[Federal Register Volume 69, Number 72 (Wednesday, April 14, 2004)]
[Notices]
[Pages 19883-19887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-8445]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26413; 812-12797]


AMR Investment Services Trust, et al.; Notice of Application

April 8, 2004.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of an application for an order under (a) section 6(c) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act 
for an exemption from sections 12(d)(1)(A) and (B) of the Act; (c) 
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 (d) section 17(d) of the Act and 
rule 17d-1 under the Act to permit certain joint transactions.

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    Summary of the 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: AMR Investment Services Trust (``AMR Trust''), American 
AAdvantage Funds (``AAdvantage Trust''), American AAdvantage Mileage 
Funds (''Mileage Trust''), American AAdvantage Select Funds (``Select 
Trust''), (collectively, the ``Trusts''), on behalf of their series 
(the ``Funds'') and AMR Investment Services, Inc. (the ``Adviser'').
    Filing Dates: The application was filed on March 19, 2002, and 
amended on March 19, 2004. 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 May 3, 2004, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants, 4151 Amon Carter Boulevard, MD 2450, Fort 
Worth, TX 76155.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel at 
(202) 942-0634 or Todd 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. AAdvantage Trust, Mileage Trust, and Select Trust are registered 
under the Act as open-end management investment companies and are 
organized as Massachusetts business trusts.\1\ AMR Trust is registered 
under the Act as an open-end management investment company and is 
organized as a New York common law trust. The Adviser is registered 
under the Investment Advisers Act of 1940 and serves as investment 
adviser for each of the Funds. An existing Commission order permits 
certain series of AMR Trust, AAdvantage Trust and Mileage Trust that 
are not money market Funds to invest uninvested cash balances in one or 
more series that are money market Funds that comply with rule 2a-7 
under the Act (``Money Market Funds'').\2\
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    \1\ Applicants request that the relief also apply to any other 
existing or future registered open-end management investment company 
or series thereof that is advised by the Adviser or any person 
controlling, controlled by, or under common control with the Adviser 
or its successors (together with the Funds, the ``Funds''). 
``Successors'' are limited to any entities that result from the 
Adviser's reorganization into another jurisdiction or a change in 
the type of business organization. All Funds that currently intend 
to rely on the order have been named as applicants, and any other 
existing or future Fund that subsequently may rely on the order will 
comply with the terms and conditions in the application.
    \2\ American AAdvantage Funds, et al., ICA Rel. Nos. 23791 (Apr. 
19, 1999) (notice) and 23838 (May 14, 1999) (order).
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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 investments. 
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 
security sold by a Fund has been delayed. Currently, the Funds have a 
credit arrangement with their custodian banks (i.e., overdraft 
protection) and each Trust has a credit agreement with the Adviser 
under which the Adviser may make temporary unsecured loans (up to 30 
days) to the Funds.
    3. If the Funds were to borrow money from a bank, the Funds would 
pay interest on the borrowed cash at a rate which would be 
significantly higher than the rate earned by other (non-borrowing) 
Funds on repurchase agreements and other short-term instruments of the 
same maturity as the bank loan. Applicants state that this differential 
represents the profit the banks would earn for serving as a middleman 
between a borrower and lender. In addition, while bank borrowings 
generally could supply needed cash to cover unanticipated redemptions 
and sales fails, the borrowing Funds would incur commitment fees and/or 
other charges involved in obtaining a bank loan.
    4. Applicants request an order that would permit the Funds to enter 
into interfund 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 state that the proposed credit 
facility would reduce the Funds' potential borrowing costs and enhance 
their ability to earn higher rates of interest on short-term loans. 
Although the proposed credit facility would reduce the Funds' need to 
borrow from banks, the Funds would be free to establish new lines of 
credit or other borrowing arrangements with banks.
    5. Applicants anticipate that the credit facility would provide 
borrowing Funds with 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 certain 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

[[Page 19884]]

