agreements. Thus, applicants believe that the proposed 
credit facility would benefit both borrowing and lending Funds.
    9. The interest rate charged to the Funds on any loan under the 
credit facility (the ``Interfund Loan Rate'') would be the average of 
the Joint Account Repo Rate and the Bank Loan Rate, both as defined 
below. The Joint Account Repo Rate would be the current overnight 
repurchase agreement rate available through the Joint Account. The Bank 
Loan Rate would be calculated by OFI each day that a Fund borrows or 
lends, according to a formula established by each Fund's Board to 
approximate the lowest interest rate at which bank loans would be 
available to the Funds. The formula would be based upon a publicly 
available rate (e.g., federal funds plus 25 basis points) and would 
vary with this rate so as to reflect changing bank loan rates. Each 
Fund's Board periodically would review the continuing appropriateness 
of using the formula to determine the Bank Loan 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 Board.
    10. The credit facility would be administered by OFI's fund 
accounting department (collectively, the ``Cash Management Team''). 
Under the proposed credit facility, the portfolio managers for each 
participating Fund could provide standing instructions to participate 
daily as a borrower or lender. OFI on each business day would collect 
data on the uninvested cash and borrowing requirements of all 
participating Funds from the Funds' 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 Funds 
without any further communication from portfolio managers. There 
typically will be far more available uninvested cash each day than 
borrowing demand. Therefore, after allocating cash for Interfund Loans, 
OFI will invest any remaining cash in accordance with the standing 
instructions from portfolio managers or return remaining amounts for 
investment directly by the relevant Funds. The money market Funds 
typically would not participate as borrowers because they rarely need 
to borrow cash to meet redemptions.
    11. The Cash Management Team would allocate borrowing demand and 
cash available for lending among the Funds on what the Cash Management 
Team believed to be an equitable basis, subject to certain 
administrative procedures applicable to all Funds, such as the time of 
filing requests to participate, minimum loan lot sizes, and the need to 
minimize the number of transactions and associated administrative 
costs. To reduce transaction costs, each loan normally would be 
allocated in a manner intended to minimize the number of participants 
necessary to complete the loan transaction. The method of allocation 
and related administrative procedures would be approved by each Fund's 
Board, including a majority of trustees/directors who are not 
``interested persons'' of the Fund, as defined in section 2(a)(19) of 
the Act (``Independent Trustees/Directors''), to ensure that both 
borrowing and lending Funds participate on an equitable basis.
    12. OFI 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

[[Page 62506]]

limitations, (c) ensure equitable treatment of each Fund, and (d) make 
quarterly reports to the Board concerning any transactions by the Funds 
under the credit facility and the interest rates charged.
    13. OFI will administer the program under its (or CAMC's) existing 
investment advisory agreement with each Fund, and OFI would receive no 
additional compensation from its administration of the proposed credit 
facility. OFI or companies affiliated with it may collect standard 
pricing, record keeping, accounting and bookkeeping 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 loan transactions.
    14. Each Fund's participation in the proposed credit facility is 
either currently consistent with its organizational documents and its 
investment policies and limitations, or such documents, policies and 
limitations will be amended or modified to be made consistent with the 
Fund's participation. The prospectus of each Fund discloses the extent 
to which the Fund may borrow money for temporary purposes and lend 
securities and other assets and the extent to which the Fund is able to 
mortgage or pledge securities to secure permitted borrowings. If the 
requested relief is granted, the statement of additional information 
(``SAI'') of each Fund participating in the interfund lending 
arrangements will disclose the existence of such arrangements. 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 such 
policies to the extent necessary to permit it to participate in such 
arrangements on the conditions set forth in the application.
    15. 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 ``affiliated person'' of another person, in part, to be any 
person directly or indirectly controlling, controlled by, or under 
common control with, such other person. Applicants state that the Funds 
may be under common control by virtue of having OFI or CAMC, which is a 
wholly owned subsidiary of OFI, as their common investment adviser.
    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 Commission to exempt a proposed transaction from section 
17(a) of the Act 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) 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) OFI 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 such other 
investments; (d) the lending Fund would receive interest at a rate 
higher than it could obtain through such other 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 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) 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 state 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 Commission 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)(J) 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 Funds or shareholders, and that OFI would receive no 
additional compensation for its services in administering the credit 
facility. Applicants also note that the purpose of proposed credit 
facility is to provide economic benefits for all the participating 
Funds.
    6. Section 18(f)(1) of the Act prohibits open-end investment 
companies from issuing any senior security except that a company is 
permitted to borrow from any bank; provided that, immediately after the 
borrowing, there is an asset coverage of at least 300 per centum 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