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 a 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 using the proceeds from the securities sold. Under such 
circumstances, 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 bank borrowing generally could 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 or purchasing shares of a Money Market Fund. 
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 
(``Interfund Loan Rate'') would be the average of the ``Repo Rate'' and 
the ``Bank Loan Rate,'' both as defined below. The Repo Rate on any day 
would be the highest rate available to the Funds from investing in 
overnight repurchase agreements. The Bank Loan Rate on any day would be 
calculated by the Credit Facility Team, as defined below, each day an 
Interfund Loan is made according to a formula established by each 
Trust's board of trustees (each a ``Board'') intended to approximate 
the lowest interest rate at which bank short-term 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 
Trust's Board would periodically review the continuing appropriateness 
of using the publicly available rate to determine the Bank Loan Rate 
and current bank loan rates that would be available to the Funds. The 
initial formula and any subsequent modifications to it would be subject 
to the approval of each Trust's Board.
    9. The credit facility would be administered by an investment 
professional within the Adviser, a compliance officer of the Funds, and 
representatives of the Adviser's accounting group (collectively, the 
``Credit Facility 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. On each 
business day, the Adviser, would collect data on the uninvested cash 
and borrowing requirements of all participating Funds from the Funds' 
custodian. Applicants expect far more available uninvested cash each 
day than borrowing demand. Once the Credit Facility Team determined the 
aggregate amount of cash available for loans and borrowing demand, the 
Credit Facility Team would allocate loans among borrowing Funds without 
any further communication from portfolio managers. All allocations 
would require approval of at least one member of the Credit Facility 
Team other than the investment professional within the Adviser. After 
allocating cash for Interfund Loans, the Credit Facility Team would 
invest any remaining cash in accordance with the standing instructions 
from portfolio managers or return remaining amounts to the Funds. The 
Money Market Funds would not participate as borrowers.
    10. The Credit Facility Team would allocate borrowing demand and 
cash available for lending among the Funds on what the Credit Facility 
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 Interfund Loan normally would 
be allocated in a manner intended to minimize the number of Funds 
necessary to complete the transaction.
    11. The Credit Facility Team would (a) monitor the interest rates 
charged and other terms and conditions of the loans; (b) ensure 
compliance with each Fund's investment policies and 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 Interfund Loan Rate charged. The method of allocation and 
related administrative procedures would be approved by the Board of 
each Fund, including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees''), of the Fund, to ensure that both borrowing 
and lending Funds participate on an equitable basis.
    12. The Adviser will administer the credit facility as a 
disinterested fiduciary. The Adviser would administer the credit 
facility as part of its duties under the relevant management or 
administrative agreement with each Fund and would receive no additional 
fee as compensation for its services. The Adviser may, however, collect 
standard pricing and recordkeeping, bookkeeping and accounting fees 
associated with repurchase and lending transactions generally, 
including transactions effected through the credit facility. Fees paid 
to the Adviser would be no higher than those applicable for comparable 
bank loan transactions.
    13. No Fund may participate in the credit facility unless: (a) The 
Fund has obtained shareholder approval for its participation, if such 
approval is required by law; (b) the Fund has fully disclosed all 
material information concerning the credit facility in its prospectus 
and/or SAI; and (c) the Fund's participation in the credit facility is 
consistent with its investment policies, limitations, and 
organizational documents.
    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 for an exemption 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 an affiliated person, or an 
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

[[Page 19885]]

that the Funds may be under common control by virtue of having the 
Adviser as their common investment adviser and/or by reason of having 
common officers, directors and/or trustees.
    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) provided that the terms of the transaction, including the 
consideration to be paid or received, are fair and reasonable and do 
not involve overreaching on the part of any person concerned, and the 
transaction is consistent with the policy of the investment company as 
recited in its registration statement and with the general purposes of 
the Act. Applicants believe that the proposed arrangements satisfy 
these standards for the reasons discussed below.
    3. Applicants submit that sections 17(a)(3) and 21(b) of the Act 
were intended to prevent a person with strong potential adverse 
interests to, and some influence over the investment decisions of, a 
registered investment company from causing or inducing the investment 
company to engage in lending transactions that unfairly inure to the 
benefit of that person and that are detrimental to the best interests 
of the investment company and its shareholders. Applicants assert that 
the proposed credit facility transactions do not raise these concerns 
because: (a) The Adviser would administer the program as a 
disinterested fiduciary; (b) all Interfund Loans would consist only of 
uninvested cash reserves that the Funds otherwise would invest in 
short-term repurchase agreements or other short-term instruments either 
directly or through a Money Market Fund; (c) the Interfund Loans would 
not involve a greater risk than such other investments; (d) a lending 
Fund would receive interest at a rate higher than they could obtain 
through such other investments; and (e) the borrowing Funds would pay 
interest at a rate lower than otherwise available to it under 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) of the Act 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 
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) of 
the Act. Section 12(d)(1)(J) of the Act 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 imposing on 
investors additional and 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 will be no duplicative costs or fees to any Fund or its 
shareholders, and that the Adviser will 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 (and 
their shareholders).
    6. Section 18(f)(1) prohibits open-end investment companies from 
issuing any senior security except that a company is permitted to 
borrow from any bank; if immediately after the borrowing, there is an 
asset coverage of at least 300 percent for all borrowings of the 
company. Under section 18(g) of the Act, the term ``senior security'' 
includes any bond, debenture, note or similar obligation or instrument 
constituting a security and evidencing indebtedness. Applicants request 
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 such 
a person, when acting as principal, from effecting any joint 
transactions in which the company participates unless the transaction 
is approved by the Commission. Rule 17d-1(b) provides that in passing 
upon applications for relief under section 17(d), 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 no different 
from, or less advantageous than, that of other participating Funds.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Interfund Loan Rate 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, the Credit Facility Team 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 of 
any money market Fund in which the lending Fund could otherwise invest 
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