[[Page 62507]]

implement the credit facility (because the lending Funds are not 
banks).
    7. Applicants believe that granting the 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 interfund 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 persons of an 
affiliated person, when acting as principal, from effecting any 
transaction in which the company is a joint or a joint and several 
participants unless permitted by Commission order upon application. 
Rule 17d-1(b) of the Act provides that in passing upon applications for 
exemptive relief, the Commission 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 any order of the Commission 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 Joint Account Repo Rate and the 
Bank Loan Rate.
    2. On each business day, OFI will compare the Bank Loan Rate with 
the Joint Account 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 Joint Account Repo Rate and (b) more favorable to 
the borrowing Fund than the Bank Loan Rate.
    3. If a Fund has outstanding borrowings, any Interfund Loans to the 
Fund (a) will be at an interest rate equal to or lower than any 
outstanding bank loan; (b) will be secured at least on an equal 
priority basis with at least an equivalent percentage of collateral to 
loan value as any outstanding bank loan that requires collateral; (c) 
will have a maturity no longer than any outstanding bank loan (and in 
any event not over seven days); and (d) will provide that, if an event 
of default occurs under any agreement evidencing an outstanding bank 
loan to the Fund, the 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 an interfund borrowing would 
be 10% or greater 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 such 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 equal or 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 equal or exceed 
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 of its outstanding 
Interfund Loans, (b) reduce its outstanding indebtedness to less than 
10% 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 equal or 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 
equals or exceeds 10% is repaid or the Fund's total outstanding 
borrowings cease to equal or exceed 10% of its total assets, the Fund 
will mark the value of 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 Interfund Lending 
Agreements if the loan would cause its aggregate outstanding loans 
through the Interfund Lending Agreements to exceed 15% of its net 
assets at the time of the loan.
    7. A Fund's Interfund Loans to any one Fund will 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. 
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.

[[Page 62508]]

    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 demands 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 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. OFI 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 relevant Funds.
    13. OFI will monitor the interest rates charged and the other terms 
and conditions of the Interfund Loans and will make a quarterly report 
to the respective Board concerning the participation of the Funds in 
the credit facility and the terms and other conditions of any 
extensions of credit thereunder.
    14. The Board of each Fund, including a majority of the Independent 
Trustees/Directors, will (a) 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 such 
transactions; (b) establish the Bank Loan Rate formula used to 
determine the interest rate on Interfund Loans, approve any 
modifications thereto, and review no less frequently than annually the 
continuing appropriateness of the Bank Loan Rate formula; and (c) 
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 such 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, OFI will 
promptly refer such loan for arbitration to an independent arbitrator 
selected by the Board of any Fund involved in the loan who will serve 
as arbitrator of disputes concerning Interfund Loans.\2\ 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 Board setting forth a description of the nature 
of any dispute and the actions taken by the Funds to resolve the 
dispute.
---------------------------------------------------------------------------

    \2\ If a dispute involves Funds with separate Boards, the 
respective Boards of each Fund will select an independent arbitrator 
that is satisfactory to each Fund.
---------------------------------------------------------------------------

    16. Each Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any transaction 
under the credit facility occurred, the first two years in an easily 
accessible place, written records of all such transactions, setting 
forth a description of the terms of the transactions, 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 
Board in connection with the review required by conditions 13 and 14.
    17. OFI will prepare and submit to the Boards for review an initial 
report describing the operations of the credit facility and the 
procedures to be implemented to ensure that all the Funds are treated 
fairly. After the commencement of the operations of the credit 
facility, OFI will report on the operations of the credit facility at 
the respective Board's quarterly meetings.
    In addition, for two years following the commencement of the credit 
facility, the independent public accountant for each Fund shall prepare 
an annual report that evaluates OFI's assertion that it has established 
procedures reasonably designed to achieve compliance with the 
conditions of the order. The report will 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 
Joint Account 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 the 
procedures established by the Boards; 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 Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-25356 Filed 10-4-02; 8:45 am]
BILLING CODE 8010-01-P