[[Page 19886]]

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, 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 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 borrowing from all sources immediately 
after the interfund borrowing total 10% or less 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 
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 additional collateral as 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. 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.
    10. A Fund's participation in the credit facility must be 
consistent with its investment policies and limitations and 
organizational documents.
    11. The Credit Facility Team will calculate total Fund borrowing 
and lending demand through the credit facility, and allocate loans on 
an equitable basis among the Funds without the intervention of any 
portfolio manager of the Funds (except a portfolio manager acting in 
his/her capacity as a member of the Credit Facility Team). All 
Allocations will require approval of at least one member of the Credit 
Facility Team who is not a portfolio manager. The Credit Facility Team 
will not solicit cash for the credit facility from any Fund or 
prospectively publish or disseminate loan demand data to portfolio 
managers (except to the extent that a portfolio manager on the Credit 
Facility Team has access to loan demand data). The Credit Facility Team 
will invest any amounts remaining after satisfaction of borrowing 
demand in accordance with the standing instructions from portfolio 
managers or return remaining amounts to the Funds.
    12. The Credit Facility Team 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(s) concerning the 
participation of the Funds in the credit facility and the terms and 
other conditions of any extensions of credit under the facility.
    13. Each Trust's Board, including a majority of the Independent
    Trustees: (a) Will review no less frequently than quarterly each 
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 each Fund's participation in the 
credit facility.
    14. In the event an Interfund Loan is not paid according to its 
terms and the default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand of payment 
under the provisions of the Interfund Lending Agreement, the Credit 
Facility Team will promptly refer the loan for arbitration to an 
independent arbitrator selected by the Board(s) of any Fund(s) involved 
in the loan 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 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.\3\
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    \3\ If the dispute involves Funds with separate Boards, the 
respective Boards of each Fund will select an independent arbitrator 
that is satisfactory to each Fund.
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    15. Each Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any transaction 
under the credit facility occurred, the first two years in an easily 
accessible place, written records of all such transactions setting 
forth a description of the terms of the transaction, including the 
amount, the maturity and Interfund Loan Rate, the rate of interest 
available at the time on overnight repurchase agreements and bank 
borrowings, the yield on any money market Fund in which the lending 
Fund could otherwise invest

[[Page 19887]]

and such other information presented to the Fund's Board in connection 
with the review required by conditions 12 and 13.
    16. The Credit Facility Team will prepare and submit to the 
Board(s) for review, an initial report describing the operations of the 
credit facility and the procedures to be implemented to ensure that all 
Funds are treated fairly. After the commencement of operations of the 
credit facility, the Adviser will report on the operations of the 
credit facility at the quarterly Board 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 the Adviser'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. 10 and 
filed pursuant to Item 77Q3 of Form N-SAR, as such Statements or Form 
may be revised, amended, or superseded from time to time. 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 and, if applicable, the yield of the money market 
Funds, but lower than the Bank Loan Rate; (b) compliance with the 
collateral requirements as set forth in the Application; (c) compliance 
with the percentage limitations on interfund borrowing and lending; (d) 
allocation of interfund borrowing and lending demand in an equitable 
manner and in accordance with procedures established by the Board(s); 
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.
    17. No Fund will participate in the credit facility upon receipt of 
requisite regulatory approval unless it has fully disclosed in its SAI 
all material facts about its intended participation.
    18. A 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 and 102% of sales 
fails for the preceding seven calendar days.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-8445 Filed 4-13-04; 8:45 am]
BILLING CODE 8010-01-P